Economy
Interest Rate Hike: Nigerians Will Start Paying Higher Prices, Manufacturers Warn
By Adedapo Adesanya
The Manufacturers Association of Nigeria (MAN) has said the recent increase of the Monetary Policy Rate by the Central Bank of Nigeria (CBN) will worsen the imminent recession in the manufacturing sector and negatively impact its operations in many ways.
MAN, in a statement on Thursday, said the MPR hike would also increase the cost of borrowing, which would further discourage investments in the sector.
It also said this would lead to a high cost of production which would lead to higher commodity prices and inventory of unsold manufactured products.
The statement read in part, “It is evident that the continuous and consistent increase in MPR is not yielding the desired growth in the economy. The Nigerian economy remains fragile and bedevilled with numerous challenges that inhibit growth.
“Therefore, the monetary authority needs to pay closer attention to rethink the policy mix, bearing in mind the parlous state of the economy, especially the effect of a high MPR on the manufacturing sector and the economy.
“The increase in MPR from 18 per cent to 18.5 per cent will certainly lead to an increase in lending rates and worsen the uncompetitiveness of the manufacturing sector. The Association has been clamouring for single-digit lending rates to allow manufacturers access to needed funds to boost the performance of the sector.
“This increase, like the previous ones, is evidence that the CBN is either unperturbed about the plight of the productive sector or is unable to fathom out a more creative policy mix that would reflate the sector.”
The CBN further increased the interest rate by 0.5 per cent to 18.50 per cent from 18 per cent in March at the 291st Monetary Policy Committee meeting.
The Governor of the apex bank, Mr Godwin Emefiele, stated that its investigation and research found that the country’s interest would have been higher but for its intervention by raising interest rates.
According to Mr Emefiele, Nigeria’s April inflation rate of 22.22 per cent would have been 30.48 per cent if the MPC had not raised the interest rate.
MAN had already announced that the manufacturing sector was in acute recession and was faced with a quadruple whammy of the sustained scarcity of naira, limited access to foreign exchange, high inflation, and a struggling economy.
These challenges have significantly impacted the industry, with the brewing sector suffering a massive decline of -169 per cent in profit before tax in the first quarter of 2023, a threat that could see it scale down its operations.
Also, the industry turnover for non-alcoholic beverages and tobacco declined by -15 per cent, while gross profit and profit before tax declined by -31 per cent and -96 per cent within the same period, respectively.
“The Naira scarcity and limited access to foreign exchange have exacerbated the continuing impact of systemic challenges such as high cost of operations, the multiplicity of taxes, limited electric power supply and infrastructural challenges.
“For instance, the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs, further constraining the growth of the sector,” the association warned earlier this month.
By Adedapo Adesanya
Nigeria ranked as Africa’s leading destination for upstream oil and gas investment in 2024, new research from market intelligence firm, Wood Mackenzie, has shown, accounting for three out of four Final Investment Decisions (FIDs) announced by global oil and gas majors, totaling $13.5 billion.
The FIDs announced within the Nigerian market included Shell’s $122 million investment in the Iseni Gas Project, TotalEnergies’ $566 million commitment to the Ubeta Gas Project and Shell’s approval of the Bonga North Tranche 1 project valued at around $5 billion.
According to the Special Adviser to President Bola Tinubu on Energy, Ms Olu Verheijen, these investments reflected Nigeria’s ongoing efforts to unlock its hydrocarbon potential through investor-friendly policies and strategic global partnerships.
Last year, Nigeria introduced several initiatives to create a conducive environment for oil and gas investors, including new tax incentives aimed at attracting up to $10 billion in natural gas investments.
Nigeria, which is Africa’s largest oil producer, also offered tax relief for gas investors, reducing corporate income tax and extending capital allowance benefits – for deepwater gas projects.
Other policies include the Presidential Directive on Local Content Compliance Requirements 2024 to address the reduction in oil and gas investments caused by high operating costs compared to global markets.
Also, the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines 2024 reduces the time spent to award contracts for oil and gas projects.
In addition to the directives, Nigeria also launched its 2024 oil and gas licensing round, offering 19 blocks for exploration, demonstrating its commitment to continued collaboration with local, regional and international partners.
