Monetary policy tightening by CBN impacted on manufacturing sector, says, finance expert
A finance expert and Professor of Finance and capital markets, Nasarawa State University Keffi, Prof Uche Uwaleke has attributed the poor performance of the manufacturing sector in the latest Gross Domestic Product (GDP) to monetary policy tightening stance of the Central Bank of Nigeria (CBN) in July and September of 2022 and the resultant high lending rates.
He said the rate had adverse impact on the sector, coupled with foreign crisis and high energy costs.
The manufacturing sector is comprised of 13 activities; oil refining; cement; food, beverages and tobacco; textile, apparel, and footwear; wood and wood products; pulp paper and paper products; chemical and pharmaceutical products; non-metallic products, plastic and rubber products; electrical and electronic; basic metal and iron and steel; motor vehicles and assembly; and others.
The National Bureau of Statistics (NBS) in its third quarter (Q3) 2022 GDP report disclosed that real GDP growth in the manufacturing sector was -1.91per cent (year-on-year), lower than the same quarter of 2021 and lower than the preceding quarter by 6.20per cent points and 4.91per cent points respectively.
The growth rate of the sector on a quarter-on-quarter basis stood at 8.95per cent. The Real contribution to GDP in the 2022 third quarter was 8.59per cent, lower than the 8.96per cent recorded in the third quarter of 2021 and lower than the 8.65per cent recorded in the second quarter of 2022.
Uwaleke said: “The dismal performance of the manufacturing sector reflects the disconnect between the Financial services sector and the real sector. It also indicates that the monetary policy tightening stance of the CBN in July and September of 2022 and the resultant high lending rates, may have had adverse impact on the manufacturing sector coupled with forex crisis and high energy costs.”
He said the Q3 real GDP performance in 2022 further underscores the increasing importance of the non oil sector.
“Despite a slump in oil sector performance due chiefly to the reduction in oil production to just 1.2 million barrels per day, the economy was still able to expand by 2.25per cent in the third quarter driven by the non-oil sector which contributed over 94 per cent to GDP.
“Another remarkable development is that there was an improvement in the agric sector relative to the previous quarter in spite of the flooding and insecurity in many parts of the country which goes to show that Agriculture remains one of the resilient sectors of our economy.
“It’s equally pertinent to note that, within the non oil sector, the positive real GDP growth rate recorded in the third quarter was powered mainly from the services sector especially Financial Services, ICT and Transportation as opposed to Industry and Agriculture where most of the jobs are.
“The impact of the prolonged ASUU strike equally reflected in the Education sector’s real GDP which dropped compared to the corresponding period in 2021.
“”These factors, including the base effect, will likely result in a lower GDP growth rate in the last quarter of this year,” he added.
Uwaleke said the real GDP growth rate can be improved if the challenge of oil theft and pipelines vandalism is tackled against the backdrop of favourable crude oil price.
“Also, in view of the negative impact of monetary policy tightening on economic growth, the CBN is advised to halt further hikes in the Monetary Policy Rate while using it’s open Market Operations and non-traditional measures including the effective implementation of the currency redesign and eNaira to control money supply. This suggestion is in view of the fact that inflation drivers in Nigeria are non monetary and policy tightening tend to hurt output growth,” he explained.
