Rising Interest Rates Threaten Nigeria’s Manufacturing Sector, MAN Warns
Interest Rate Hikes and Their Impact on the Manufacturing Sector
The Manufacturers Association of Nigeria (MAN) has expressed grave concerns over the Central Bank of Nigeria’s (CBN) continued monetary tightening, particularly the recent increase in the Monetary Policy Rate (MPR) to 27.25%. This move, according to MAN, is further exacerbating the challenges faced by Nigeria’s already struggling productive sector. Segun Ajayi-Kadir, MAN’s Director-General, issued a statement highlighting the potential negative effects of the latest 50 basis points rate hike on manufacturers.
Ajayi-Kadir emphasized that the 15.75 percentage points increase in interest rates since May 2022 has significantly worsened the situation for manufacturers, who are grappling with increased production costs and declining consumer purchasing power. He noted that the higher borrowing costs mean manufacturers now pay over 35% interest on credit facilities, making it more difficult for them to sustain operations and invest in expansion.
Manufacturing Sector Feels the Heat
The impact of the rising interest rates goes beyond just increasing manufacturers’ borrowing costs. Ajayi-Kadir warned that this could stifle investment in critical areas such as technology, retooling, and expanding production capacity. The inability to invest in these areas could lead to lower competitiveness, decreased output, and higher prices for finished goods, further compounding the sector’s difficulties.
Ajayi-Kadir pointed out that the recent rise in petrol prices, which contributed to the latest rate hike, could also reverse the gains made in reducing inflation. While Nigeria’s headline inflation eased to 32.15% in August 2024, the situation remains fragile, especially with the rise in fuel costs expected to push inflation back up by October.
Soaring Capital Expenses
Manufacturers are also dealing with a sharp rise in capital expenses due to the increased interest rates. According to MAN, the sector has incurred over N730 billion in capital expenses during the first six months of 2024, further straining their ability to expand and innovate. This, in turn, limits their capacity to explore new product lines and hampers overall productivity.
Ajayi-Kadir emphasized that manufacturers are now prioritizing the servicing of existing loans over investing in new projects. This focus on debt repayment is curtailing the sector’s ability to innovate and grow, which could have long-term negative consequences for Nigeria’s economic development.
Mounting Inventory of Unsold Goods
In addition to the rising costs, the manufacturing sector is facing a growing inventory of unsold finished goods due to weak consumer demand. MAN reported a significant 42.93% increase in unsold inventory, which reached N1.24 trillion in 2024 compared to N869.37 billion at the end of 2023. This surge in unsold goods has significantly hampered capacity utilization within the sector, further adding to the challenges manufacturers face.
Ajayi-Kadir explained that this unsold inventory reflects the broader difficulties manufacturers are encountering in a weakening market. He warned that the combined impact of these challenges threatens not only the manufacturing sector but the Nigerian economy as a whole.
Unemployment and Economic Consequences
Another major concern for MAN is the rising unemployment rate in Nigeria, which has worsened due to the multiple rate hikes. The unemployment rate increased to 5.3% in the first quarter of 2024, up from the third quarter of 2023, according to the National Bureau of Statistics. Ajayi-Kadir stated that the continuous interest rate hikes are limiting manufacturers’ ability to expand and hire new employees, further exacerbating the country’s unemployment crisis.
Ajayi-Kadir highlighted the long-term socioeconomic and security implications of the unemployment crisis, stressing that Nigeria’s growing youth population needs meaningful employment opportunities. Without addressing this issue, the country faces increasing instability.
Call for Policy Recalibration
MAN has called on the CBN to reconsider its monetary tightening policies, suggesting that further interest rate hikes will only worsen the challenges faced by the productive sector. Ajayi-Kadir recommended that the CBN explore a more balanced approach by combining monetary and fiscal policy tools to combat inflation without stifling economic growth. He urged policymakers to focus on reducing production costs and improving the business environment to ensure the sustainability of the manufacturing sector and Nigeria’s broader economy.
Social Media Reactions:
- @BusinessNaija: “Rising interest rates are crippling Nigeria’s manufacturing sector! MAN warns of unsold inventory hitting N1.24 trillion. Something needs to change fast.”
- @EconomistNgozi: “A 35% interest rate for manufacturers? It’s becoming impossible for them to operate. This will hit jobs and prices hard.”
- @MudaBusinessTalk: “The CBN needs to find a balance between controlling inflation and supporting the productive sector. Rate hikes are hurting the economy.”
- @YouthVoiceNG: “Unemployment is rising, and manufacturers can’t expand due to high interest rates. Our youth need jobs, and these policies aren’t helping.”
- @InvestorInsight: “MAN is right to sound the alarm. Higher interest rates make it harder for manufacturers to invest in tech and innovation. Nigeria’s economy is at risk.”
- @PolicyWonkNG: “The lack of a clear monetary-fiscal strategy is hurting Nigeria. We need a coordinated plan to tackle inflation without destroying local businesses.
Join Our Social Media Channels:
WhatsApp: NaijaEyes
Facebook: NaijaEyes
Twitter: NaijaEyes
Instagram: NaijaEyes
TikTok: NaijaEyes
