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With the Central Bank of Nigeria (CBN) keeping the benchmark interest rate at 27.5 percent, local manufacturers have voiced significant concerns regarding the apex bank’s decision to hold the Monetary Policy Rate (MPR) steady at this level since November 2024.
This decision comes in stark contrast to a global trend of interest rate reductions aimed at boosting economic productivity and addressing stagflation.
In a recent statement, the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, expressed that Nigeria has now become the sixth most expensive country for credit globally. He stated that local manufacturers are struggling to manage the average lending rate exceeding 37 percent.
Due to this high average interest rate, Nigeria ranks behind countries such as Argentina, Russia, Turkey, Brazil, Ukraine, and Venezuela, all of which also experience exorbitant interest rates.
Ajayi-Kadir pointed out that while numerous progressive economies are seeking pathways toward industrial recovery and macroeconomic stability, Nigeria's monetary policies appear to lead manufacturers in the opposite direction.
He cited that in the last quarter, various countries, including members of the Eurozone, the United Kingdom, Denmark, Australia, China, India, Thailand, and Egypt, have enacted interest rate cuts to stimulate economic growth and support productive sectors.
However, Nigeria's rigidity may result in unintended consequences that exacerbate the struggling performance of its productive sector. “Industrialization cannot thrive in an environment burdened by excessively high credit costs.”.
This stance not only contributes to inflation but stifles the manufacturing sector's capacity. Combined with other constraints, our members, regardless of size, are finding it increasingly challenging to remain operational, expand manufacturing capabilities, or even cover basic operational expenses. High credit costs lead to decreased production, ultimately causing the nation to ‘import poverty,’” he stated.
Similarly, Dr. Chinyere Almona, Director-General of the Lagos Chamber of Commerce and Industry (LCCI), shared her apprehension about rising credit costs and urged the CBN to signal future interest rate reductions contingent on sustained economic improvements.
She highlighted that Nigeria's macroeconomic environment remains harsh due to ongoing inflationary pressures, driven by exchange rate fluctuations, rising fuel and logistics expenses, and persistent structural issues such as insecurity and food production disruptions.
According to her, indicators for potential interest rate reductions should focus on a trend of disinflation for at least two to three months, enhanced foreign exchange liquidity and stability, and clear signs of recovery in the real sector, especially regarding credit access for micro, small, and medium-sized enterprises (MSMEs).
“The current MPR level remains excessively high for private sector development. MSMEs, an essential driver of job creation and productivity in Nigeria, are being suffocated by high credit costs. Without affordable financing, their growth, competitiveness, and contribution to economic advancement are severely restricted.
Furthermore, it has become evident that monetary policy alone cannot mitigate inflation rooted in structural and supply-side inefficiencies. Comprehensive collaboration with fiscal authorities is necessary to tackle the fundamental causes of inflation, such as insecurity, infrastructure deficits, and food supply challenges,” she added.
Ajayi-Kadir noted that the “Nigeria First Policy,” geared towards bolstering local industries and reducing dependency on imports, is under significant threat since its success relies on access to affordable financing to enhance capacity utilization.
He reported that the current interest rate environment has escalated financing costs for their members, which have jumped by an alarming 44 percent from N1.43 trillion in 2023 to N2.06 trillion in 2024. This surge has directly dampened productivity and led to the underutilization of industrial capacity.
The high cost of borrowing has not only curtailed investments in the manufacturing sector but has also dulled returns on existing investments, severely impacting Small and Medium Enterprises (SMEs).
Expressing regret over declining confidence in the industrial outlook, as reflected in a drop in the Manufacturers CEO’s Confidence Index from 50.7 points to 48.3 points, he cautioned that a nation prioritizing foreign portfolio investments over its real sector risks fostering inefficiency.
“We are troubled by the apparent preference for short-term foreign capital inflows at the detriment of domestic industries. While maintaining a rate of 27.5 percent might temporarily attract speculative foreign investments, it undermines Nigeria’s manufacturing foundation, which is increasingly burdened by unmanageable borrowing costs.
The widening profitability of the banking sector, supported by elevated interest margins, contrasts sharply with manufacturers facing shrinking profits, increasing debts, and declining productivity. This economic paradox necessitates urgent attention.
“Current monetary policy trends threaten to turn banks into repositories of idle wealth, while the real economy, vital for job creation and value addition, faces stifling conditions.
A society that favors intermediaries over producers is inviting long-term decline. Accessible, affordable credit is essential for industrial expansion, and no economy can thrive by denying its manufacturers essential resources.”
He urged the CBN to promptly rethink its monetary approach, observing that real interest rates have become more favorable, providing financial investors with better inflation-adjusted returns.
“We also call on the CBN to implement incentives for commercial banks that would allow single-digit, concessionary interest rates for the real sector; expedite the approval of the N1 trillion designated for manufacturers under the Stabilization Plan to assist industries grappling with current financial pressures; significantly boost the capital base of the Bank of Industry (BoI) to enhance its capacity to address the sector’s expanding credit requirements; and settle the outstanding $2.4 billion in Forex Forward Contracts to restore manufacturers’ trust and remedy the severe financial distress faced by affected industries.”
“We also urge the apex bank to establish a policy to align customs duty exchange rates for importing industrial inputs, particularly raw materials and machinery, to prevent further inflationary effects.
Nigeria must not squander its manufacturing potential at a time when the world is repositioning for the next phase of industrial advancement. The current monetary policy is undermining not only manufacturers’ confidence but also national economic resilience.”
In turn, Dr. Almona advocated for concessionary rates for critical sectors like manufacturing, agriculture, and renewable energy. She emphasized the need for development finance institutions, including the Development Bank of Nigeria, Bank of Agriculture, NEXIM Bank, and BoI, to receive better funding and guidance to support the productive and industrial sectors of the economy.
“We must promote transparency in bank lending rates to prevent borrowers from facing undue burdens from excessive spreads above the MPR and implement measures to stabilize the foreign exchange market, reduce opportunities for arbitrage, and restore investor confidence, vital steps for alleviating imported inflation,” she remarked.
They urged the CBN and Federal Government to take decisive, collaborative action with fiscal authorities to ensure the survival of Nigeria's manufacturing sector.
