*Dr. Muda Yusuf, Managing Director/CEO of the Centre for Promotion of Private Enterprise, and the Manufacturers Assocaition of Nigeria critically examine the far-reaching impact of the Central Bank of Nigeria鈥檚 return to 鈥榦rthodox monetary policies鈥�, asserting the commercial banks鈥� focus on high commissions, payment charges and fees, rather than supporting businesses with affordable credit, is also worsening the current economic challenges in the country

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Dr. Muda Yusuf, Managing Director/Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), has differed with the Nigerian banks for allegedly focusing on 鈥減rofit generation鈥� through high commissions, payments, and fees while declaring humongous earnings rather than their primary role of driving economic growth in the West African country.

Dr. Yusuf disclosed this at the recent 2024 Treasury 360 Conference & Exhibition, with the theme, “Policy Implications and Building Sustainable Treasury Strategies: Nigerian Perspectives on Tackling Inflation and Interest Rate Uncertainty”.

Yusuf explained that the financial sector鈥檚 focus on high commissions and payments, rather than supporting businesses with affordable credit, is exacerbating the country鈥檚 economic challenges.

Dr. Muda Yusuf, Managing Director/CEO of Centre for Promotion of Private Enterprise

The expert stated: “Increasingly, we are having a banking financial system that is disconnected from the real economy.

“And that is not the primary function of the bank. The primary function of the bank is what we call financial intermediation.

“You channel resources from the surplus end of the economy to the deficit end of the economy is the primary purpose of the bank. But we are failing in that.鈥�

X-raying severe impact of high interest rates on key sectors of economy

On the far-reaching effects of the rising interest rates in Nigeria, Yusuf also explained: “What we are now seeing, especially in our banking, is just managing the payments and charging commissions here and there and posting huge profits.

“Because no matter what you say, money will still pass through there. Even if you are making losses, your money will still pass through there.鈥�

Contextualising his argument on the current focus of most banks in the country, the expert also noted that the severe impact of Nigeria鈥檚 high interest rates that have surpassed 30 percent is visible in key sectors, such as manufacturing, agriculture, and real estate.

He asked: 鈥淚nterest rates have gone to 30 percent and above. Now how many sectors can fund their business with the current level of interest rates? Can the manufacturing sector support manufacturing investment?

鈥淏anks are advising companies that they have, as a result of the last MPC.

“Interest rates have been revised to 38%.鈥�

Photo collage of Mr. Segun Ajayi-Kadir, Director-General of MAN and Association’s logo

He stated: 鈥淥f course, there is no way the financial sector can support manufacturing, under that kind of framework.

“The same thing in agriculture, how can you, as a farmer, go and borrow money at 30%? Same with the real estate, which is critical for any economy.鈥�

Irregular, high costs of power supply negatively affecting business growth, says MAN

In a related development, the Manufacturers Association of Nigeria (MAN) earlier, had identified epileptic power supply and its exorbitant cost as one of the significant challenges that have continued to stifle the growth of the real sector sector of the economy.

Mr. Segun Ajayi-Kadir, Director-General of MAN, stated that about N221.28 billion, indicating a 265.9 percent or N160.81 billion increase, was recorded as expenditure on alternative energy in the second half of 2023, when compared to N60 47 billion recorded in the first half of that year.

The Association also noted the 200 percent increase in electricity tariffs聽 in Nigeria could be said to be the major cause of the current higher operational costs in the industry.

According to the Ajayi-Kadir, this situation had contributed to visible reduction in the sector鈥檚 growth to 1.40 percent 2023, from 2.45 percent recorded in the previous year.

Call for government interventions amid CBN鈥檚 market-driven solutions

According to the expert, the return to orthodox monetary policies under the new leadership of Dr. Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN) contrasts sharply with the unorthodox approaches implemented by former CBN Governor Godwin Emefiele.

Yusuf said while the former regime relied on heavy state intervention, the new CBN policy is leaning towards more market-driven solutions.

He, however, warned that the current orthodox approach, while necessary for fiscal discipline, is not without its challenges.

The economic expert averred that the high interest rates resulting from the banking sector regulator鈥檚 policy are fast becoming a major obstacle for businesses, particularly in sectors that depend on credit for growth in Nigeria.

Yusuf highlighted the benefits of combining elements from both orthodox and unorthodox monetary models to create a balanced framework.

He stated: 鈥淣one of the models are perfect, but we should leverage the strengths of each to build a more resilient economy.鈥�

As the country is able to build a more resilient Nigerian economy, Dr. Yusuf submitted that the country鈥檚 financial sector could benefit from studying other economies, particularly in Asia, where targeted government interventions have promoted economic development without stifling market forces.

He said: 鈥淲hile markets are essential for growth, government intervention is necessary when market failures occur.

“Nigeria needs to ensure that its economic policies strike a balance between free-market principles and targeted state support for key sectors.鈥�

Yusuf added that excessive adherence to market principles without adequate state interventions could lead to market failures in this regard.

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