The Nigerian Private Sector’s Plea for Lower Interest Rates
The organized private sector (OPS) in Nigeria is united in its call for a reduction in the Central Bank of Nigeria’s (CBN) monetary policy rate (MPR), currently at 27.50 percent. They argue that this high interest rate environment is stifling economic growth and hindering business expansion, particularly for small and medium enterprises (SMEs). The OPS believes that a phased reduction of the MPR is crucial to stimulate investment, reduce production costs, and boost overall economic activity. They contend that the current tight monetary policy, while intended to curb inflation, has not been effective and is instead causing more harm than good to the Nigerian economy.
The OPS’s concerns are underscored by the fact that Nigeria’s MPR is among the highest globally, trailing only a handful of countries facing severe economic challenges. This high rate, they argue, makes it prohibitively expensive for businesses to borrow, thus limiting their ability to invest, expand, and create jobs. The Lagos Chamber of Commerce and Industry (LCCI) president, Gabriel Idahosa, criticized the double-digit MPR, arguing that it signals underlying economic problems and hasn’t effectively addressed inflation due to Nigeria’s import-dependent economy. He advocates for a shift in focus towards attracting investments rather than solely relying on MPR adjustments, suggesting a gradual reduction to ease production costs and promote growth.
The Nigeria Employers’ Consultative Association (NECA) echoes these sentiments, warning that a prolonged tight monetary stance will further constrain business expansion and limit credit access, especially for SMEs crucial for job creation and economic growth. NECA’s Director-General, Adewale Oyerinde, urges the MPC to consider a phased reduction of the MPR, aligning with global monetary trends that favor easing policies to boost economic activity. He emphasizes the need for a well-communicated policy direction to mitigate uncertainties and encourage long-term economic planning by the private sector.
Adding to the chorus of concern, the Centre for the Promotion of Private Enterprise (CPPE) raises alarm about the high cash reserve ratio (CRR), currently at 50 percent, which they argue is impeding financial intermediation. They question why Nigeria bears the burden of such a high CRR, especially given that its macroeconomic environment is not among the worst globally. The CPPE stresses the need for monetary policy easing to stimulate growth and allow banks to lend more effectively to businesses.
The negative impact of the high MPR resonates across various business segments. The Nigerian Association of Small-Scale Industrialists (NASSI) highlights how high borrowing costs discourage borrowing, increase production costs, and slow demand, ultimately leading to business contraction and rising unemployment. While acknowledging that high interest rates can theoretically reduce money circulation and inflation, NASSI points out the policy’s ineffectiveness in Nigeria’s context, where inflation has not declined significantly despite repeated MPR increases.
The Association of Small Business Owners of Nigeria (ASBON) shares similar concerns, arguing that high MPR discourages investment and innovation, placing Nigerian businesses at a disadvantage compared to their peers in countries with lower interest rates. They advocate for a more balanced approach that combines supportive fiscal policies, improved infrastructure, and targeted business incentives to drive sustainable growth, warning that simply maintaining high interest rates will worsen economic conditions.
With the upcoming Monetary Policy Committee (MPC) meeting, the OPS anxiously awaits a decision that could significantly impact the trajectory of the Nigerian economy. Their collective plea is for a gradual reduction in interest rates to foster a more conducive environment for business growth, encourage investment, and ultimately stimulate much-needed economic development. They argue that a shift in monetary policy is essential to unlock the potential of the private sector and pave the way for a more prosperous future for Nigeria.
