The Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) have raised concerns about the adverse effects of the continuous hike in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), which aims to control inflation.
In separate press releases, MAN and LCCI highlighted that despite the persistent increase in MPR over the past two years, resulting in a substantial hike of 1,475 basis points from 11.5 percent in May 2022 to 26.25 percent in May 2024, inflation has remained high. As of June, inflation reached 34.19 percent, the highest since March 1996.
According to MAN’s Director General, Mr. Segun Ajayi-Kadir, the new MPR would further constrain the growth of the manufacturing sector by reducing consumers’ purchasing power, production levels, competitiveness, and sales. He emphasized that the manufacturing sector is crucial to Nigeria’s economy but faces numerous challenges that threaten its sustainability and contribution to economic growth.
Ajayi-Kadir warned that the continued increase in borrowing costs would escalate production expenses, resulting in higher prices for finished goods, increased unemployment, and social instability. This would further worsen low consumer demand, capacity utilization, and profitability.
Ajayi-Kadir added that high MPR would stifle the capacity of businesses to make new investments, innovate, and grow, thereby limiting the manufacturing sector’s ability to compete regionally and globally. If unchecked, this could lead to critical distress for more manufacturing concerns. He noted that the National Bureau of Statistics (NBS) reported a significant decline in manufacturing investment in the second quarter of the year, highlighting the link between domestic investment confidence and foreign investor sentiment.
Additionally, the share of manufactured exports in non-oil exports dropped from 21.4 percent in Q4 2023 to 15.1 percent in Q1 2024.Ajayi-Kadir stressed the importance of prioritizing the survival of manufacturing in Nigeria when making monetary policy decisions to enable the sector to create employment, increase productivity, ensure stable foreign exchange earnings, and sustain economic growth.
MAN recommended that the federal government direct the CBN to conduct a comprehensive assessment of the impact of previous MPC decisions on inflation and the productive sector over the last five years to guide future decisions. It also urged the CBN to focus on domestic production by pausing further MPR hikes and allowing the real sector to recover from the impact of previous increases.
Furthermore, MAN called on the government to expedite the disbursement of special provisions for the manufacturing sector, including the N75 billion single-digit loan approved by President Bola Tinubu and the recently announced N1 trillion. It also suggested offering fiscal support to enable the manufacturing sector to import raw materials, spares, and machines not available locally at concessionary duty rates. Additionally, it advocated for minimizing pressure on foreign exchange reserves by incentivizing backward integration and local sourcing to reduce reliance on imported products and raw materials.
Echoing similar sentiments, LCCI Director General, Dr. Chinyere Almona, expressed concern about the recent MPR hike by the CBN. While acknowledging the CBN’s efforts to control inflation and stabilize the economy, Almona emphasized the need for a balanced approach to monetary policy to mitigate the adverse effects on business operations and economic growth. She proposed that the CBN diversify its approach to controlling inflation by implementing policies that directly address supply-side constraints, such as improving agricultural productivity and stabilizing energy prices, which could help reduce inflationary pressures more effectively.
Almona suggested increased investment in infrastructure to alleviate production bottlenecks and reduce business costs, thereby enhancing productivity and competitiveness to help tame inflation from the supply side.
The LCCI committed to working with the government and the CBN to ensure policies that foster a conducive environment for business growth and economic stability. It advocated for a holistic approach that balances inflation control with support for businesses to pave the way for sustainable economic development in Nigeria.
Meanwhile, global ratings agency Moody’s reported that eight of the nine Nigerian banks under its ratings achieved over N3.5 trillion in aggregate pre-tax profits in 2023, compared to N1.1 trillion in 2022. Moody’s estimated that over a third of these profits were from foreign-currency revaluation and trading gains.
The agency described the windfall levy on Nigerian banks’ foreign exchange (FX) revaluation gains as credit negative for banks, noting that the tax would particularly affect banks with capital adequacy close to regulatory thresholds. Moody’s pointed out that the windfall tax followed record profits declared by banks in 2023 due to foreign-currency revaluation gains related to the naira’s massive devaluation of 37 percent in June 2023.
The agency estimated that the windfall tax might yield revenue of up to 0.3 percent of Nigeria’s 2024 GDP, a marginal yet temporary revenue measure given the government’s small tax intake of around 9 percent of GDP in 2023.
