LCCI Warns of Rising Borrowing Costs Impacting Nigerian Businesses

The Lagos Chamber of Commerce and Industry (LCCI) has expressed concern over the rising borrowing costs in Nigeria, which they say is impacting businesses, particularly Small and Medium Enterprises (SMEs). LCCI President Gabriel Idahosa stated that the recent hikes in the benchmark interest rate by the Central Bank of Nigeria (CBN) have made it more expensive for businesses to access credit for working capital expansion and sustainability.

Idahosa emphasized that the LCCI has consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector, which has the capacity to create more jobs, produce goods and services for consumption and export, and expand the economy's GDP base. "The LCCI is concerned about the drying up of funds away from the private sector to government treasuries, as the high yields from Treasury Bills and bonds are attracting investments from both local and foreign portfolio investors, which could significantly reduce real sector access to credit in the near term," Idahosa said.

Why this matters: The rising borrowing costs in Nigeria have broader implications for the country's economic growth and development. SMEs, which form the backbone of the Nigerian economy, are particularly vulnerable to high interest rates, as they rely on access to affordable credit to maintain their operations and foster growth. If left unaddressed, the current situation could lead to a slowdown in private sector investment, job losses, and reduced economic output.

LCCI Director-General, Dr Chinyere Almona, acknowledged the CBN's goals of curbing inflation and stabilizing the exchange rate, but emphasized the need to achieve these objectives without impeding private sector growth. She highlighted that the rate hike policy is particularly affecting SMEs, which rely on access to cost-effective credit to maintain their business activities and foster growth.

Additionally, Almona noted that the elimination of the electricity subsidy could attract foreign investment, but her main concern is the disproportionate cost burden on businesses due to unreliable electricity supply. The LCCI advocated for a robust metering initiative to ensure accurate billing for electricity consumers.

The LCCI's warnings come amidst the federal government's efforts to promote financial inclusion in Nigeria. The government recently signed the Aso Accord with state governments and private sector stakeholders to make financial services affordable and accessible to all Nigerians, including those who are disadvantaged or have low incomes. However, the rising borrowing costs pose a significant challenge to achieving this goal, as they make it harder for businesses and individuals to access credit.

Idahosa reiterated the LCCI's stance, stating, "The LCCI has consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector, which has the capacity to create more jobs, produce goods and services for consumption and export, and expand the economy's GDP base." The chamber's concerns highlight the need for a more comprehensive approach to addressing Nigeria's economic challenges, one that balances the goals of curbing inflation and stabilizing the exchange rate with the need to support private sector growth and development.

Key Takeaways

• LCCI concerned over rising borrowing costs impacting businesses, especially SMEs
• CBN rate hikes alone won't curb inflation without addressing real sector challenges
• High yields on T-bills diverting funds from private sector, reducing credit access
• Rate hikes particularly affecting SMEs that rely on affordable credit for growth
• LCCI advocates for comprehensive approach to address economic challenges