The manufacturing sector in Nigeria has witnessed a significant increase in its debt to banks, with a rise from N5.56 trillion in January 2023 to N6.98 trillion in June 2023, according to the Central Bank of Nigeria’s Sectoral Analysis of Deposit Money Banks’ Credit.
This surge in debt is indicative of the challenges faced by the industry and its reliance on bank financing to sustain operations.
Between January and June 2023, manufacturers in Nigeria borrowed a substantial sum of N1.42 trillion, further emphasizing the sector’s need for financial support to maintain growth and operations.
This increase in borrowing resulted in a 52.08 percent rise in banks’ credit to the sector over the past year, from N4.53 trillion in June 2022 to N6.98 trillion in June 2023.
A monthly breakdown of lending activities revealed fluctuations throughout the year, with N5.56 trillion borrowed in January, N5.57 trillion in February, N5.65 trillion in March, N5.81 trillion in April, N5.70 trillion in May, and the highest at N6.98 trillion in June.
This surge in debt comes amidst a backdrop of rising benchmark interest rates imposed by the Central Bank of Nigeria.
The Monetary Policy Committee increased the rate from 11.5 percent in the previous year to 18.75 percent in June, marking eight consecutive rate hikes.
These measures are aimed at curbing inflation and reducing liquidity in the financial system, but they have a direct impact on the cost of production and competitiveness within the manufacturing sector, as stakeholders have pointed out.
Stakeholders in the manufacturing sector have voiced concerns that the current double-digit lending rates are unfavorable and are affecting the industry’s ability to compete effectively.
They argue that this high-cost borrowing is putting pressure on production costs and hindering the sector’s growth potential.
The Nigerian government, as part of its economic strategy, has expressed its commitment to increasing credit to private sector operators.
The recently released Medium-Term Expenditure Framework and Fiscal Strategy Paper stated that credit to the private sector is expected to increase, driven by the government’s plan to achieve higher economic growth through private sector participation.
In contrast, borrowing by farmers for agricultural production declined slightly, from N1.85 trillion in January to N1.83 trillion in June.
This decrease in loan appetite within the agricultural sector underscores the importance of reducing borrowing costs for farmers to stimulate agricultural expansion and ensure food security in the nation.
Salihu Imam, Chairman of the association, emphasized the need for affordable loans in the agricultural sector. He stated, “Reducing lending costs to two percent is not just a demand; it is a necessity for the growth of our agricultural sector.
Farmers are the backbone of our nation, and affordable loans are the fuel that propels us forward. Providing affordable loans is an investment in our collective future, ensuring food security and economic stability.”
The rising manufacturing sector debt and the challenges it faces in securing affordable financing, coupled with the declining appetite for agricultural loans, highlight the complex dynamics of Nigeria’s credit market and its impact on key sectors of the economy.
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