Manufacturers Incur N730 Billion Capital Expenses as Interest Rate Hike

The Manufacturers Association of Nigeria (MAN) has revealed that the persistent rise in interest rates has resulted in manufacturers spending over N730 billion on capital expenses within the first half of the year.

According to MAN, unsold goods inventory also surged by 42.93%, climbing to N1.24 trillion compared to N869.37 billion at the end of 2023. This was disclosed by MAN’s Director General, Segun Ajayi-Kadir, in response to the Central Bank of Nigeria’s (CBN) recent hike in the Monetary Policy Rate (MPR).

Ajayi-Kadir remarked, “The decision to raise the MPR to 27.25% has significant repercussions for Nigeria’s manufacturing sector. The consistent increase in interest rates, which has now risen by 15.75 percentage points since May 2022, exacerbates the difficulties faced by the sector, particularly rising production costs against a backdrop of dwindling consumer purchasing power.”

He further explained that, during the first half of the year, manufacturers had to allocate over N730 billion to capital expenses due to the rising interest rates imposed by commercial banks. This burden stifles innovation, productivity, and overall growth.

In addition, the sector is struggling with weak consumer demand caused by decreased purchasing power, significantly impacting capacity utilization. Data from MAN’s economic review of the first half of the year shows an alarming trend: unsold finished goods inventory increased by 42.93%, reaching N1.24 trillion compared to N869.37 billion at the close of 2023. This growing stockpile reflects the immense challenges manufacturers are grappling with in a sluggish market.

Ajayi-Kadir warned that these challenges have far-reaching consequences for the Nigerian economy. As borrowing costs continue to rise, access to funds is reduced, leading to diminished production capacity and the potential closure of businesses. He noted that the ability to absorb the country’s expanding youth population into meaningful employment has drastically declined, with severe socioeconomic and security implications.

MAN expressed serious concerns about the ongoing rate hikes and urged the CBN to halt further increases, advocating instead for a balanced approach between monetary and fiscal policies to tackle inflation.