‘A nation cannot industrialize on the back of prohibitively expensive credit. With the benchmark interest rate held at 27.5 percent, Nigeria has become the 6th most expensive country to source credit as local manufacturers grapple with an average lending rate of over 37 percent.’
Siaka MOMOH
The Manufacturers Association of Nigeria (MAN) is worried about the continued decision of the Central Bank of Nigeria (CBN) to maintain the Monetary Policy Rate (MPR) at 27.5 percent since November 2024, despite a global wave of interest rate reductions aimed at revitalizing economic productivity and combating stagflation.
MAN is therefore calling on a speedy interest rate cut by the CBN.
In a press statement signed by its Director General Segun Ajayi-Kadir, MAN argued “We are perturbed that when most progressive economies are charting a course toward industrial recovery and macroeconomic stability, Nigeria’s monetary stance tends to lead us in a different direction. Over the last quarter, countries such as members of the Euro Area, the United Kingdom, Denmark, Australia, China, India, Thailand and Egypt, have implemented interest rate cuts to bolster economic growth and support productive sectors. Yet, our rigidity continues to create unintended consequences that may deepen the parlous performance of the productive sector.
“A nation cannot industrialize on the back of prohibitively expensive credit. With the benchmark interest rate held at 27.5 percent, Nigeria has become the 6th most expensive country to source credit as local manufacturers grapple with an average lending rate of over 37 percent.”
For MAN, “This policy posture is not only inflationary, but is suffocating the capacity of the manufacturing sector. Compounded by other limiting factors, our members—
small, medium and even large-scale—are finding it increasingly difficult to stay afloat, expand production lines, or even meet basic operational costs. When credit is priced highly, production declines and the nation “imports poverty”.
MAN explained, its concerns go beyond the debilitating impact “on our business numbers”. It added that the Nigeria First Policy, which seeks to strengthen local industry and reduce import dependence, may be under severe threat.”
MAN said “At the heart of its successful implementation lies access to affordable financing to boost capacity utilization. Unfortunately, the current interest rate regime constrains finance costs for our members, surging by over 44 percent from ₦1.43 trillion in 2023 to ₦2.06 trillion in 2024 and rising.
MAN said further: “This represents a sharp increase that has directly depressed productivity and led to underutilization of industrial capacity. The high cost of credit has not only diminished the flow of investments into the manufacturing sector but has also dulled the return on existing investments, with Small and Medium Industries hit the hardest.
“Confidence in the industrial outlook has waned, as evident in the dip in the Manufacturers CEO’s Confidence Index from 50.7 points to 48.3 points. This mirrors the growing anxiety of our manufacturers.
“A nation that woos foreign portfolio investors at the expense of its real sector may unwittingly be aspiring to build prosperity on the back of volatility. We are disturbed by the implicit prioritization of short-term foreign capital inflows over the long-term health of domestic industries.
“While maintaining a high interest rate of 27.5 percent may temporarily attract speculative foreign portfolio investors, it is doing so at the expense of Nigeria’s manufacturing base, which is now choked by unsustainable borrowing costs.”
“What is evident now”, according to the manufacturers, “is the widening profitability of the banking sector, buoyed by elevated interest margins, while manufacturers contend with shrinking margins, rising debts and declining productivity”.
For MAN, “This is an economic paradox that must be urgently addressed. The current monetary policy trajectory risks turning banks into vaults of idle wealth, while the real economy—where jobs are created and value is added—faces suffocation. A society that rewards intermediaries over producers invites long-term decline. Access to affordable credit is the oxygen that sustains industrial growth and no economy has ever grown by starving its manufacturers of oxygen.”
MAN said it is ever committed to collaborating with the Government and all stakeholders to achieve macroeconomic stability and earnestly beseech the CBN to urgently reconsider its monetary stance. It added that recent disinflationary trends provide justification for the CBN to cut rates arguing that real interest rates have improved, already giving financial investors higher inflation-adjusted returns.
For MAN, therefore, maintaining a high nominal interest rate under current inflation conditions is neither necessary nor justifiable, and will only prolong the pain for manufacturers and consumers alike.
In summary, MAN is calling on the CBN to do the following:
➢ Cut the benchmark interest rate significantly to reflect current realities and ease the credit burden on manufacturers.
➢ Deploy moral suasion and policy incentives for commercial banks to facilitate single-digit, concessionary interest rates to the manufacturing sector.
➢ Facilitate the approval of the ₦1 trillion earmarked for manufacturers under the Stabilization Plan to support industries struggling under current financial pressures.
➢ Facilitate significant increase in the capital base of the Bank of Industry (BOI) to scale up its capacity to meet the sector’s growing credit demands.
➢ Settle the outstanding $2.4 billion Forex Forward Contracts to restore manufacturers’ confidence and end the unprecedented decapitation of the financial viability of the affected industries.
