The Director General, Manufacturers Association of Nigeria, Segun Ajayi-Kadir, has warned that the latest interest rate hike threatens the survival of the manufacturing sector.
He emphasised that the continued increase in the cost of borrowing will escalate production costs, stifle investments, and reduce the sector’s competitiveness, ultimately leading to job losses and economic downturn if not urgently addressed.
Ajayi-Kadir gave the warning in a statement on Wednesday.
The 296th meeting of the Monetary Policy Committee of the Central Bank of Nigeria held on July 22-23, 2024, focused on analysing recent economic developments.
The committee identified high foreign exchange rates, increasing energy costs, and food insecurity as challenges posing potential risks to price stability.
Ajayi-Kadiri lamented the persistent rise in inflation majorly occasioned by continuous increases in energy and food prices, the CBN has again increased the Monetary Policy Rate by 50 basis points from 26.25 per cent to 26.75 per cent.
The MPC widened the asymmetric corridor around the MPR from +100 to -300 basis points to +500 to -100 basis points.
Additionally, the MPC decided to maintain the Cash Reserve Ratio for deposit money banks at 45 per cent and for merchant banks at 14 per cent and retained the Liquidity Ratio at 30 per cent.
The statement read, ” Despite the continuous increase in MPR over the past two years resulting in a weighty 1,475 basis point hike from 11.5 per cent in May 2022 to 26.25 per cent in May 2024, inflation has remained persistently high, reaching a staggering 34.19 per cent in June, the highest since March 1996. The new rate will further constrain the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness and sales will face further decline.
“The manufacturing sector in Nigeria plays a vital role in the country’s economy. However, it is facing a multitude of challenges that threaten its sustainability and contribution to economic growth. Therefore, the continued increase in the cost of borrowing, which is one of our major challenges, will:
“Escalate production costs and consequently the prices of finished goods, with consequential effect on unemployment and social instability. It will further compound the prevailing low consumer demand, capacity utilization and profitability.
“Stifle capacity to make new and further investments, innovation and curtail opportunities for the growth.
“Constrained the capacity of the sector to compete effectively in regional and global markets, and if unchecked, may trigger critical distress of more manufacturing concerns.”
In another development, Ajayi-Kadir cautioned against policies that could hinder local investment, urging the FG to create a more conducive environment for domestic businesses to thrive.
He raised the concerns in a reaction to comments on Dangote Refinery on Wednesday.
He also called for caution from government agencies and regulators in the oil and gas sector over the recently debunked allegations of poor quality of diesel levelled against Dangote Refinery by the Nigeria Midstream and Downstream Petroleum Regulation Authority.
Ajayi-Kadiri said it is expected that no agencies of government should be seen to be casting a shadow over a homegrown investment like the Dangote Refinery.
He stressed that local investors in Nigeria, particularly Dangote Industries Limited play a vital role in driving economic growth.
“Dangote Industries Limited pays taxes, creates jobs and fosters development within the country. As such, these investors must be protected and given the necessary support to thrive in this business environment. A business colossus like Aliko Dangote, with investments in diverse sectors of the economy and across the Continent of Africa, should be accorded all needed support to grow and invest in more sectors and positively impact the well-being of the people.
“The Dangote Refinery is deserving of government protection and support. It is located in Lagos – the largest single-train refinery in the world, and will play a significant role in reducing Nigeria’s dependence on imported petroleum products, reducing cost and energy poverty and significantly boosting our energy sufficiency. This is also a company in which Nigeria and Nigerians are shareholders. We should never encourage or promote a preference for imported products over local alternatives. This amounts to importing poverty and exporting prosperity.
“As you are aware, the manufacturing sector is beset with multifaceted challenges. They include the high cost of electricity, high cost of compliance with regulatory requirements, lack of access to financing, unfavourable foreign exchange and unfair competition from imported and smuggled products. It is therefore imperative that the Nigerian government takes proactive steps to address these binding constraints in order to improve the competitiveness of local industries and enhance their contribution to the GDP.
“The allegations of poor quality, monopolistic tendencies and non-issuance of license have since been roundly debunked. There may then be the need to issue a clarification that absolves the Dangote Refinery of the negative perception generated by the news report”, he said.
Ajayi-Kadiri therefore calls on the FG to prioritise the protection of local investors and actively take necessary steps to improve the operating environment for manufacturers and other economic operators to thrive.
According Online reported earlier that Ahmed had told the Dangote refinery that the Federal Government would not stop the importation of petroleum products, saying Nigeria cannot depend on one refinery to feed the nation.
The agency also said the diesel from the Dangote refinery contains a high sulphur content of about 1,000 parts per million.