Market analysts note that with this momentum, further FIDs are anticipated, including TotalEnergies’ expected $750 million commitment to the Ima Shallow Gas Project in 2025.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.22 per cent decline on Monday, January 20, with the market capitalisation shedding N2.35 billion to close at N1.073 trillion compared with the preceding session’s N1.075 trillion and the NASD Unlisted Security Index (NSI) going down by 6.79 points to wrap the session at 3,105.12 points compared with 3,111.91 points recorded in the previous session.
It was observed that the loss recorded on the first trading day of the week was triggered by UBN Property Plc, which crashed by 20 Kobo to trade at N2.00 per share versus last Friday’s N2.20 per share.
However, the share price of Industrial and General Insurance (IGI) Plc went up by 4 Kobo to 40 Kobo per unit from 36 Kobo per unit, it could not stop the bourse from going down at the close of transactions.
The activity chart showed that on Monday, the volume of securities traded by investors increased by 57.9 per cent to 767,610 units from the 486,215 units traded in the preceding session, while the value of shares traded yesterday slumped by 17.7 per cent to N2.3 million from the N2.8 million recorded in the preceding trading day, as the number of deals declined by 14.3 per cent to 12 deals from the 14 deals carried out in the previous trading day.
At the close of transactions, FrieslandCampina Wamco Nigeria Plc remained the most active stock by value on a year-to-date basis with the sale of 4.1 million units worth N162.9 million, followed by Geo-Fluids Plc with a turnover of 9.1 million units valued at N44.0 million, and 11 Plc with the sale of 55,358 for N14.5 million.
Also, Industrial and General Insurance (IGI) Plc closed the day as the most active stock by volume on a year-to-date basis with 25.3 million units sold for N5.9 million, Geo-Fluids Plc came next with 9.1 million units valued at N44.0 million, and FrieslandCampina Wamco Nigeria Plc with 4.1 million units worth N162.9 million.
By Adedapo Adesanya
The value of the Naira weakened against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Monday, January 20 amid FX pressures associated with this period.
Most people who came into the country for Christmas and New Year holidays are already going back and are in need of forex, putting pressure on the local currency.
Also, the poor performance of the domestic currency could be attributed to end to the 42-day access granted by the Central Bank of Nigeria (CBN) to Bureaux de Change (BDC) operators to buy forex at official price.
According to data from the FMDQ Securities Exchange, the Nigerian Naira lost 0.16 per cent or N2.47 on the greeback yesterday to sell at N1,550.05/$1, in contrast to last Friday’s rate of N1,547.58/$1.
Similarly, the Naira slumped against the Pound Sterling in the spot market on Monday by N23.39 to trade at N1,906.98/£1 versus N1,883.59/£1 and depreciated against the Euro by N23.14 to sell for N1,613.48/€1 compared with last Friday’s N1,590.34/€1.
However, in the parallel market, the Nigerian currency improved its value against the Dollar during the session by N5 to quote at N1,665/$1 compared with the previous session’s N1,670/$1.
As for the cryptocurrency market, it turned red yesterday as the US President, Mr Donald Trump, didn’t bring up the much-expected subject of crypto in his inauguration speech on Monday afternoon.
Mr Trump had promised a far more friendly crypto policy stance than the previous administration but in the long speech that announced his plans in the coming days, he didn’t make mention of Bitcoin or crypto.
Just over the weekend, the President ignited a speculative frenzy with the Friday evening launch of the Trump meme coin, which was shortly followed by a meme coin associated with his wife, Melania.
Dogecoin (DOGE) crumbled yesterday by 6.3 per cent to $0.3419, Solana (SOL) slumped by 4.7 per cent to $235.32, Cardano (ADA) fell by 3.6 per cent to $0.9777, and Litecoin (LTC) moderated by 1.9 per cent to $114.98.
Further, Ethereum (ETH) went down by 1.7 per cent to $3,241.36, Binance Coin (BNB) retreated by 1.4 per cent to $693.30, Ripple (XRP) depreciated by 1.2 per cent to $3.06, and Bitcoin (BTC) tumbled by 0.8 per cent to $101,746.99, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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