MAN: Worrisome acceleration of inflation rate  should be halted as matter of urgency

Chris Uba

The Manufacturers Association of Nigeria (MAN) has raised concerns over the rising wave of inflation in the country ,tracing it to certain inadequacies and failure by the monetary authorities  to address the shortcomings.

MAN said in addition to the familiar triggers of inflation in Nigeria, such as issues of seasonality, insecurity, food shortages, shortfall in the supply of raw materials for production of food related products, fertilizers and others not available locally, the following were the top three drivers of inflation in the month under review: fuel scarcity, continuous growth in broad money supply and naira depreciation

Nigeria remains a highly import dependent economy, as such, the exchange rate pass-through effect continues to worsen inflation with the domestic currency depreciating by over 22 percent within the last twelve months.

At present, the exchange rate premium has further widened by ₦194 with the Naira trading at about N610/$ and N415.83 at the parallel and official markets respectively

MAN is the national umbrella body of manufacturers in Nigeria, which has contributed significantly  through its advocacy to the economic policies in the country ,especially as it affects the manufacturing sector.

In broad terms, said MAN whose position is contained in a statement  by its Director General, Segun Ajayi-Kadir, “inflation rate has assumed an upward swing, which of course, signals worsening economic times ahead. For instance, a cursory look at the report revealed that the 18.6 percent rate portends a gradual journey towards the 18.72 percent peak inflation rate recorded in January 2017.

“Obviously, this is a worrisome acceleration of inflation rate that should be halted, especially giving the fact that socio-political and economic activities that trigger spike in inflation are imminent.”

According to MAN , “the implications of the high inflation rate for the Manufacturing Sector include: rising increase in cost of production inputs with trickle down effects on capacity utilization, inventory and profitability of manufacturing firms; higher MPR and Lending Interest Rate, which will further constrained access to credit and increase the cost of borrowing for manufacturers, especially those in the SMI cadre and upward swing in the value of shares for manufacturing concerns listed on the stock exchange.

“ It will also have differing implications like reduction in demand for manufactured products leading to poor sales and turnover; lower competitiveness as the high inflation rate further mounts pressures on the already very high-cost operating environment, which may hinder the prospect of beneficial trade in the region and the continent.

“Others include- further loss in the value of the Naira; increase the tempo of hoarding dollars; deepening of downward swing of export earnings, which of course will worsen the forex challenge in the country and closure of more companies as the capacity to meet obligations to internal and external stakeholders is greatly impaired.”

MAN, strongly believes that high inflation is a major indication of macroeconomic inadequacies and failure to take steps to address the contributory factors will further limit economic growth and increase the rate of unemployment in the country.

 MAN said , by reducing purchasing power, high inflation reduces aggregate demand and limits production which eventually results in a fall in employment.

“On the flip side of the coin, it will escalate the value of public debt servicing expenditure due to the exchange rate pass-through effect in the face of increase in fuel subsidy cost and rising global oil prices,” it said, adding that the resultant  effect is lesser resources for public investment expenditure needed to catalyse and sustain economic growth.

To avert the earlier mentioned negative trickle-down effects of high inflation on the economy and the manufacturing sector,  MAN said government needs to consider the following:

Deploy a bouquet of supply-driven policies back with more structural measures to combat the peculiar inflationary pressures from insecurity, energy and transport cost and further reduce the reliance of the country on imported products and raw materials by encouraging local sourcing through a comprehensive and integrated incentivized system since Nigeria is largely bearing the brunt of imported inflation.

Government  should , intentionally resolve all forex related challenges confronting the productive sector by making a detour from the CBN’s foreign exchange regime that greatly contradicts one of the goals of the National Development Plan, which seeks to attain quick convergence of the foreign exchange rates.

Government should also sustain effort at improving infrastructural developments and ensure are economically driven to reduce susceptibility to externally-induced inflation, as adequate provision of infrastructure in strategic hubs reduce operation and logistics cost and promote competitiveness.

 Effort should be made  to accelerate the process of ensuring sustainable local refining of petroleum products by reactivating those currently quiescent, support the coming on stream of Dangote refinery and issue licenses for new refineries.

Because ,this will clearly reduce the pressure of the foreign reserve and mitigate the vulnerability of the economy to the external supply shock that has resulted in energy crisis.

 There is the urgent need to strategically position the oil and gas industry to benefit maximally from future interruptions in global supply that triggers increase in price of crude oil. It is appalling that an oil-producing country like Nigeria is at a disadvantage at a time when global oil prices are rising.

Government should strive to always meet the oil production quota set by OPEC, increase oil revenue and reduce budget deficit that has worsened inflation.

  The government  should introduce favourable investment oriented and security measures that will encourage private investment inflow into the oil and gas industry in order to pave way for the rehabilitation of the traditional full-scale refineries, develop the regulatory framework for the establishment of modular refineries.