Nigerian manufacturers accuse the CBN of prioritizing the financial sector over the real sector

The Manufacturers Association of Nigeria (MAN) has accused the Central Bank of Nigeria (CBN) of prioritizing the financial sector over the real sector in the way it implements its monetary policy options.

This view was expressed on Thursday by the Director General of MAN, Mr. Segun Ajayi-Kadir, in a press statement titled “MAN’s position on the report of the Monetary Policy Committee meeting on May 20-21, 2024”.

Ajayi-Kadir said: “It is obvious that the Monetary Policy Committee (MPC) is leaning towards prioritizing the financial sector over the real sector, rather than pursuing a balanced approach between the two.”

The Monetary Policy Council decided to increase interest rates by 150 basis points, from 24.75%. up to 26.25 percent and decided to maintain the cash reserve ratio (CRR) of depository banks at 45.0 percent. and maintain the liquidity ratio at 30.0%. meeting.

However, according to him, these decisions have serious consequences for the Nigerian manufacturing sector.

He argued that “the persistent macroeconomic instability in Nigeria, resulting from persistent monetary policy decisions over the past two years, is negatively impacting the manufacturing sector.

“This instability, compounded by various constraints affecting sector performance, continues to disrupt production plans, undermine investment and create uncertainty about the outlook.

“Moreover, recent MPC decisions exacerbate these challenges by further tightening credit interventions, increasing credit costs, raising production costs, limiting the availability of funds, and reducing investment and competitiveness in the manufacturing sector,” he said.

MAN’s general director noted that the strategy of increasing MPR rates has been carried out for almost two years and has not brought positive results.

Ajayi-Kadir said the likely impacts of further monetary tightening include reduced investment, business expansion and further decline in the competitiveness of the manufacturing sector.

He said: “The combination of increased borrowing costs and reduced liquidity will make it more difficult for manufacturers to invest in innovative technologies, expand production capacity or enter new markets.

“As a result, this may lead to delays or cancellation of planned initiatives, ultimately limiting the sector’s growth potential and its overall contribution to economic growth and development.”

He added that a high interest rate of more than 30 percent would increase the cost of borrowing and make Nigerian goods less competitive with those from other countries.

“This is evident in the significant decline in global demand for Nigerian goods. Notably, data from the World Trade Organization (WTO) reveals a stark contrast in the value of manufacturing exports between Nigeria, South Africa, Egypt and Morocco in 2022, with South Africa, Morocco and Egypt at $45.38 billion respectively. $30.61 billion and $20.14 billion to Nigeria’s modest record of $3.21 billion.

“Such a glaring discrepancy highlights the significant disparity in Nigeria’s competitiveness,” he argued.

Moreover, according to the study, MAN stated that the capacity utilization of the manufacturing sector decreased from 56.4 percent recorded in 2022 to 55.1 percent in 2023.

He also maintained that the sector’s growth in 2023 has decreased to 1.40%. from 3.35 percent and 2.45 percent recorded in 2021 and 2022, respectively.

He, therefore, said the CBN should explore alternative measures, particularly in addressing the root causes of inflation, primarily cost drivers.

He said: “MAN strongly urges the MPC to carefully assess the impact of these monetary policy actions on both the manufacturing sector and the broader economy.

“Achieving the delicate balance between addressing macroeconomic challenges and supporting the growth and resilience of the manufacturing industry is crucial.

“MAN therefore advocates for robust cooperation between monetary and fiscal authorities and suggests considering the following policy measures, such as implementing “targeted interventions aimed at mitigating the underlying cost drivers of inflation and thereby reducing the financial burden on producers,” prioritizing “currency allocation and loans to producers and accelerating the proposed recapitalization of the banking sector.

He also highlighted the development of infrastructure within industrial centers and the strengthening of nationwide investments in renewable energy sources to alleviate logistics costs and increase competitiveness.

He further called for reducing the country’s dependence on imported products and raw materials by providing incentives to invest in backward integration and local sourcing to reduce the pressure on the dollar to an absolute minimum.

Dike Onwuamaeze