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Nigerian manufacturers accuse CBN of prioritizing financial sector over 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 has been rolling out its monetary policy options.

This view was expressed on Thursday by the Director General of MAN, Mr. Segun Ajayi-Kadir, in a press release titled “MAN Position on the Report of the Monetary Policy Committee Meeting of May 20-21, 2024” .

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

The MPC took the decision to increase the interest rate by 150 basis points, from 24.75 percent to 26.25 percent and opted to maintain the cash reserve ratio (CRR) of deposit banks at 45, 0 percent and maintain the liquidity ratio at 30.0 percent during its last meeting. meeting.

But these decisions, according to him, have serious military implications for the Nigerian manufacturing sector.

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

“This instability, aggravated by various limitations that affect sector performance, continues to disrupt production plans, undermine investments and generate uncertainty about the outlook.

“Furthermore, recent MPC decisions exacerbate these challenges by further tightening credit interventions, increasing borrowing costs, increasing production costs, limiting access to funds and eroding investment and competitiveness within the manufacturing sector.” , said.

The general director of MAN highlighted that the strategy of raising the MPR has persisted for almost two years without yielding positive results.

Ajayi-Kadir stated that the likely results that could be obtained from the continued tightening of monetary instruments would be limitations on investment, business expansion and a further decline in manufacturing competitiveness.

He said: “The combination of higher borrowing costs and lower liquidity will hamper manufacturers’ ability to invest in innovative technologies, expand production capacities or venture into new markets.

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

He added that a high lending rate, above 30 percent, will increase the cost of borrowing and make Nigerian products less competitive with products from other nations.

“This is evident in the significant drop in global demand for Nigerian products. In particular, data from the World Trade Organization (WTO) reveals a stark contrast in the values ​​of manufacturing exports between Nigeria, South Africa, Egypt and Morocco in 2022: South Africa, Morocco and Egypt recorded $45.38 billion, $30.61 billion of dollars and 20.14 billion dollars respectively in comparison. to Nigeria’s modest record of $3.21 billion.

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

Furthermore, according to the MAN survey, it said that the capacity utilization of the manufacturing sector decreased from 56.4 percent recorded in 2022 to 55.1 percent in 2023.

Furthermore, the sector’s growth slowed to 1.40 percent in 2023 from 3.35 percent and 2.45 percent recorded in 2021 and 2022 respectively, he said.

Therefore, he said the CBN should explore alternative measures, particularly to address the underlying causes of inflation, primarily cost drivers.

He said: “MAN seriously urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy.

“It is crucial to strike a delicate balance between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry.

“MAN therefore advocates for strong collaboration between monetary and fiscal authorities and suggests considering the following policy measures, such as the implementation of “specific interventions aimed at mitigating the underlying factors that drive the costs that drive inflation, thereby alleviating the financial burden on manufacturers. prioritizing “the allocation of foreign exchange and credit to manufacturers and accelerating the proposed recapitalization of the banking sector.”

He also emphasized the development of infrastructure within industrial centers and the reinforcement of national investments in renewable energy sources to alleviate logistical expenses and improve competitiveness.

Furthermore, he called for reducing the country’s dependence on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce pressure on the dollar to a minimum.

Onwuamaeze Dam

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