Nigerian cable tycoon George Onafowokan demands a rate cut from the Bank of Industry

Nigerian commercial banks were already lending at between 22% and 23% before the central bank cut its benchmark rate this week, George Onafowokan said, which put the market well below the 26.5% the Central Bank of Nigeria had been charging on paper.

The bank cut the monetary policy rate by 350 basis points to 23% at its 307th meeting, the largest single reduction in its history, after inflation slowed to 15.39% in August for a third consecutive month. It also recalibrated the corridor around the rate, so banks now place excess funds with it at 20% and borrow from it at 23.5%.

Onafowokan, who runs Coleman Technical Industries, called the decision a reset rather than a stimulus. The recapitalisation of Nigerian banks strengthened their equity and lending capacity, he said, which boosted liquidity and made them compete harder for borrowers, and that competition had already dragged actual lending rates below the official one.

He had seen it coming. Onafowokan told Billionaires.Africa on Sept. 1 that the central bank could start cutting from 26.5% within two meetings. It came at the next one.

Borrowers should not expect relief immediately. The effect will filter through the economy over the next two to three months, he said.

What he wants next is a cut somewhere else. Onafowokan said the Bank of Industry, the state-owned development finance institution, has let its lending rate drift too close to what commercial banks charge, and called on the central bank, the finance ministry and the federal government to help it return to a rate that reflects its mandate.

The cost of money is not abstract for his company. Coleman is the largest cable manufacturer in West Africa and the sixth largest in Africa, founded by his father Solomon Onafowokan in 1975, and it raised debt earlier this year targeting up to 50 billion naira, about $37 million, to fund expansion after opening a fibre optic plant.

Power is the other cost. Coleman has spent more than $20 million building its own gas-fired generation because the Nigerian grid cannot supply its factories, and Onafowokan has argued that industrial gas should be priced at about $3.50 per thousand standard cubic feet, well below what manufacturers currently pay.

A manufacturer borrowing at 23% instead of 26.5% saves 3.5 naira on every hundred borrowed each year. On 50 billion naira that is 1.75 billion naira, about $1.3 million.