By Merit Ibe
The Manufacturers Association of Nigeria (MAN) has asserted that the increase in Monetary Policy Rate (MPR) to 13.5 per cent from 11.5 per cent is not manufacturing friendly considering the myriad of constraints already limiting the performance of the sector.
Its Director General, Segun Ajayi-Kadir, who stated this, noted that the increase in MPR, which has widened the journey farther away from the preferred single digit interest rate regime, would lead to leaner contribution to the GDP.
The MAN boss pointed out that the association was concerned about the ripple effects of the decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms.
Lamenting the implications of the increase for the economy and the sector, Ajayi-Kadir said it portends another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market.
According to him, it will spur upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs northward, intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrain access of households and individuals to cheap funds.
“It will lead to rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products.
“Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.
“Further reduce capacity utilisation, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained.
“Reduce the pace of full recovery of the real sector, make manufacturing performance to remain lackluster and of course lead to leaner contribution to the GDP.
However, the director general was hopeful that the stringent conditions for accessing available development funding windows with the CBN by manufacturers will be relaxed to improve the flow of long-term loans to the sector at single digit interest rate.
He expects that MPC will ensure that future adjustments of MPR takes into consideration the trend of core inflation rather than basing decision on headline and food inflation. “This will no doubt shield the sector of the backlashes from the 13.5% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.”