Impact of Rising Interest Rates on Operational Performance of Manufacturing Company (a Case Study of Dangote Cement)
Impact of Rising Interest Rates on Operational Performance of Manufacturing Company (a Case Study of Dangote Cement)
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INTRODUCTION
BACKGROUND OF THE STUDY
The path to industrial development in Nigeria has been confronted over the years with the issue of interest rate which has affected savings mobilization and investment promotion. Interest rates are the rental payments for the use of credit by borrowers and return for parting with liquidity by lenders (CBN, 1997). Between August, 1987 and 2018, there have been regulations and deregulations of interest rate in Nigeria which has led to a rising level of interest rate all in a bid to manage the country’s capital allocation through the financial sector. (Udoka and Roland, 2012). The markets for cement constitute one of the fundamental products in the building and construction industry. The fear of property developers and prospective homeowners lie on the fluctuating nature of the prices of cement in the market. The current price of cement has escalated from N1, 600 to N2, 700 depending on the location. This has also led to the increase in the price of concrete blocks from N180 and N200 for a six inch and nine-inch block respectively. The industry leader dangote cement which made an announcement of a slash in price has not kept to its bid thereby worsening the situation. According to Dangote (2017), the inability of the firm to maintain a low price is as a result of the high exchange rate of the naira to the dollar, dwindling capacity utilization of their plants, poor gas supply (AGO), high cost of power. It is stated that even though the government has banned the importation of foreign cement the prices of cement has remained on the high side. Other reason for the increment are the high cost of diesel, high cost of transportation, shortages of industrial fuel such as low pour fuel (LPFO), automotive gas oil (AGO) and natural gas. The study seeks to investigate the impact of rising interest rate on operational performance of manufacturing company, a case study of Dangote Cement.
STATEMENT OF THE PROBLEM
The fluctuating nature of poor performance of the Nigerian manufacturing sector is among other things attributed to the increasing nature of interest rate due to inadequacy of capital funding from the manufacturing sector from the financial services sector; which has led to low capacity utilization of the manufacturing sector in the country.
The inability of Nigerians to afford the purchase of cement due to increases in the price of cement has resulted in the abandonment of many construction works especially personal houses under construction. High cost of production, falling standard of the naira, and the rise in freight charges, dwindling capacity utilization of their plants, poor gas supply (AGO), and high cost of power are some of the reason for the increase. It is stated that even though the government has banned the importation of foreign cement the prices of cement has remained on the high side. other reason for the increment are the high cost of diesel, high cost of transportation, shortages of industrial fuel such as low pour fuel (LPFO), automotive gas oil (AGO) and natural gas. The problem confronting the study is to investigate the Impact of rising interest rate on operational performance of manufacturing company, a case study of Dangote Cement.
OBJECTIVES OF THE STUDY
The Main Objective of the study is to investigate the Impact of rising interest rate on operational performance of manufacturing company, a case study of Dangote Cement. The specific objectives include:
i. To determine the rising interest rate.
ii. To appraise the operational performance of manufacturing company.
iii. To determine the Impact of rising interest rate on operational performance of manufacturing company, a case study of Dangote Cement.
RESEARCH QUESTIONS
i. What is the nature of the rising interest rate?
ii. What is the level of operational performance of manufacturing company?
iii. What is the Impact of rising interest rate on operational performance of manufacturing company, such as of Dangote Cement?
STATEMENT OF THE HYPOTHESES
The statement of the hypothesis for the study is stated in Null as follows:
Ho1: The operational performance of Dangote Cement is low.
Ho2: The Impact of rising interest rate on operational performance of Dangote Cement is low.
SIGNIFICANCE OF THE STUDY
The need for the availability and affordability of cement in Nigeria cannot be overemphasized. Therefore, the rising cost of cement has constituted a fundamental issue which requires urgent attention so as to proffer a lasting solution. The study shall therefore serve as veritable source of information to stakeholders to proffer interventions which will address the problem.
SCOPE OF THE STUDY
The study focuses on the appraisal of the Impact of rising interest rate on operational performance of manufacturing company, a case study of Dangote Cement.
LIMITATION OF THE STUDY
The study was confronted with logistics and geographical factors.
DEFINITION OF TERMS
INTEREST RATE DEFINED
Interest rates are the rental payments for the use of credit by borrowers and return for parting with liquidity by lenders (CBN, 1997).
FINANCIAL PERFORMANCE DEFINED
This is the measure of the firm’s financial returns or goals through the use of evaluation method or financial indicators.
RETURN ON INVESTMENT DEFINED
The return on investment defines the firm’s efficiency in the utilization of the invested capital. This ratio is determined as net profit after tax divided by total paid in capital.
CUSTOMER SATISFACTION DEFINED
Meeting or exceeding customer expectations
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