Manufacturers and interest rate
The Manufacturers Association of Nigeria’s plea to the Central Bank of Nigeria (CBN) for a reduction in interest rate, which came after the meeting of the Monetary Policy Committee (MPC) and CBN governor, Godwin Emefiele’s retention of, among other rates, the subsisting Monetary Policy Rate (MPR) at 14% was, unarguably a cry from the heart. Its hopes for a reduction having been so dashed, MAN should go beyond pleas and take concrete steps to keep its members in business.
Pointing out that, with MPR at 14%, domestic production would not be boosted and the economy would not be revived. It went further to highlight that by retaining high-interest rate, manufacturers would neither be able to sustain nor even expand their businesses at a profit, a situation likely to necessitate reduction in the number of employees in the sector with several negative social implications for the country.
Whether MAN’s request will be met at the end of the next MPC meeting cannot be determined based on MAN’s emotions. What will rank highest in skewing the present situation to meet MAN’s expectations will be the nation’s economic fundamentals. It is perhaps, important to point out that the present base-line interest rate at 14% is below inflation rate of 18.3% recently announced by the National Bureau of Statistics (NBS). This means that both savers and investors are ‘reaping’ negative returns of a minimum of 4.3%. Such a return will neither encourage savings nor investments. It is normally in the search for some positive returns that financial institutions with money to lend do so at interest rates higher than both Monetary Policy and inflation rates. If credit is dispensed otherwise, it will be impossible for providers of funds to continue to do so. Indeed, they will seek and go where their funds will yield positive returns. In such situations, the economy suffers even more.
Now, it is very simplistic for MAN to beg the CBN for interest rate cut and to seek public sympathy. MAN, given its membership diversity and capacity, is expected, as a responsible and long-standing organisation, to interrogate the basis upon which the CBN reached its decisions on interest rate, evaluate such basis and come up with an informed, incontrovertible and convincing position that should necessitate CBN’s favourable consideration of its request. Until it is able to do that, MAN will only be relying on emotions to drive a serious economic and financial matter.
What this means, therefore, is that MAN should have a very strong research and development capacity either within its human resources or such can be outsourced to reputable and experienced institutions that abound within the country. Indeed, MAN should be able to develop partnerships with tertiary institutions of strong research capacities and capabilities. With such capacity, it will be easier for the organisation not only to constructively demand, but to challenge policies, regulations and even laws that are against the interest of its members and the general public.
While MAN may close its eyes and call for incentives or special considerations for its members to enable them improve productive capacity, it must also see alternative sources of funds at low interest rates.
Beyond available low-cost credits within the country, most members of MAN, should by now be in a position to access and attract lower cost funds from the international financial markets.
Although the manufacturing sector may deserve assistance from government, especially in the importation of essential raw materials and machinery that are not available locally, that should not be a justification for soliciting special dispensations that may negatively affect the on-going financial and economic deregulation regime. In fact, the current depression should cause manufacturers and other economic agents to restrategise and innovate so that the nation will emerge from the problem faster, stronger and more resilient. Corporate innovations that lead to significant improvements in organisational governance, operational effectiveness and efficiency should be pursued as they can bring about a reduction in, or elimination of, negative impact of high-interest rates. After all, interest rate is but one element in the cost profile of economic agents. Since good governance effectiveness and efficiency cannot be attained by organisations playing on emotions and begging but through critical thinking, hard work and discipline, the imperative for a resourceful research and development capacity in MAN, is once again underscored.