MAN Raises Concerns Over CBN’s MPR Hike, Warns of Dire Consequences for Manufacturing Sector

The Manufacturers Association of Nigeria (MAN), under the leadership of Director General Segun Ajayi-Kadir, has expressed profound concerns regarding the recent decisions made at the 297th Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN), held on September 23-24, 2024. The MPC’s decision to raise the Monetary Policy Rate (MPR) by 50 basis points to 27.25% and increase the Cash Reserve Ratio (CRR) for deposit money banks and merchant banks has drawn mixed reactions, especially from the manufacturing community.

The Central Bank justified the tightening measures as necessary to address inflationary pressures and stabilize the economy. Despite a two-month slowdown in inflation, new pressures have emerged, fueled by rising fuel, electricity, and food costs. These pressures were exacerbated by the government’s 41% hike in the pump price of Premium Motor Spirit (PMS) in August.

MAN acknowledges the CBN’s efforts to stabilize the economy but questions the timing and rationale behind the MPR hike. “This increase comes at a time when central banks in other countries are either retaining or reducing rates to stimulate growth,” noted Ajayi-Kadir. He emphasized that the modest improvement in Nigeria’s inflation rate could be attributed to seasonal factors, such as the onset of the harvest season, rather than monetary policy.

Implications for the Manufacturing Sector

The manufacturing sector, already grappling with significant challenges, is poised to suffer further setbacks due to the latest rate hike. With borrowing costs now exceeding 35%, manufacturers face higher production expenses, reduced competitiveness, and limited capacity for expansion. The repercussions are far-reaching:

Higher Production Costs: Manufacturers will struggle with elevated financing costs, which could lead to increased prices for finished goods, ultimately affecting consumer affordability.

Declining Competitiveness: The inability to invest in modern technology, equipment, and capacity expansion will weaken the sector’s global competitiveness.

Rising Inventory Levels: Depressed consumer demand, driven by lower purchasing power, has already resulted in unsold inventory valued at ₦1.24 trillion in the first half of 2024, a 42.93% increase from ₦869.37 billion at the end of 2023.

Socioeconomic Risks: The sector’s diminished capacity to create jobs, especially for Nigeria’s burgeoning youth population, heightens socioeconomic and security concerns.

MAN’s Recommendations

To mitigate the adverse effects of the policy decisions, MAN has proposed a series of actionable steps:

1. Comprehensive Review: Evaluate the impact of continuous rate hikes on inflation and the real sector over the past five years.

2. Monetary-Fiscal Collaboration: Strengthen the synergy between monetary and fiscal policies to foster economic growth and stability.

3. Single-Digit Loans: Expedite the disbursement of the ₦1 trillion single-digit loan under the accelerated stabilization and advancement plan for manufacturers.

4. Fiscal Incentives: Provide concessions for importing essential raw materials and technology while promoting backward integration and local sourcing.

5. Energy Investments: Invest in renewable energy solutions to alleviate rising energy costs.

6. Infrastructure Development: Utilize savings from subsidy reforms to enhance infrastructure within industrial hubs, including electricity, roads, and rail networks.

Conclusion

MAN urges the government and the CBN to adopt a balanced approach to policy-making, one that prioritizes both price stability and the survival of the manufacturing sector. “The survival and growth of the manufacturing sector must be a top priority, as it is pivotal to domestic production, job creation, and poverty alleviation,” Ajayi-Kadir stressed.

The Association also called for targeted measures to address inflation without stifling the productive sector, underscoring the need for innovative and collaborative solutions to ensure sustainable economic growth.