New Telegraph

H1’24: Manufacturers Incurred N730bn In Capital Expenses

…value of unsold goods hits N1.2trn

The Manufacturers Association of Nigeria (MAN) has revealed that over the first six months of the year, local manufacturers incurred more than ₦730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks.

The association said the dilemma was hampering innovation, productivity and growth. Similarly, MAN stated that the first half of the economic review it published revealed a troubling trend with the value of unsold goods inventory surging by 42.93 percentage points, reaching N1.24 trillion compared to N869.37 billion at the close of 2023.

The Director-General of MAN, Mr. Segun Ajayi-Kadir, who made this known to New Telegraph in a statement, said that the continued increase in interest rates, which now totalled 15.75 percentage points since May 2022, would compound the challenges faced by the sector, including rising production costs in the face of declining consumer purchasing power.

Ajayi-Kadir explained that with the increase in borrowing costs, manufacturers would now pay over 35 per cent on their credit facilities. Clearly, the MAN DG highlighted this would lead to increase in production costs, higher prices of finished goods, lower competitiveness and production capacity expansion.

Ajayi-Kadir said: “The impact of higher interest rates goes beyond compounding the challenges of manufacturers, it stifles opportunities for investment in crucial areas such as technology, retooling, and expansion within the manufacturing sector.

“Manufacturers will, all the more, be compelled to choose servicing existing credit facilities over expansion and investment in new product lines. “For instance, over the first six months of the year, manufacturers incurred more than N730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks.

This dilemma hampers innovation, productivity and growth. “Moreover, the manufacturing sector is grappling with depressed consumer demand, primarily driven by lower purchasing power. This decline has severely hampered capacity utilization within the sector.

“Data from the first half of the economic review published by the Manufacturers Association of Nigeria reveals a troubling trend: the value of unsold finished goods inventory surged by 42.93 percentage points, reaching N1.24 trillion compared to N869.37 billion at the close of 2023.

“This growing stockpile of unsold products underscores the difficulties manufacturers face in a weakening market.” While speaking further, the MAN boss stressed that the broader implications of these challenges threatened not only the manufacturing sector but also the economy as a whole.

According to him, “truth be told, the capacity to absorb the country’s growing youth population into meaningful employment has diminished significantly with the attendant adverse socioeconomic and security implications.”

He noted: “In broad terms, MAN is worried about the implications of the continuous rate hikes on the productive sector and earnestly expects the CBN to stop the rate hike but explore more of the monetaryfiscal policy handshake option to curb inflation.”

On his reaction to the 27.25 per cent lending rate, Ajayi-Kadir said: “Manufacturers Association of Nigeria acknowledges the efforts of the Central Bank of Nigeria to stabilise the economy.

“The Association is, however, surprised that the CBN is increasing the MPR against the backdrop of the meagre improvement in inflation figures, which could be largely traceable to the onset of the harvest season.

“We also note that this increase is coming at a time that Central Banks, in other climes are either retaining or cutting rates. “It is, therefore, expedient that government adopt a holistic and balanced approach to policy formulation and decisions, with due consideration of their overall impact on the various sectors of the economy, particularly the productive sector.

“Undoubtedly, price stability is crucial, and so is the survival and growth of the manufacturing sector. “This should be top priority at this time and is in line with the government avowed commitment to growing domestic production, creating more jobs and alleviating poverty.”

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