Investors in Nigeria hardly make profit due to hikes in MPR, inflation rate — Experts
By Ogaga Ariemu
Economists and financial experts have raised concerns that investors in Nigeria hardly profit due to harsh economic realities occasioned by an increase in the Monetary Policy Rate and untamed inflation rate.
In an interview with Nigeria NewsDirect on Monday, the former President Chartered Institute of Bankers of Nigeria (CIBN), Prof Segun Ajibola, disclosed a disconnect between the MPR and the reality of rates in the banking sector.
He said Nigerians may likely experience constraints in the second quarter of 2023 owing to the current prevailing economic conditions.
Accordingly, the burden of increased interest and inflation rates would definitely be passed to customers who will have to pay higher prices for goods and services.
He explained that investors in Nigeria hardly make a profit due to the high cost of production.
He added if well managed, a likely removal of fuel subsidies by May 2023 would be a defining factor at the end of Q2.
“The MPR is a reference rate; it becomes compelling if any DMBs approach the apex bank for a loan. Nigeria’s response rate has been very slow, deposit rates are low, and the loan interest is relatively high. There is still a disconnect between MPR and the whole rates in Nigeria.
“The inflation here in Nigeria is cost-pull, not demand-pull. An average manufacturer is securing more cost, which is usually passed on to the customers. If you now relate the MPR to inflation, the real interest rate is still negative. In other words, the average investor in Nigeria is losing.
“And we are now talking about the likely removal of fuel subsidies, but the effect can be managed to benefit the economy if the refinery is working, Dangote private refinery working, at the end of the day, there would be a silver lining. With CBN addressing the issue of the Naira crisis, small-scale businesses would bounce back in due time. In all, it is a complex issue that needs a comprehensive solution. You cannot address MPR and Inflation in silos,” he said.
On his part, the Director of the Centre for the Promotion of Private Enterprise, Muda Yusuf, disclosed the effect of the cash crisis and post-electoral rhetoric that would impact the economic outlook of the second quarter of 2023.
He said there might be an increased confidence level post-inauguration period of Bola Ahmed Tinubu’s administration.
He added that the general economic policy of the incoming government would determine if there would be prosperity or austerity in Nigeria.
“The lingering effects of the cash crisis and the post-election agitations and rhetoric will impact the economic outlook for the second quarter. But we should see an elevated confidence level after the new administration’s inauguration at the centre. A lot depends on the quality of policy signalling by the new administration.
“Pronouncements on the administration’s commitment to key reforms would impact investors’ sentiments. The quality of the economic team will also be a significant factor.
“The hike in MPR and corresponding effects on interest rates will negatively impact operating costs of businesses that have debt exposures to the commercial banks. But the bigger issue would be the general economic policy direction of the new administration”, he stated.
The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, last week raised MPR to 18 per cent from 17.5 per cent to tame inflation. This is as Nigeria’s inflation rates have continued to jump, now standing at 21.91 per cent according to the National Bureau of Statistics (NBS) recent February’s data.
