We can no longer afford further hikes in interest rate, manufacturers warn

• Foreign Direct Investment drops by 57% Y-o-Y
• CG expresses concern as import duty increased 42 times in Q2
 
Local manufacturers under the aegis of the Manufacturers Association of Nigeria (MAN) have said they can no longer afford interest rate hikes, warning that any additional increase would further limit the sector’s growth and force many more companies to shut down or exit the country.  

   
They noted that consumers’ purchasing power, productivity, competitiveness and sales have declined beyond measure. They also lamented that the constant increase has led to high borrowing costs, which have escalated production costs, prices of finished goods, unemployment and social instability, reduced capacity utilisation, consumer demand and profitability, stifled investment and innovation and curtailed growth opportunities.
   
They further predicted that more manufacturing concerns would shut down and prevent existing ones from competing effectively in global and regional markets. They said this has also restrained access to capital, considering that a very small percentage of total commercial bank credit was extended to them in Q1 of this year.
   
Lamenting the reduced flow of investments into the sector and funds required for upgrading facilities and procurement of new technologies, MAN’s Director-General, Segun Ajayi-Kadir, said before the recent MPR increase, none of the top five banks’ maximum lending rate was below 30 per cent.  
  
On average, commercial banks charge 32.7 per cent, which he said has further limited access to credit and discouraged investment in the sector. He said while the naira depreciation has more than doubled the value of manufactured exports from N131.5 billion in Q1 of 2023 to N268.7 billion in Q1 of 2024, the share of manufacturing in non-oil exports has declined from 30.2 per cent in Q2 2023 to 15.1 per cent in Q1 2024, far below 19.8 per cent recorded in Q1 2023.
   
He noted that the increasing interest rate has caused low domestic investors’ confidence and foreign investment apathy, as foreign direct investment (FDI) declined from $256.12 million in Q1 2023 to $191.92 million in Q1 2024, a whopping 25 per cent decrease.
   
He pleaded with the Central Bank of Nigeria (CBN) to stabilise prices and prioritise their survival when making monetary policy decisions. He said this will enable the sector to play its role effectively as the critical driver of employment creation, productivity, stable FX earnings, and sustained economic growth. 
   
He implored the CBN to be domestic production-centric by avoiding continuous hikes in MPR and allowing time for the real sector to recover from the impact of previous hikes.
   
“Insulate the productive sector from the impact of continuous hikes in MPR by ensuring the implementation of the N75 billion single-digit loan approved by the President over a year ago for the manufacturing sector. Address the issue of low manufacturing productivity and food production occasioned by the high-level insecurity across the country to effectively curb the persistent rise in inflation and utilise FX revaluation gains to improve patronage of made-in-Nigeria products and upgrade electricity, road and rail networks within industrial hubs,” he advised.
   
Recall that the prices of pharmaceutical products in Nigeria increased astronomically after the exit of the British firm GlaxoSmithKline GSK. Consequently, the prices of antibiotics rose almost threefold in Nigeria. For instance, Augmentin 228mg and 475mg skyrocketed by 307 per cent and 328 per cent, respectively, between August 2023, when the company left Nigeria, and August 2024.
   
In another development, the NCS Comptroller General (CG), Bashir Adewale Adeniyi, expressed shock at the continuous increase in import duty rate since the start of the year, saying the agency is aware that these changes negatively affect manufacturers and importers.
   
Speaking at the 53rd yearly general meeting of the Manufacturers Association of Nigeria (MAN), Apapa Branch, which was held in Lagos yesterday, the CG said the import duty rates changed 28 times in the first quarter of the year. 
  
 “It was even more alarming in Q2 as it changed a whopping 42 times. Sometimes, we wake up in the morning; it has changed, and before the close of the day, it has changed again.”
   
He said the situation concerns the agency and has caught the attention of the right stakeholders, including the Central Bank. He said they know this is no longer sustainable but have been told not to operate a dual window. 
  
 “CBN is saying we should use the rate on Form ‘M’, but there is the Customs Act that says we should use the rate that is operational at the time of declaration, and this is supported by the WTO agreement and the Federal Ministry of Finance that says we should use the prevalent rate at the time of declaration.”
   
He agreed that the rates must become stable, saying it is out of their hands as the CBN meets regularly to determine interest rates and MPR. He said all stakeholders, including manufacturers, banks, NCS, and others, should agree on fiscal requirements and what is happening in the monetary environment. 
   
Relatedly, the National President of All Farmers Association of Nigeria, Kabir Ibrahim; the Director-General of Development Agenda for Western Nigeria (DAWN) Commission, Dr Seye Oyeleye; the Director-General of Nigeria Agribusiness Group (NABG), Jafer Umar, and the Oyo State Government, yesterday, urged farmers to produce wholesome food for the country, saying agriculture remains the backbone of the Nigerian economy.
   
They made the call during a two-day regional agribusiness sensitisation initiative organised by the NABG and supported by the Innovation Lab for Policy Leadership in Agriculture and Food Security in collaboration with the DAWN Commission at Adis Hotel, Ibadan.