Group speaks on solutions to increasing inflation in Nigeria

• The LCCI has cautioned on numerous occasions that rate hikes alone won't be sufficient to lower inflation
• The LCCI president claimed that reduced investment incentives and increased borrowing costs plague the organized private sector
• He said the real sector has demonstrated its capacity to expand the industrial foundation of the economy and create jobs

Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.

Gabriel Idahosa, president of the LCCI said the Chamber has repeatedly warned that rate increases won't be enough to reduce inflation unless the problems facing the real sector—which includes the manufacturing and agricultural sectors—are addressed.

One major issue impacting the manufacturing and agricultural sector is the high interest rates on Treasury bills and government bonds. Photo Credit: Contributor
Source: Getty Images

He said the organised private sector is beset by higher borrowing costs, fewer incentives for investment, more uncertainty, and a volatile foreign exchange market.

As a result, Businesses now pay more to obtain credit for working capital, expansion, and sustainability as a direct result of the recent increases in the Monetary Policy Rate (MPR), which have also raised interest rates.

The solution

The high rates on government bonds and treasury bills are another problem facing the industry; they are drawing in both domestic and foreign investors, which has made it harder for the private sector to get credit, The Nations reported.

Idahosa said,,

“While we understand that high interest rates attract Foreign Portfolio Investments (FPIs) and local investors to treasury bills and bonds, we lament the drying up of funds away from the private sector to government treasuries.”

Citing latest report from the National Bureau of Statistics, he said,

“It showed that as of September 2024, the headline inflation rate rose to 32.70% relative to the August 2024 headline inflation rate of 32.15%, that is an increase of 0.55% compared to the August 2024 Headline inflation rate.“On a year-on-year basis, the Headline inflation rate was 5.98% points higher than the 26.72% recorded in September 2023.“This latest uptick may sustain an upward trend in the coming months due to the current crises with petroleum pricing and an attendant burden that is unprecedented in Nigeria’s economic history”.

According to him, this continued rise in inflation is driven by poor crop production by farmers who are constrained by security challenges, transport costs, and the emerging impact of climate change.

He lamented that Beverages, produced mainly by local and multinational companies, have also recorded rising costs due to the challenging environment in which these manufacturers operate with livestock and poultry being strong drivers of food prices in the past year.

He advised the government to remain focused on boosting food production through ongoing policy reforms, targeted fiscal interventions, and better management of Nigeria’s floating exchange rate regime.

In his words

“the floating exchange rate policy adopted last year without any form of control has not shown good results till now. As an import-dependent nation, we need to consider better management approaches that fit the current profile of our economy. Boosting the supply of FOREX will also help strengthen the Naira if transactions in the forex market are transparent enough to reduce speculative activities”.

Experts react to increase in interest rate

Legit.ng reported that in spite of decreasing inflation, the Central Bank of Nigeria (CBN) has increased the benchmark interest rate for the fifth time in a row, this time by 0.5 percentage points to 27.25 percent.

To date, the CBN has increased the monetary policy rate—a measure used by decision-makers to manage the amount of money in the economy—by a total of 850 basis points from 18.75 percent in July of last year, to the highest level ever noted in the nation.

The CBN is keeping a tighter monetary policy in place to contain the persistently rising inflation by raising the MPR.

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Source: Legit.ng