More businesses will die in Nigeria, manufacturers warn
The inflation-induced increase in the monetary policy rate will lead to a further squeeze on businesses’ profits and heighten the mortality rate of small businesses, the Manufacturers Association of Nigeria has warned.
The country’s annual inflation surged to 18.6 percent in June from 17.7 percent in May, forcing the Central Bank of Nigeria to raise its key interest rate last week for the second time this year to 14 percent from 13 percent in May.
“This is another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market,” the Director-General of MAN, Segun Ajayi-Kadir, said.
He said the rate hike would intensify the demand crunch emanating from the heavily eroded disposable income of Nigerians, and constrained access of households and individuals to cheap funds
He said it would lead to rising cost of manufacturing inputs, translating to higher prices of goods, low sales and an enormous volume of inventory of unsold products.
Ajayi-Kadir said the rate hike would “exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses”.
“MAN is therefore concerned about the ripple effects of this decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms,” he said.
Manufacturers want the CBN to relax the “stringent conditionalities for accessing available development funding windows” in a bid to improve the flow of long-term loans to the manufacturing sector at a single-digit interest rate, he said.
“The expectation is that MPC will ensure that future adjustments of MPR take into consideration the trend of core inflation rather than basing decisions on the headline and food inflation. This will no doubt shield the sector from the backlashes from the 14% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy,” the MAN boss added.
