Rates hike: Manufacturers incure N730bn capital expenses in 6 months

The Manufacturers Association of Nigeria (MAN) has said that the continuous increase in interest rates has led to manufacturers incurring more than N730 billion in capital expenses in the first six months of the year.

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This is even as unsold goods inventory rose by 42.93 percent to N1.24 trillion compared to N869.37 billion at the close of 2023, according to MAN.

Director General of MAN, Segun Ajayi-Kadir, stated this in a statement made available to Vanguard, yesterday, in reaction to the latest hike in the monetary policy rate by the Central Bank of Nigeria (CBN).

Ajayi-Kadir stated: “The decision to raise MPR to 27.25% has far-reaching implications for the manufacturing sector in Nigeria. The continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would compound the challenges faced by the sector, including rising production costs in the face of declining consumer purchasing power.

“For instance, over the first six months of the year, manufacturers incurred more than N730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks. This dilemma hampers innovation, productivity and growth.

“Moreover, the manufacturing sector is grappling with depressed consumer demand, primarily driven by lower purchasing power. This decline has severely hampered capacity utilization within the sector.

“Data from the first half of the economic review published by the Manufacturers Association of Nigeria reveals a troubling trend: the value of unsold finished goods inventory surged by 42.93 percentage points, reaching N1.24 trillion compared to N869.37 billion at the close of 2023. This growing stockpile of unsold products underscores the difficulties manufacturers face in a weakening market.

“The broader implications of these challenges threaten not only the manufacturing sector but also the Nigerian economy as a whole. As higher borrowing costs lead to poor access to funds, lower capacities and potential business closures. Truth be told, the capacity to absorb the country’s growing youth population into meaningful employment has diminished significantly with the attendant adverse socioeconomic and security implications.

“In broad terms, MAN is worried about the implications of the continuous rate hikes on the productive sector and earnestly expects the CBN to stop the rate hike but explore more of the monetary-fiscal policy handshake option to curb inflation.”

Recall that the apex bank on Tuesday increased the MPR by 50 basis points to 27.25% from 26.75%.