by Olatunji Saliu
ABUJA, Nov. 28 (Xinhua) -- Local production in Nigeria has been made weaker by the country's decision to stick to its 14 percent interest rate amid economic stagflation, the Manufacturers Association of Nigeria (MAN) said on Monday.
President of the local manufacturers' association Frank Jacobs told reporters in Lagos, the nation's economic hub, that domestic production had fallen and the case may worsen soon if policymakers fail to reduce the interest rate.
"We had taught that reducing the rates will enable banks to reduce percentage of getting loans to inject into the manufacturing sector to reflate the economy. However, with the present circumstance, many domestic producers will be struggling to keep their businesses as a going concern and will not make profits," Jacobs said.
Nigeria's Monetary Policy Committee, after a two-day meeting in the capital, Abuja, a week ago unanimously voted to retain the interest rate, also retaining the cash reserve ratio at 22.5 percent and liquidity ratio at 30 percent.
The local manufacturers' president said the decision to retain the 14 percent interest rate would further hamper the productivity of the manufacturing sector which is responsible for about 10 percent of the country's total Gross Domestic Product (GDP) annually, according to the National Bureau of Statistics.
The present interest rate, according to Jacobs, would neither boost domestic production nor provide an opportunity for the manufacturing sector to cope with the current economic recession in the West African country.
Nigeria's economy officially entered recession in September. Figures released last week by the National Bureau of Statistics further showed a weak macroeconomic performance when the GDP in real terms contracted by 2.24 percent year-on-year in Q3.
Local economic experts said a GDP growth of at least 4.32 percent in Q4 of 2016 would be needed for a possible way out of recession.
"As a result of the recession, most manufacturers will want to shed down workers, which will have negative social implication for the country," Jacobs said, noting it is only when rates are brought down that local manufacturers will be able to sustain and expand their businesses, even during recession.
Manufacturing activities have significant impact on the economy of every nation, usually accounting for a substantial proportion of total economic activities. In Nigeria, the manufacturing sector, in terms of employment generation, accounts for about 12 percent of labor force in the formal sector of the economy.
Jacobs called on the Central Bank of Nigeria to reduce the interest rates in its next monetary policy meeting to ensure growth in the manufacturing sector.
With appropriate incentives, the manufacturing sector could cause an economic turnaround for the country, he added.
Governor of the Central Bank of Nigeria Godwin Emefiele told reporters after the meeting of fiscal policymakers in Abuja last week that the committee took the decision after a critical assessment of the risks that rates reduction could pose to the economy.
Emefiele said the calls for rate reduction came mainly from an erroneous belief that reducing interest rates will spur credit growth in the private and public sector, which will help provide liquidity to stimulate consumption and investment spending.
The apex bank said it would continue to deploy its development finance interventions to complement the overall effort of fiscal policy toward reinvigorating the economy.
Nigerian leader Muhammadu Buhari said he's fully aware of the challenges faced by the manufacturing sector and would ensure his administration works hand in glove to eradicate bottlenecks and create an environment that can boost manufacturing.
Two months ago, while addressing the local manufacturers at an annual summit in Abuja, Buhari said his government was focused on implementing the necessary policies and strategies aimed at unleashing the full potentials of manufacturing in Nigeria.
