MPC, held its 294th meeting on the 25th and 26th of March 2024 to evaluate recent economic and financial developments and assess potential risks to the economy’s outlook.

At the meeting the Committee acknowledged the persistent increase in headline inflation, primarily fueled by rising food prices due to supply constraints and high costs associated with logistics and distribution, while affirming the need to address the challenge of food insecurity to tame the prevailing inflationary pressures. Consequently, the MPC sustained its tightening measures after thoroughly evaluating associated risks and the short-term inflation forecast.

We noted that at the end of the meeting, the Committee further tightened monetary policy raising the MPR by 200 basis points to 24.75 per cent from 22.75 per cent.

The MPC also adjusted the asymmetric corridor around the MPR to +100/-300 basis points and retained the Cash Reserve Ratio (CRR) of Deposit Money Banks at 45.0 per cent.

It also adjusted the Cash Reserve Ratio of Merchant Banks from 10.0 per cent to 14.0 per cent and retain the Liquidity Ratio at 30.0 percent.

MAN while reacting to the decision, notes that higher cost of doing business will be further exacerbated by the decision of MPC, thereby worsening competitiveness of Nigerian products in the global market, which is evident in the drastic reduction in global demand for these products.

According to data by the World Trade Organisation, South African manufacturing export value was $46 billion, while that of Nigeria was $3billion in 2022.

This MAN calculated is over 15 times greater than Nigeria’s manufacturing export value in that year.

The reduction in global demand for Nigerian products was further buttressed by NBS report that confirmed that manufacturing export value of Nigeria plummeted by 166 percent from N2.07 trillion in 2019 to N778.44 billion in 2023.

In addition, the exorbitant lending rate of over 30 percent has contributed largely to a drop in the share of manufacturing export to non-oil export from 82.4 percent to 24.8 percent in 2019 and 2023 respectively.

The Association further states that the resultant increase in the cost of servicing loans is a threat to the financial stability of manufacturing companies.

The increase it warned will destabilize manufacturers through the disruption of production plans, avoidable stock-out situations, and decreased capacity utilization. MAN, argued that all of these could lead to downsizing of workers, closure of more companies, upscaling of social vices and insecurity in Nigeria.

In addition it pointed out that the increase in Merchant Banks’ CRR and the narrowing of the asymmetric corridor will further reduce the capacity of banks to lend to the productive sector, such as manufacturing.

These, in addition to the high interest rates, will limit backward integration, research & development and innovation needed to enhance productivity and rapid industrial-led economic growth.

The Association though acknowledges the frantic efforts of the MPC aimed at addressing the economic challenges facing the country particularly the instability in inflation and exchange rates and recognized the rationale behind the decision but, however, argued that it is essential for the committee to carefully consider the potential impact of the decisions on manufacturing and collaborate with fiscal authorities to support the sector to play its traditional role as a critical driver of meaningful employment, improved productivity, steady forex proceeds inflow and sustained economic growth.

The Association notes that this approach of increasing the MPR has been adopted for almost 2 years without positive result and called on the new CBN administration to consider other measures to combat the pressure particularly addressing the causes of the increase which are majorly cost-push factors.

The MAN also urged the MPC to carefully consider the impact of these monetary policy measures on the manufacturing sector and the broader economy. It is crucial to strike a balance between addressing macroeconomic challenges and supporting the growth and sustainability of the manufacturing industry.

To address their concerns the Association recommended a robust synergy between the monetary and fiscal authorities.

It called on Government to ensure adequate security in farming areas and business environment by fast-tracking the passage of the Police Reform Bill and investing significantly in data platforms, surveillance systems and community policing.

It advocates the stabilization of the value of the naira by managing the floating exchange rate within a business-friendly threshold and intensify ongoing reforms to boost the level of liquidity and degree of transparency in the official forex window.

The Association called for prioritization of forex and credit allocation to the manufacturers and fast track the proposed recapitalization of the banking sector.

In addition it demanded further reduction in the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum, while also sought for prioritization of the provision of infrastructure in industrial hubs and boost nationwide investment in renewables to reduce logistics cost and promote competitiveness.