‘Fiscal, Monetary Policy Issues Bane of Real Sector Growth’ | Independent Newspapers Limited
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‘Fiscal, Monetary Policy Issues Bane of Real Sector Growth’

Posted: May 4, 2015 at 12:00 am   /   by   /   comments (0)

By Andrew Airahuobhor Lagos

Interest rates of over 20 percent on banks charge for loans has long been blamed for inability of companies in the real sector to be competitive compared to companies in other jurisdictions. But executive director of Sterling Bank, Abubakar Suleiman thinks otherwise.

“If you look at the cost profile of the real sector, interest rate is not the real problem,” he said, explaining that there are fiscal, monetary and regulatory policy issues that need to be adjusted for that sector to excel.

Although the banks have been increasing exposure to the real sector lately, significantly increasing lending in the last couple of years according to sources, Suleiman notes that the real sector has couple of problems that needs to be resolved.

“First, the cost of power is a significant part of why the real sector is struggling to be competitive.  Even when companies in the real sector are not borrowing they are not necessarily more competitive than similar companies in other jurisdictions, “Even zero percent interest rate does not resolve the problem of the real sector,” he said.

On the regulatory issues, Suleiman said, the cost of compliance in Nigeria is exceptionally high as people who do business in the country have severally lamented the large number of regulatory and approval processes that exist, all of which comes with its unique cost.

“It is important that legislators look at these aspects that impact business,” he said, adding that other problem is fundamental competitiveness. For a company to be competitive, it needs economic infrastructure and skilled labour.

He identified power and transport infrastructure as the greatest challenge.

“So, when people focus on financing, I think they completely miss the point”, he said

He added that banks does not set the interest rate level as they simply work with the monetary policy rate (MPR) set by the Central Bank of Nigeria (CBN), which is 13 percent. When banks adjust for tax, the effective rate at which they can lend is already 20 percent.