The High Interest Rates Will Have A Detrimental Impact On Businesses And Industrialization.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has expressed concern over the negative impact of high interest rates on industrialization and the growth of Micro, Small, and Medium Enterprises (MSMEs).

In an interview with New Telegraph over the weekend, he lamented that high interest rates have led to the destruction of businesses, especially MSMEs, in the country. Yusuf emphasized that high interest rates would only make it more challenging for businesses to thrive and create adverse conditions for economic growth. He pointed out that small and medium enterprises already struggle to access funding at a rate of almost 30%. With the recent interest rate hike, this rate could rise to as high as 35-40%. This situation makes it almost impossible for businesses to flourish, as only a privileged few have access to affordable funds.

Yusuf highlighted that the current scenario is discouraging for entrepreneurs who rely on loans from Microfinance banks, the Bank of Industry (BoI), or other commercial banks. The harsh reality is that borrowing from these institutions is not a viable option, leading to stagnation in business growth. Furthermore, those who have taken loans are at risk of losing their collateral, exacerbating the problem. To address these challenges, Yusuf proposed the establishment of development finance windows dedicated to supporting SMEs. He emphasized the importance of providing concessionary financing and alternative funding channels, such as BoI and other concessional windows, to ease the burden on MSMEs.

Additionally, the CPPE CEO pointed out that key factors outside the control of SMEs contribute to their struggles. The high cost of operating businesses due to energy expenses, including diesel and electricity, is a significant hindrance, particularly for those in production. The logistics costs involved in moving goods from one place to another further compound the challenges faced by SMEs. Furthermore, high costs associated with transportation and education affect families and communities, leading to school dropouts and the closure of educational institutions.

Yusuf raised concerns about foreign exchange fluctuations and the prohibitive cost of funds, which severely impact the cost environment for businesses. He stressed that these external factors make it extremely difficult for SMEs to operate efficiently and impede their potential for growth.

It is worth noting that the recent decision by the Central Bank of Nigeria to raise the Monetary Policy Rate (MPR) by 50 basis points to 27.25% surprised industry experts and the global financial community. This decision goes against the global trend of reducing interest rates to stimulate economic growth.

Yusuf further highlighted the adverse effects of high interest rates on the manufacturing sector, primarily composed of SMEs. As a consequence, many factory premises across the country have been repurposed for non-manufacturing activities such as event centers, supermarkets, worship centers, and warehouses for imported finished goods, among others.