Why the New Monetary Policy Rate Is a Disservice to Manufacturing Sector-MAN
By Azeez Disu
The Manufacturers Association of Nigeria (MAN) has disclosed that the growth of the manufacturing sector in the country has been affected by the continuous rise of the Monetary Policy Rate (MPR), a decision it stated has also not yielded any positive result for the economy.
The position of the association is in response to the recent decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raising the interest rate by 150 basis points, from 24.75 percent to 26.25 percent with the aim of reducing the persistent increase in inflationary rate on the economy.
In a report made available to Brand Times, MAN said the decision will further lead to tightening credit interventions, increasing loan costs, raising production costs, limiting fund accessibility, and eroding investment and competitiveness within the manufacturing sector.
“It is evident that the MPC leans towards prioritizing the financial sector over the real sector, rather than striving for a balanced approach between the two. These effects are intensified by the current monetary stance, contributing to constraints on investment, and expansion and further decline in manufacturing competitiveness,” it stated.
Speaking in the same vein, the President of MAN, Otunba Francis Meshioye during the official presentation of MAN CEO’s Confidence Index (MCCI) held on Thursday, May 24, 2024, said the decision will further lead to the decline of production levels and reduce competitiveness within the industry.
According to him, “As you all are aware the Monetary Policy Committee of the Central Bank of Nigeria met a few days ago and made certain critical decisions which have far-reaching implications on the manufacturing sector. The Nigerian economy has encountered significant challenges in recent years, including foreign exchange volatility, escalating energy costs, and food insecurity. These challenges have intensified inflationary pressures, adversely impacting consumers’ purchasing power and impeding the growth of the manufacturing sector. Consequently, production levels have declined, leading to reduced competitiveness within the industry.
“As the umbrella body for manufacturers in Nigeria, the Association acknowledges the efforts of the Monetary Policy Committee (MPC) in confronting the economic challenges facing the country, notably the fluctuations in inflation and exchange rates. While MAN understands the reason behind the MPC’s decision, it is crucial for the committee to thoroughly assess the potential impact on the real sector and the multiplier effect on the nation.”
MAN President tasked the CBN to explore alternative measures in addressing the underlying causes of inflation, primarily cost-push factors.
“It is notable that the strategy of raising the Monetary Policy Rate (MPR) has persisted for nearly two years without yielding positive results. MAN had hoped that the Central Bank of Nigeria (CBN) would explore alternative measures, particularly in addressing the underlying causes of inflation, primarily cost-push factors.
“MAN earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy. Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial,” he said.
As part of its recommendations, MAN is calling for robust collaboration between monetary and fiscal authorities while stating that policy measures such as Implementing targeted interventions aimed at mitigating the underlying cost-push factors driving inflation, thereby alleviating the financial burden on manufacturers should be considered.
Other suggestions made are Prioritise forex and credit allocation to the manufacturers and fast-track the proposed recapitalization of the banking sector; Emphasize the development of infrastructure within industrial hubs and bolster nationwide investments in renewable energy sources to alleviate logistical expenses and enhance competitiveness; and further reduce the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum.