Rising interest rates squeeze businesses, Lagos Chamber of Commerce warns

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The Lagos Chamber of Commerce and Industry (LCCI) has expressed concern over the impact of rising borrowing costs on Nigerian businesses. The chamber’s president, Gabriel Idahosa, made the remarks during a recent LCCI quarterly economic outlook presentation.

According to Idahosa, recent Central Bank of Nigeria (CBN) interest rate hikes have made it more expensive for businesses to access loans. These loans are crucial for working capital, financing expansion plans, and ensuring business sustainability.

He said, “We have consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector.

“The real sector has demonstrated the capacity to create more jobs, produce goods and services for consumption and export, and expand the economy’s GDP base.

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“While we understand that high-interest rates attract foreign portfolio investments and local investors to Treasury Bills and bonds, we are concerned about the drying up of funds away from the private sector to government treasuries.”

The LCCI argues that while the CBN’s aim to curb inflation through interest rate adjustments is understandable, it may not be the most effective solution. Idahosa highlights the importance of addressing challenges within the real sector of the economy, which encompasses businesses involved in production and manufacturing. A strong real sector is believed to create jobs, produce goods for domestic consumption and export, and contribute to overall economic growth.

The LCCI further expresses apprehension about the potential crowding out of private sector investment by increased government borrowing. High-interest rates may incentivize investors to park their funds in government treasuries through Treasury bills and bonds. This could limit the availability of credit for businesses, hindering their ability to grow and contribute to the economy.

The LCCI’s concerns raise important questions about Nigeria’s economic policy direction. Balancing the need to control inflation with fostering business growth is a complex challenge. The chamber suggests policymakers consider alternative measures to address inflation alongside ensuring a conducive environment for business activity.