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)
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