The Nigerian Organized Private Sector (OPS) has expressed grave concerns about the detrimental impact of the Central Bank of Nigeria’s (CBN) sustained high benchmark interest rate of 27.5% on local industries and the recently approved “Nigeria First” procurement policy. This policy, designed to prioritize locally manufactured goods by government agencies, requires accessible and affordable financing for successful implementation. The OPS argues that the current high interest rate environment significantly hinders this objective, making it difficult for businesses to access credit and compete with cheaper imports. They warn that if the CBN fails to address this issue, the policy, which aims to boost domestic production and reduce import dependence, could be severely jeopardized.
The Manufacturers Association of Nigeria (MAN) has been particularly vocal, describing the situation as an “economic paradox.” While banks enjoy increased profit margins due to high lending rates, manufacturers struggle with shrinking margins, escalating debt, and declining productivity. The high cost of borrowing, exceeding 37% for manufacturers, has led to a staggering 44% surge in finance costs, impacting productivity and capacity utilization. MAN argues that the CBN’s monetary policy, which has maintained the high MPR since November 2024, contradicts the approach taken by other advanced economies that have reduced interest rates to stimulate growth. Instead, Nigeria’s rigid stance fosters an environment where speculative foreign portfolio inflows are prioritized over long-term industrial growth, a strategy MAN cautions against as it builds prosperity on volatility.
The Lagos Chamber of Commerce and Industry (LCCI), while acknowledging the CBN’s rationale for maintaining the high interest rate to combat inflation, also emphasizes the need for a balanced approach. The LCCI recognizes the risks associated with a premature reduction in interest rates, including potential damage to investor confidence. However, they advocate for a “forward-guided, data-driven roadmap” for future easing. This roadmap should consider factors like slowing inflation, stabilizing foreign exchange rates, and tangible signs of real sector recovery, particularly concerning access to credit for Micro, Small, and Medium Enterprises (MSMEs). The LCCI stresses the importance of clear communication from the CBN to allow businesses to engage in effective medium and long-term planning.
MSMEs, a vital component of the Nigerian economy, are particularly vulnerable to the high cost of credit. Their limited access to affordable financing hinders their ability to grow, compete, and contribute to economic development. The LCCI has proposed several market-friendly solutions to the CBN, including maintaining price stability through increased production, reinforced development finance initiatives with concessional rates for high-impact sectors like manufacturing and agriculture, increased funding for development finance institutions, greater transparency in bank lending rates, and measures to stabilize the FX market. These recommendations aim to create a more conducive environment for businesses to thrive and support the “Nigeria First” policy.
Further emphasizing the negative impacts of the high interest rates, representatives from other private sector organizations voiced their concerns. The Nigerian Association of Small Scale Industrialists (NASSI) echoed MAN’s concerns, highlighting the detrimental effects of high production costs resulting from elevated interest rates. They argue that the increased prices of locally manufactured goods make them less competitive against cheaper imports, leading to reduced market share, profit decline, job losses, and even business closures. The Association of Small Business Owners of Nigeria (ASBON) also criticized the high interest rate regime, emphasizing its negative impact on the “Nigeria First” policy. They argue that the high cost of borrowing hinders SMEs and nano enterprises from accessing necessary funds for expansion and operations, stifling innovation and limiting production.
The Chairman of the Organized Private Sector of Nigeria (OPSN), Dele Oye, summarizes the overall sentiment, warning of the multifaceted consequences of high interest rates for businesses. Increased borrowing costs not only strain operational expenses but also discourage investments, hindering growth and innovation. The reduced investment capacity further dampens consumer spending, creating a ripple effect across the economy. This collective outcry from the OPS underscores the urgent need for the CBN to reconsider its monetary policy stance and adopt a more balanced approach that supports the “Nigeria First” policy and fosters sustainable economic growth. The consensus is clear: a high interest rate environment is unsustainable for local industries and threatens to undermine the very foundation of the policy it is meant to support. The OPS urges the CBN to act decisively and synergistically with the fiscal authority to mitigate these risks and ensure the survival and growth of the Nigerian manufacturing sector.
