Manufacturers borrow 450 billion naira from banks amid rising rates

Operators in the country’s manufacturing sector have seen their combined debts to Nigerian banks rise from N4.09 trillion in December 2021 to N4.54 trillion in June 2022, according to the sector analysis of deposit bank credit from Nigeria. the Central Bank of Nigeria.

Indeed, they borrowed the sum of 450 billion naira between December 2021 and June 2022. With debts rising, players in the manufacturing sector argued that the current double-digit lending rate is unfavorable as it impacts directly on the cost of production and the competitiveness of the sector.

The Governor of the Central Bank of Nigeria, Godwin Emefiele, in November 2021 promised to provide manufacturers with single-digit loans not exceeding 9%.

Speaking at the Nigeria International Partnership Forum in Paris, Emefiele said, “We want to ensure that the manufacturing sector can access capital at a single digit rate of no more than 9%. It should be easy for you (manufacturing investors) to access single-digit credit with a two-year moratorium. »

However, the CBN broke this promise as it raised the benchmark interest rate twice in 2022.

In July, the CBN’s Monetary Policy Committee raised the policy rate from 13% to 14%.

This came just two months after the MPC, at its bi-monthly meeting in May, raised the benchmark interest rate from 11.5% to 13%.

The MPC had left the MPR unchanged for more than two years. However, crippling inflation, deteriorating purchasing power and their concomitant effects on the economy appear to have forced the CBN to effect policy changes.

Speaking shortly after a two-day MPC meeting, the CBN governor argued that another rate hike was needed to get the economy back on track.

Reacting to the increase, the former president of the National Association of Small and Medium Enterprises, Mr. Degun Agboade, said the association complained about the old rate before the increase.

“We complained about the old percentage of 11 and 12%. Now they’ve raised it to 14%. We are in a worse situation. Nothing has improved in terms of infrastructure. In fact, the infrastructure is deteriorating. You cannot travel on roads; the price of diesel has gone up, and there are a lot of problems. In the midst of this, you still raised the interest rate? This is adding insult to injury.

A professor of economics at Covenant University, Ota, Jonathan Aremu, said the decision by CBN’s MPC reflected an economic theory that for an economy to remain robust, the amount of money in circulation must reflect the volume of production and consequently the volume of exchanges/transactions.

He further stated that the CBN would not be able to solve the inflation problem by simply increasing the cost of borrowing, as producers might not have enough money to produce goods and services.

Also speaking, Vice President of the Lagos Chamber of Commerce and Industry, Dr. Gabriel Idahosa, criticized the rate hike.

Idahosa said, “Our own economy can’t handle that kind of rate hike, where you have unemployment, inflation of up to 20%. Manufacturers are unable to afford current interest rates due to the cost of production. Diesel alone is sending many of them out of business. If you now add a high interest rate, it’s not good for businesses that are already suffering from these other problems of inflation and electricity supply. They’re supposed to do it on paper because monetary policy says if you have inflation, you have to raise interest rates.

Manufacturers borrowed at a rate of 21% in 2021, according to the Manufacturers Association of Nigeria.

As the sector grapples with rising debt and interest rates, the Nigerian manufacturing sector recorded a growth rate of 5.21% on an annual basis in the second quarter of 2022.

According to the Nigeria Gross Domestic Product Report (Q2 2022) released by the National Bureau of Statistics, this figure was 33.12% lower than the figure recorded in the corresponding period of 2021.

The report reads in part as follows: “Nominal GDP growth in the manufacturing sector in the second quarter of 2022 was recorded at 5.21% (year-on-year), 33.12 percentage points lower than the figure recorded in the corresponding period of 2021 (38.33 percent) and 6.51 percentage points lower than the previous quarter figure of 11.72 percent.

“Quarter on quarter, the growth of the sector was recorded at -14.50% during the quarter. The contribution of the manufacturing industry to nominal GDP in the second quarter of 2022 was 12.97%, which is lower than the figure recorded during the corresponding period of 2021 at 14.18% and lower than that of the first quarter of 2022 at 15.06%.

The SNB report also said that real GDP growth in the manufacturing sector in the second quarter of 2022 was 3.00% on an annual basis, lower than that of the same quarter of 2021 and lower than that of the previous quarter of 0. .48 percentage point and 2.89% respectively.

The growth rate of the sector on a quarterly basis was -15.47%. The real contribution to GDP in the second quarter of 2022 was 8.65%, lower than the 8.69% recorded in the second quarter of 2021 and lower than the 10.20% recorded in the first quarter of 2022.

In its Manufacturing CEO Confidence Index for the second quarter of the year, the Manufacturers Association of Nigeria said business conditions in the quarter under review were tougher than those achieved in the first quarter of the year. year.

According to the report, which measures changes in the pulse of operators and trends in the manufacturing sector on a quarterly basis, in 2022 alone, manufacturers faced a severe shortage of foreign currency, forcing many businesses to shut down.

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