The Manufacturers Association of Nigeria (MAN) has said that members were charged 21.25 percent interest rate by deposit money banks in 2019.
The association said in its 2019 economic review that such high cost of borrowing remains a core challenge for the manufacturing sector in the country.
Nigerian manufacturers have often complained that they are unable to have access to cheap funds to expand and enjoy economies of scale.
They argue that even when funding is available at single-digit rates in financial institutions like the Bank of Industry (BOI), they are often insufficient to reach a greater number of real sector players in the economy.
“High cost of borrowing has continued to be a perennial challenge to the manufacturing sector,” MAN said.
In the first half of 2019, average interest rate charged to manufacturers was 22.5 percent, but it decreased to 20 percent in the second half, according to MAN.
The Monetary Policy Rate (MPR), which is the benchmark interest rate in Nigeria, is 11.5 percent in 2020. It was 12.5 percent in 2019. The rate goes up 22-35 percent at deposit money banks.
Nigerian businesses are desperately scrambling for liquidity as financial institutions lend at 22 to 35 percent, according to analysts. Nigeria has one of the highest lending rates in Sub-Saharan Africa. South Africa’s repo, equivalent to Nigeria’s MPR, is 3.5 percent. Kenya’s MPR is 7.25 percent, while Zambia’s is 8 percent.
Ethiopia benchmark interest rate is currently 7 percent while Namibia’s is 7.75 percent. Average lending rate in Mali is estimated at 9.12 percent while it is 4.25 percent in Botswana. Inflation in Nigeria increased to 14.9 percent in November 2020, from October’s 14.2 percent, making cutting interest rate further a difficult decision for the central bank.