The Centre for the Promotion of Private Enterprise (CPPE) has urged the Central Bank of Nigeria (CBN) to reconsider its heavy reliance on monetary tightening as a policy tool. Highlighting the struggles faced by the manufacturing and agricultural sectors, the CPPE emphasizes the need for robust fiscal support instead of further monetary constraints.

The Context of Monetary Tightening

Monetary tightening, characterized by rising interest rates and restrictive credit conditions, is often deployed to combat inflation and stabilize currency. However, in Nigeria, this approach has had unintended consequences for critical sectors like manufacturing and agriculture.

With interest rates at record highs, borrowing costs for businesses have soared, reducing access to credit and stifling investment. For sectors already grappling with infrastructure challenges, high production costs, and foreign exchange volatility, monetary tightening has added an extra layer of difficulty.

The CPPE’s Perspective

The CPPE argues that Nigeria’s economic challenges require a more nuanced approach. Dr. Muda Yusuf, the CPPE’s Director, notes that the manufacturing and agricultural sectors are pivotal to job creation, food security, and economic diversification. Yet, these sectors face disproportionate burdens from the CBN’s monetary policies.

Instead of relying solely on interest rate hikes to manage inflation, the CPPE advocates for:

1. Increased Fiscal Support: Direct funding, tax reliefs, and subsidies to lower production costs for manufacturers and farmers.
2. Infrastructure Investment: Improved transportation, power supply, and storage facilities to reduce overhead costs and improve sectoral productivity.
3. Exchange Rate Stabilization: Addressing foreign exchange volatility to ensure predictable pricing of imported inputs.

The Manufacturing Sector’s Struggles

Nigeria’s manufacturing sector has long been the backbone of industrial development. However, its potential remains untapped due to systemic bottlenecks, including poor access to credit, unreliable power supply, and high logistics costs.

Monetary tightening has further dampened the sector’s growth. High borrowing costs have forced many manufacturers to cut production or shut down entirely, exacerbating unemployment and eroding consumer purchasing power.

Agriculture: The Heart of Nigeria’s Economy

As one of the largest employers in the country, the agricultural sector plays a vital role in ensuring food security and rural development. Yet, farmers face numerous challenges, including limited access to affordable financing, inadequate storage facilities, and climate-related risks.

Monetary tightening has limited farmers’ ability to secure loans for inputs like seeds, fertilizers, and equipment. Without fiscal intervention, these constraints could lead to reduced productivity, higher food prices, and increased poverty in rural areas.

Balancing Inflation Control with Growth

The CBN’s focus on inflation control is understandable, given the negative impact of rising prices on consumers. However, experts argue that inflation in Nigeria is driven more by supply-side constraints than excessive demand. Addressing structural issues such as poor infrastructure, insecurity, and high import dependence could be more effective in tackling inflation than raising interest rates.

Policy Recommendations

To support the manufacturing and agricultural sectors, the CPPE recommends:

1. Targeted Fiscal Policies: The government should implement sector-specific interventions, such as grants, low-interest loans, and tax incentives.
2. Public-Private Partnerships (PPPs): Collaborating with private investors to fund infrastructure projects that benefit these sectors.
3. Enhanced Credit Access: Partnering with commercial banks and microfinance institutions to provide affordable loans tailored to the needs of manufacturers and farmers.
4. Integrated Economic Policies: Aligning monetary, fiscal, and trade policies to create a conducive environment for sectoral growth.

The Way Forward

For Nigeria to achieve sustainable economic growth, it must prioritize sectors that drive job creation and value addition. Manufacturing and agriculture hold the key to diversifying the economy, reducing poverty, and enhancing resilience against external shocks.

The CBN’s monetary policies should complement, not hinder, fiscal initiatives aimed at empowering these sectors. A collaborative approach involving fiscal authorities, financial institutions, and industry stakeholders is essential for unlocking Nigeria’s economic potential.

The CPPE’s call to action underscores a critical reality: Nigeria’s economic challenges cannot be solved through monetary tightening alone. Fiscal support tailored to the unique needs of the manufacturing and agricultural sectors is not just desirable—it is imperative. By adopting a balanced policy framework, Nigeria can foster inclusive growth and build a more resilient economy.