By JEPH ADE

The Manufacturers Association of Nigeria (MAN) has reacted to the report of the 296th meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), held on July 22-23, that focused on analysing recent economic developments, to decry the continued increase in the cost of borrowing, which it identifies as one of the major challenges faced by the manufacturing sector.

The associations Director-General, Segun Ajayi-Kadir, mni, says in a statement that the manufacturing sector in Nigeria plays a vital role in the country's economy but is facing multitude of challenges that threaten its sustainability and contribution to economic growth.

Ajayi-Kadir said: The continued increase in the cost of borrowing, which is one of our major challenges, will escalate production costs and consequently the prices of finished goods, with consequential effect on unemployment and social instability, and further compound the prevailing low consumer demand, capacity utilization and profitability, stifle capacity to make new and further investments, innovation and curtail opportunities for the growth.

MAN also expressed concern on the tendency of the trend to constrain the capacity of the sector to compete effectively in regional and global markets, and if unchecked, trigger critical distress of more manufacturing concerns, and constrain reinvestment for expansion and introduction of new brands, as significant portion of revenue of manufacturing concerns is directed towards interest payments.

The Association, in addition, fears this could further restrain access to capital, judging from the fact that only 16 per cent of total commercial bank credit was disbursed to the manufacturing sector in the first quarter of the year. This, it contends, also has the capacity to reduce the flow of investments into the sector and funds required for retooling, upgrading facilities and procurement of new technologies.

It is noteworthy to state that the worrisome trend occasioned by increase in cost of borrowing is corroborated by the report of NBS, to the effect that manufacturing investment declined significantly in the second quarter of the year. This drop underscores the critical link between domestic investment confidence and foreign investor sentiment. In addition, the share of manufactured exports in non-oil exports also declined from 21.4 per cent in Q4 2023 to 15.1per cent in Q1 2024, the Association says.

It adds: The Manufacturers Association of Nigeria (MAN) recognises the efforts made by the Monetary Policy Committee (MPC) to stabilise price, as well as the rationale behind its decisions. However, it is expedient that the survival of manufacturing in Nigeria is prioritized when making monetary policy decisions. This will enable the sector to effectively play its role as the key driver of employment creation, productivity, stable foreign exchange earnings, and economic sustained growth.

In response, MAN recommends the following policy measures to Government for consideration:

â–ª Direct CBN to conduct a comprehensive assessment of the impact of previous decisions of the MPC on inflation rate and the productive sector over the last 5 years. This will provide information that will guide future MPC decisions.

â–ª Implore CBN to be domestic production centric by taking a detour from continuous hike in MPR and allow time for the real sector to recover from the impact of previous hikes.

â–ª Direct the CBN to collaborate with the Ministry of Finance to facilitate stronger handshake and coherence between monetary and fiscal policies.

â–ª Take deliberate actions to insulate the productive sector from the impact of continuous hike in MPR by expediting action on the disbursement of special provisions earmarked by government for the manufacturing sector. The N75billion single digit loan approved by President Bola Tinubu, GCFR over a year ago and the recently announced N1trillion readily comes to mind.

â–ª Offer fiscal support system that will enable the manufacturing sector import raw materials, spares and machines that are not available locally at concessionary duty rate.

â–ª Minimize pressure on foreign exchange reserves, incentivize backward integration and local sourcing to decrease reliance on imported products and raw materials.

â–ª Enforce Executive Order 003 to enhance support for local industries and ramp-up domestic production by restricting access to forex for the importation of products manufactured locally.

â–ª Address the issue of low manufacturing productivity and food production occasioned by the high-level of insecurity across the country to curb the persistent rise in inflation

â–ª Utilize subsidy savings to improve patronage of made in Nigeria products and upgrade electricity, road and rail networks within industrial hubs.

â–ª Encourage nationwide investments in renewable energy sources to alleviate energy cost and enhance competitiveness.

According to MAN, the 296th meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), held on July 22-23, 2024, focused on analysing recent economic developments. The committee identified high foreign exchange rates, increasing energy costs, and food insecurity as challenges posing potential risks to price stability.

It observes that in the face of the persistent rise in inflation majorly occasioned by continuous increase in energy and food prices, the Central Bank of Nigeria (CBN) has again increased the Monetary Policy Rate (MPR) by 50 basis points from 26.25 per cent to 26.75 per cent. The Monetary Policy Committee (MPC) widened the asymmetric corridor around the MPR from +100 to -300 basis points to +500 to -100 basis points. Additionally, the MPC decided to maintain the Cash Reserve Ratio (CRR) for deposit money banks at 45 per cent and for merchant banks at 14 per cent and retained the Liquidity Ratio at 30 per cent.

MAN notes with concern that, despite the continuous increase in MPR over the past two years resulting in a weighty 1,475 basis point hike from 11.5 per cent in May 2022 to 26.25 per cent in May 2024, inflation has remained persistently high, reaching a staggering 34.19 per cent in June, the highest since March 1996. The Association stated that the new rate will further constrain the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness and sales will face further decline.

The Manufacturers Association of Nigeria is the premier advocacy voice of Manufacturers that promotes Manufacturing sector competitiveness, job Creation, and Gross Domestic Product through commitment to research development of new technologies and environmental sustainability in Nigeria.