Market News

…threatens Nigeria First Policy

Manufacturers in Africa’s most populous nation have called for an interest rate cut to aid local manufacturing amid Central Bank’s decision to retain key rates.

The Manufacturers Association of Nigeria (MAN) made the call in a note to BusinessDay, noting that the country’s high interest rate environment has continued to crush investments in capital-intensive projects in the manufacturing sector.

MAN noted that the apex bank decision to retain interest rate at 27.5 percent since November 2024 despite global wave of interest rate reductions aimed at revitalizing economic productivity and combating stagflation is worrisome.

“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,” Segun Ajayi-Kadir, MAN’s director general said.

“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,” he said.

“Yet, our rigidity continues to create unintended consequences that may deepen the parlous performance of the productive sector,” he added.

He noted that no nation can drive industrialisation on the back of prohibitive expensive credit, saying the country is the 6th most expensive country to source credit as local manufacturers grapple with an average lending rate of over 37 percent.

According to him, the 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 N1.43 trillion in 2023 to N2.06 trillion in 2024 and rising.”

He noted that this represents a sharp increase that has directly depressed productivity and led to underutilization of industrial capacity.

“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.”

MAN’s DG called for caution, saying that any country is wooing 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.”