The Manufacturers Association of Nigeria has denounced the recent monetary policy decision by the Central Bank of Nigeria and called on the apex bank to reduce the stringent conditions for accessing development finance windows available to the manufacturing sector at a rate of one-digit interest, written Onwuamaeze Dike

Members of the Manufacturing Association of Nigeria (MAN) are concerned about the recent decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to tighten monetary policy on May 24 by raising the policy rate monetary policy (MPR) from 11.5% to 13.5%. The MPR has remained at 11.5% since September 2020.

CBN Governor Mr. Godwin Emefiele, who announced the rise in MPR, justified the increase on the need to ease expectations of inflationary pressure in the economy and avoid a sharp increase in capital outflows and a faster drying up of foreign credit lines.

Emefiele said the MPC believes the tightening will help moderate the inflationary trade-off resulting from the steady pickup in growth so far. MPC also believes that tightening would help contain inflation before it becomes a runaway trend. Headline inflation (year-on-year) reached 16.82% in April 2022, compared to 15.92% in March 2022. This is the third consecutive increase in inflation since the start of 2022, attributable to the increase in basic prices and food components to 14.18 and 18.37% in April 2022 against 13.91 and 17.20% in March 2022, respectively.

He said: “After carefully considering the developments of the past two months and the outlook for the national and global economies, as well as the advantages and disadvantages of each policy option, the committee has decided to increase the MPR to curb the current rise. . inflation, as members believed that a continuation of the upward trend would have a negative effect on growth.

But MAN, in its preliminary position on the decision of MAY 24, 2022, MPC stated that this is another level of increase in interest rates on loanable funds, which would undoubtedly increase the intensity of the crowding-out effect on private sector firms as businesses. have less access to funds in the credit market.

MAN’s position

Managing Director of MAN, Mr Segun Ajayi-Kadir, who voiced the concerns of the members of the association, clearly stated that the increase in the MPR has widened the journey further from the preferred interest rate regime to a figure.

Ajayi-Kadir said, “This is not favorable for manufacturing given the myriad of binding constraints that are already limiting the sector’s performance. MAN is therefore concerned about the ripple effects of this decision and its implications for the manufacturing sector which is visibly struggling to survive the many strangling fiscal and monetary policy measures and reforms.

He suggested that the strict conditions for accessing the development finance windows available with the CBN should be relaxed to improve the flow of long-term loans to the manufacturing sector at a single-digit interest rate.

He said future MPR adjustments take into account the underlying inflation trend rather than basing the decision on headline and food inflation. This will undoubtedly shield the sector from the repercussions of the 13.5% TPM, increase production and ensure sustained growth in the overall best interest of the economy.


MAN’s chief executive also argued that the current decision would have a telling effect on both the economy and the manufacturing sector. He pointed out that this would provide an incentive to revise bonds dependent on the existing lending rates of manufacturing companies upwards, which would drive up costs northward.

It would also intensify the demand crisis emanating from the severely eroded disposable income of Nigerians, limit the access of households and individuals to cheap funds and drive up the cost of manufacturing inputs, which would naturally translate into higher prices. higher goods, low sales and a huge volume of unsold product inventory.

Moreover, it would exacerbate the intensity of idle assets, worsen the already shrinking profit margin of private companies and increase the death rate of small businesses.

He said it would “further reduce capacity utilization, increase the unemployment rate, the incidence of crime and insecurity, as the ability of banks to support production and economic growth is severely limited.”

“Reducing the pace of the full recovery of the real sector, ensuring that manufacturing performance remains lackluster and, of course, leading to a lower contribution to GDP.”


Similarly, the Lagos Chamber of Commerce and Industry (LCCI) in its reaction said that higher interest rates would normally mean “less credit to the private sector and this may result in reduced investment and limited output in the economy, at least in the short term.

LCCI Director General Dr Chinyere Almona said, “This action also has implications for economic growth, job creation and revenue generation for the government.

“When the MPR was 11.5%, some lenders charged up to 25% top rate to small businesses. With the benchmark interest rate at 13%, we could probably see rates climb beyond 30% for SMEs.

“While we agree with the proposition that a lower interest rate in Nigeria relative to higher rates in developed economies would lead to capital flight, we must reaffirm our recommendation that rate hikes will not curb inflationary pressures Supply-side challenges such as insecurity, scarcity of foreign exchange and uncertainties related to the inconsistent political environment must be addressed to curb rising inflation. This is the most lasting solution to rising inflation in Nigeria.

“In the coming months and during the third quarter, the CBN is expected to expand its targeted intervention programs to support productive sectors of the economy to reduce production costs. Beyond the role of price stability, the CBN must ensure that it supports economic growth that can create jobs and increase government revenue. Again, we reiterate that rate hikes alone will not be enough to combat the near runaway inflation trend in Nigeria. We need interventions to boost the supply of goods and services, build critical support infrastructure, and address the illiquidity crisis in the foreign exchange market.

The CPPE applauds CBN

However, the Center for the Promotion of Public Enterprise (CPPE) said the MPR hike was understandable in order to curb inflation, but doubted it would have an expected impact on inflation.

CPPE Managing Director Dr Muda Yusuf noted that bank lending was already constrained by the high Cash Reserve Ratio (CRR) as many in the industry claimed that the effective CRR reached 50% or more for many banks. Additionally, the apex bank’s discretionary debits, loan-to-deposit ratio (LDR) of 65% and liquidity ratio of 30%. The lending situation in the economy is already very tight.

Yusuf said the Nigerian economy is not a credit driven economy unlike what is achieved in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and a strong correlation between interest rates and aggregate demand.

He however said, “The level of financial inclusion in the Nigerian economy is still quite low, access to credit for households and MSMEs is still very difficult and the informal sector accounts for almost 50% of the economy.

“The transmission effects of monetary policy on the economy are therefore still very weak. In the Nigerian context, price levels are not sensitive to interest rates. Supply-side issues are much deeper drivers of inflation.

“What the recent rate hike means for the economy is that the cost of credit for the few recipients of bank credit will increase, which will impact their operating costs, product prices and their profit margins. Investors in fixed income instruments could also benefit from the rise. There would be negative effects on the equity market.

CBN Support Facility

Perhaps the CBN was aware of the concerns expressed by private sector manufacturers and operators.

Emefiele said that to support the growth of the manufacturing sector, the bank has disbursed N436.85 billion for 34 new projects under the N1.0 trillion Real Sector Support Facility (RSSF). .

This has been used for both greenfield (greenfield) and brownfield (expansion) projects under the COVID-19 Response for Manufacturing (CIMS) and the Real Sector Support Facility from the differentiated cash reserve requirement (RSSF-DCRR). Cumulative disbursement under the RSSF for financing 402 real sector projects across the country, which currently stands at N2.1 trillion.

The CBN has also “disbursed N55.34 billion, under the 100 percent production and productivity policy (100 percent PPP), for 44 projects, including 24 in manufacturing, 17 in agriculture, 2 in health care and 1 in the service sector.

In the domestic economy, data on key macroeconomic variables indicate that the recovery in output growth will continue, likely at a more moderate pace, given the ongoing internal and external shocks to the economy.

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