Business News

Dollar Scarcity Weakens Naira to N779/$1 at P2P, N772/$1 at Parallel Market

By Adedapo Adesanya

The Manufacturers Association of Nigeria (MAN) has said the recent increase of the Monetary Policy Rate by the Central Bank of Nigeria (CBN) will worsen the imminent recession in the manufacturing sector and negatively impact its operations in many ways.

MAN, in a statement on Thursday, said the MPR hike would also increase the cost of borrowing, which would further discourage investments in the sector.

It also said this would lead to a high cost of production which would lead to higher commodity prices and inventory of unsold manufactured products.

The statement read in part, “It is evident that the continuous and consistent increase in MPR is not yielding the desired growth in the economy. The Nigerian economy remains fragile and bedevilled with numerous challenges that inhibit growth.

“Therefore, the monetary authority needs to pay closer attention to rethink the policy mix, bearing in mind the parlous state of the economy, especially the effect of a high MPR on the manufacturing sector and the economy.

“The increase in MPR from 18 per cent to 18.5 per cent will certainly lead to an increase in lending rates and worsen the uncompetitiveness of the manufacturing sector. The Association has been clamouring for single-digit lending rates to allow manufacturers access to needed funds to boost the performance of the sector.

“This increase, like the previous ones, is evidence that the CBN is either unperturbed about the plight of the productive sector or is unable to fathom out a more creative policy mix that would reflate the sector.”

The CBN further increased the interest rate by 0.5 per cent to 18.50 per cent from 18 per cent in March at the 291st Monetary Policy Committee meeting.

The Governor of the apex bank, Mr Godwin Emefiele, stated that its investigation and research found that the country’s interest would have been higher but for its intervention by raising interest rates.

According to Mr Emefiele, Nigeria’s April inflation rate of 22.22 per cent would have been 30.48 per cent if the MPC had not raised the interest rate.

MAN had already announced that the manufacturing sector was in acute recession and was faced with a quadruple whammy of the sustained scarcity of naira, limited access to foreign exchange, high inflation, and a struggling economy.

These challenges have significantly impacted the industry, with the brewing sector suffering a massive decline of -169 per cent in profit before tax in the first quarter of 2023, a threat that could see it scale down its operations.

Also, the industry turnover for non-alcoholic beverages and tobacco declined by -15 per cent, while gross profit and profit before tax declined by -31 per cent and -96 per cent within the same period, respectively.

“The Naira scarcity and limited access to foreign exchange have exacerbated the continuing impact of systemic challenges such as high cost of operations, the multiplicity of taxes, limited electric power supply and infrastructural challenges.

“For instance, the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs, further constraining the growth of the sector,” the association warned earlier this month.

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