The Manufacturers Association of Nigeria (MAN) is deeply concerned and worried about the continued decision of the Central Bank of Nigeria (CBN) to maintain the Monetary Policy Rate (MPR) at 27.5 percent since November 2024, despite a global wave of interest rate reductions aimed at revitalizing economic productivity and combating stagflation.
We are perturbed that when most progressive economies are charting a course toward industrial recovery and macroeconomic stability, Nigeria’s monetary stance tends to lead us in a different direction. Over the last quarter, countries such as members of the Euro Area, the United Kingdom, Denmark, Australia, China, India, Thailand and Egypt, have implemented interest rate cuts to bolster economic growth and support productive sectors. Yet, our rigidity continues to create unintended consequences that may deepen the parlous performance of the productive sector.
A nation cannot industrialize on the back of prohibitively expensive credit. With the benchmark interest rate held at 27.5 percent, Nigeria has become the 6th most expensive country to source credit as local manufacturers grapple with an average lending rate of over 37 percent.
This policy posture is not only inflationary, but is suffocating the capacity of the manufacturing sector. Compounded by other limiting factors, our members—small, medium and even large-scale—are finding it increasingly difficult to stay afloat, expand production lines, or even meet basic operational costs. When credit is priced highly, production declines and the nation “imports poverty”.
Our concerns go beyond the debilitating impact on our numbers business. The “Nigeria First Policy”, which seeks to strengthen local industry and reduce import dependence, may be under severe threat. At the heart of its successful implementation lies access to affordable financing to boost capacity utilization. Unfortunately, the current interest rate regime constrains finance costs for our members, surging by over 44 percent from ₦1.43 trillion in 2023 to ₦2.06 trillion in 2024 and rising.
This represents a sharp increase that has directly depressed productivity and led to underutilization of industrial capacity. The high cost of credit has not only diminished the flow of investments into the manufacturing sector but has also dulled the return on existing investments, with Small and Medium Industries hit the hardest.
Confidence in the industrial outlook has waned, as evident in the dip in the Manufacturers CEO’s Confidence Index from 50.7 points to 48.3 points. This mirrors the growing anxiety of our manufacturers.
A nation that woos foreign portfolio investors at the expense of its real sector may unwittingly be aspiring to build prosperity on the back of volatility. We are disturbed by the implicit prioritization of short-term foreign capital inflows over the long-term health of domestic industries.
While maintaining a high interest rate of 27.5 percent may temporarily attract speculative foreign portfolio investors, it is doing so at the expense of Nigeria’s manufacturing base, which is now choked by unsustainable borrowing costs.
What is evident now is the widening profitability of the banking sector, buoyed by elevated interest margins, while manufacturers contend with shrinking margins, rising debts and declining productivity.
This is an economic paradox that must be urgently addressed. The
current monetary policy trajectory risks turning banks into vaults of
idle wealth, while the real economy—where jobs are created and value is
added—faces suffocation. A society that rewards intermediaries over
producers invites long-term decline. Access to affordable credit is the
oxygen that sustains industrial growth and no economy has ever grown by
starving its manufacturers of oxygen.
The Manufacturers Association
of Nigeria is ever committed to collaborating with the Government and
all stakeholders to achieve macroeconomic stability. We therefore
earnestly beseech the CBN to urgently reconsider its monetary stance.
Moreover, recent disinflationary trends provide justification for the
CBN to cut rates. Real interest rates have improved, already giving
financial investors higher inflation-adjusted returns.
Therefore, maintaining a high nominal interest rate under current inflation conditions is neither necessary nor justifiable, and will only prolong the pain for manufacturers and consumers alike. In light of the above, MAN calls on the CBN to: ➢ Cut the benchmark interest rate significantly to reflect current realities and ease the credit burden on manufacturers.
➢ Deploy moral suasion and policy incentives for commercial banks
to facilitate single-digit, concessionary interest rates to the
manufacturing sector.
➢ Facilitate the approval of the ₦1 trillion
earmarked for manufacturers under the Stabilization Plan to support
industries struggling under current financial pressures.
➢ Facilitate
significant increase in the capital base of the Bank of Industry (BOI)
to scale up its capacity to meet the sector’s growing credit demands.
➢
Settle the outstanding $2.4 billion Forex Forward Contracts to restore
manufacturers’ confidence and end the unprecedented decapitation of the
financial viability of the affected industries.
This will also improve access to non-locally available raw
materials. ➢ Facilitate a policy direction to peg the customs duty
exchange rate for importing industrial inputs, especially raw materials
and machinery, to prevent further inflationary pass-through effect.
Industrial
confidence is a fragile currency and once broken, it takes time to
rebuild. Nigeria cannot afford to lose its manufacturing momentum at a
time when the world is repositioning for the next wave of industrial
transformation.
The commendable reform measures of this
administration may not be helped by the persistent high cost and
constrained access to funds. The current monetary policy is not only
undermining manufacturers’ confidence but also jeopardizing national
economic resilience.
We urge the Central Bank to act decisively and
in synergy with the fiscal authority to ensure that Nigeria’s
manufacturing sector does not sink deeper into stagnation.
The time to act is now.
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