Sunday, 24 December 2017

REDUCTION OF INTEREST RATES FOR MANUFACTURERS

The Federal Government has set up machinery to crash interest rates to single digit for the manufacturing sector, in order to promote private sector investments and boost economic activities.  The Vice President, Professor Yemi Osinbajo, announced that a committee has been constituted and mandated by the government to work on the new policy.        

He spoke at the commissioning of the 300-million-litre-capacity tank farm built by Petrolex Oil and Gas in Ibefun, Ogun State, and promised that the details of the initiative would soon be announced.  The policy, he said, is designed to encourage access to loans for the manufacturing sector with a view to boosting economic activities, having realised that the sector is key to the resetting of the economy. Adequate motivation of the manufacturing sector is expected to boost its capacity and, in turn, trigger   more economic activities.

We welcome this proposal, even though it has come rather late in the life of this administration.  This policy ought to have been instituted at the inception of the President Muhammadu Buhari government. It should even have been a fundamental policy of every Nigerian government to increase access to loans at affordable rates to boost manufacturing and the economy. It is, however, never too late to take the right course.

For many years, the Manufacturers Association of Nigeria (MAN) has decried the unbearably high interest rates which discouraged production and quickened the onset of the recession. Many industrialists have, over   the years, complained about the high interest rates which, at about 30 per cent, were unsustainable for manufacturers.  So many manufacturing firms have, as a result of this, closed shop and moved their operations abroad.

Profitability has also taken a big hit, as many manufacturers are only struggling to sustain their operations.  Many of the nation’s blue chips have reported low profit after tax results in the last few years.

Many aspiring investors in the manufacturing sector cannot venture into the business because of the fear that they would not be able to break even on account of the high cost of funds.  It is, indeed, difficult to determine the businesses that can be profitably done in the manufacturing sector, with the cost of funds hovering around 28 per cent.

The results of the unsustainable interest rates are the high rate of bad and doubtful debts, and the high number of non-performing loans which, at a point, almost became a threat to the survival of the banking industry.  Another negative impact of the high rates is that Nigerian projects are generally regarded as the most expensive in the world. This is quite apart from the padded contracts and massive over-invoicing which also influence costs in the country.  For example, the cost of construction contracts is much higher in the country than in countries like Kenya, Ghana, India and Pakistan.  This situation, which is further worsened by corruption, depresses the economy and stultifies growth.

We wish the Vice President and the committee charged with the formulation of this policy well.  We think it is a good initiative.  When done, it would breathe new life into the economy.  Manufacturing is the key to the industrialisation of the country and it holds vistas of hope for the creation of more jobs and the development of the country.  A more robust manufacturing sector would ensure that most imported items are produced locally and when they are available in abundance, this will bring down prices and raise standard of living. It will also reduce unemployment.

This is not to say that the cost of funds is the only factor militating against the industrial sector.  Power is another critical impediment.  However, the availability of funds at reasonable interest rates will help to address the other problems.  With cheaper funds, manufacturers will be able to procure generators as an alternative to public power supply.

We urge the Federal Government to quicken the process for the implementation of this policy. It should also reconsider the country’s high monetary policy rate of 14 per cent while it is six per cent in India, 4.75 per cent in Indonesia, three per cent in Malaysia, 2.25 per cent in Morocco, 5.75 per cent in Pakistan, 1.25 per cent in the United States, 0.05 per cent in the United Kingdom and 0.10 per cent in Israel. (Sun)