Economy
Incessant Interest Rate Hike Affecting Private Sector—NECA, CPPE
By Adedapo Adesanya
The Nigeria Employers’ Consultative Association (NECA) and the Centre for the Promotion of Private Enterprise (CPPE) have raised concerns about the successive increase in the Monetary Policy Rate (MPR) by the Central Bank, saying it will continue to hurt investment decisions in the private sector.
The groups separately expressed concerns about the interest rate hike at the end of the MPC’s 295th meeting on Tuesday in Abuja, where 1.50 per cent was added to the previous MPR of 24.75 per cent, which now stands at 26.25 per cent. In 2024, the central bank has jacked up the cost of borrowing by 750 basis points (7.50 per cent).
The committee also retained the asymmetric corridor around the MPR to +100/-300 basis points and retained the cash reserve ratio of Deposit Money Banks at 45 per cent.
NECA’s Director-General, Mr Adewale-Smatt Oyerinde, in a statement on Tuesday, said that the cost of borrowing for investment by organised businesses had increased since March 2024 when the policy rate was raised to 24.75 per cent.
According to him, the new policy rate of 26.25 per cent will further affect private investment negatively.
“It is implausible to control the current high inflation by continuously raising interest rates.
“Implementing tight monetary policy stance when firms’ investment expenditure and household consumption is at the lowest ebb may further incapacitate production and capacity utilisation in the already challenged private sector,” he said.
The NECA boss said that the persistent high depreciation in the value of the Naira would continue to feed inflation while constraining firms’ investment and household consumption.
He said, consequently, raising the policy rate would further exacerbate inflationary pressure as growth in factor costs and commodity prices become unbounded.
Mr Oyerinde attributed the defying inflationary pressure to the liberalisation of FX in the country, notwithstanding that the economy was heavily import-dependent.
He said that before the total floating FX regime was implemented, the economy was better off with inflation anchoring below the 20 per cent mark.
“Consequently, I urge the government to reconsider the guided FX floating regime, which is a dynamic and flexible FX management regime and has proven to be better than the current regime,” Mr Oyerinde added.
On his part, Mr Muda Yusuf, Chief Executive Officer (CEO) of CPPE, while responding to the outcome of the MPC meeting, said that the rate hike might have a negative impact on the real sector and investments, leading to increased hardship for businesses.
“We have seen yet a further tightening of monetary conditions in the economy. My prayer was for the MPC to pause the rate hikes for a number of reasons.
“First, previous rate hikes have been quite aggressive, hurting output and real sector investments. Most economic operators with credit exposures to the banks have not recovered from previous hikes.
“Interest rates were already around the 30 per cent threshold. Secondly, the extant CRR of 45 per cent has profound liquidity effects on the financial system.
“Both measures have dampening effects on financial intermediation, which is the primary role of banks in an economy.
“Thirdly, the monetary policy transmission channels are still very weak, given the level of financial inclusion in the economy. This limits the prospects of monetary policy effectiveness,” he said.
According to him, the new rate hike is an additional cross to be borne by investors who have exposures to bank credit facilities.
“Naturally, a rigid monetarist disposition by the central bank is expected. But we need to reckon with the costs to the economy.
“Hopefully, with the positive outlook for domestic refining of petroleum products, we may begin to see a moderation in energy cost and a pass-through effect on the general price level.
“This is one silver lining that is on the horizon at the moment.
“Necessary fiscal policy support is urgently needed to compensate for the adverse impact of extreme monetarism on the economy,” Mr Yusuf said.
By Dipo Olowookere
The national scale issuer ratings of BBB+(NG)/A2(NG) have been assigned to Champion Breweries Plc by GCR Ratings.
In a statement obtained by Business Post, GCR noted that it also gave a stable outlook to the brewer because it foresees the brewery firm remaining profitable and sustaining strong gearing and liquidity metrics despite the expected rise in debt.
However, it emphasised that its rating could be downgraded if the organisation experiences a higher-than-expected rise in debt which leads to a deterioration in leverage metrics and creates refinancing risk.
“Also, unfavourable working capital movement that places pressure on operating cash flow and weakens liquidity would negatively impact the ratings,” a part of the statement said.
The rating agency assured Champion Breweries that an upgrade could happen if there is an improvement in its business scale as well as better product and geographical diversification which supports robust cashflows.
Champion Breweries operates on a much smaller scale with current installed production capacity at 500,000 hectolitres per annum (hlpa) compared with other peers that can produce more than 5 million hlpa.
It has only two brands, Champion lager beer and Champ Malta, and operations are all within the Southern region of Nigeria with around 60 per cent of revenue generated from Akwa-Ibom state, but its favourable cost model has supported EBITDA margin above peer average.
The company has no interest-bearing debts, therefore, EBITDA coverage of interest has remained strong at above 10x over the five-year period to 2024.
But its debt is expected to rise due to plans to borrow N5 billion from the Bank of Industry (BOI) to part finance the acquisition of an empty bottle inspection machine and installation of a canning line.
Champion Breweries intends to ramp up capacity utilisation to 80 per cent in 2025 from 69 per cent in 2024 and drive volumes to underpin a further growth in revenue.
In the 2024 fiscal year, the organisation grew its earnings to N20.9 billion from N12.7 billion in the previous year due to higher volumes and upward price adjustments.
The brewer has remained profitable, especially due to its reliance on local supplies, helping to hedge against foreign exchange volatilities. Hops and barley are the company’s major inputs and they are mostly sourced from local suppliers rather than direct importation.
Champion Breweries is majorly owned by a non-operational company, Raysun Nigeria Limited.
By Dipo Olowookere
Sustained buying pressure, especially in the banking sector, pushed the Nigerian Exchange (NGX) Limited higher by 0.45 per cent on Wednesday.
According to data obtained from the bourse, the banking index was up by 2.12 per cent, the consumer goods space rose by 2.11 per cent, and the industrial goods sector improved by 0.15 per cent.
However, the other sectors came under profit-taking, with the commodity counter declining by 0.25 per cent, the energy counter shedding 0.18 per cent, and the insurance sector losing 0.15 per cent.
At the close of trades, the All-Share Index (ASI) grew by 488.73 points to 108,849.83 points from 108,361.10 points and the market capitalisation expanded by N307 billion to N68.412 trillion from N68.105 trillion.
During the session, UPDC REIT gained 10.00 per cent to settle at N6.60, Meyer also leapt by 10.00 per cent to N8.80, Beta Glass advanced by 9.98 per cent to N146.05, The Initiates went up by 9.95 per cent to N6.08, and Vitafoam Nigeria moved up by 9.94 per cent to N55.85.
However, Deap Capital lost 10.00 per cent to quote at N1.08, Veritas Kapital depreciated by 9.09 per cent to N1.00, Linkage Assurance crashed by 6.61 per cent to N1.13, Africa Prudential dwindled by 5.60 per cent to N16.00, and UDPC retreated by 4.46 per cent to N3.00.
Business Post reports that a total of 50 equities ended on the gainers’ log yesterday and 16 equities finished on the losers’ side, representing a positve market breadth index and strong investor sentiment.
The market participants traded 587.5 million shares valued at N18.7 billion in 17,496 deals at midweek versus the 475.5 million shares worth N13.9 billion transacted in 17,575 deals on Tuesday, showing a decline of 0.45 per cent in the number of deals, and a growth in the trading volume and value by 23.55 per cent and 34.53 per cent, respectively.
The most active stock was GTCO with a turnover of 98.6 million units valued at N6.6 billion, Tantalizers traded 75.5 million units worth N175.2 million, Fidelity Bank exchanged 40.5 million units for N816.0 million, Zenith Bank transacted 38.5 million units worth N1.9 billion, and Nigerian Breweries sold 30.5 million units valued at N1.6 billion.
By Adedapo Adesanya
The oil market fell on Wednesday as investors doubted that upcoming US-China trade talks would result in a breakthrough, with Brent crude losing $1.03 or 1.66 per cent to trade at $61.12 a barrel and the US West Texas Intermediate (WTI) crude shedding $1.02 or 1.73 per cent to sell for $58.07 a barrel.
The US and China are due to meet in Switzerland, which could be the first step toward resolving a trade war disrupting the global economy.
The trade talks between the world’s two largest economies come after weeks of escalating tensions.
President Donald Trump had protested China’s unfair advantage in global trade and slammed tariffs on imports, which has led to reciprocity from the Asian country.
Now, duties on goods imports between the countries have soared well beyond 100 per cent.
Meanwhile, market analysts have said that unless the US receives major trade concessions, further de-escalation seems unlikely, with US Treasury Secretary Scott Bessent describing the talks as “the opposite of advanced.”
In other related matters, US Vice President JD Vance described talks the US and Iran as “so far, so good” adding that there was a deal to be made that would reintegrate Iran into the global economy while preventing it from getting a nuclear weapon.
Previously, the US had threatened secondary sanctions on Iran after a fourth round of talks were postponed between both countries. This could threaten production of more than 3 million barrels per day, or about 3 per cent of global output.
This deal, if reached, could see the US lift the sanctions on Iranian oil, which right now is under maximum pressure.
The US Federal Reserve held interest rates steady but said the risks of higher inflation and unemployment had risen.
This development further economic outlook as the US central bank grapples with the impact of President Trump’s tariff policies.
US crude inventories fell by 2 million barrels to 438.4 million barrels in the week, the Energy Information Administration (EIA) said.
Also, rising conflict in the Middle East between Israel and the Houthis could increase the geopolitical risk premium, making prices go up.
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