The Nigerian tourism industry is pressing commercial banks to translate the Central Bank of Nigeria’s 350-basis-point monetary policy rate cut into cheaper business loans, warning that the reduction will have limited impact on investment unless financing costs across the sector begin to fall.
The Federation of Tourism Associations of Nigeria (FTAN) said the CBN’s decision to lower the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent could unlock investment in hotels, restaurants, travel services and other tourism-related businesses if lenders pass on the reduction to borrowers.
Badaki Aliyu, FTAN president, said high borrowing costs had remained a major constraint on businesses across the tourism value chain, forcing operators to postpone expansion plans, defer facility upgrades and limit investments in new equipment and services.
The CBN announced the 350-basis-point reduction following its Monetary Policy Committee meeting on September 21 and 22, while retaining the Cash Reserve Requirement at 45 per cent for deposit money banks and 16 per cent for merchant banks.
For tourism operators, the significance of the decision will depend on whether commercial banks reduce their lending rates sufficiently to improve access to working capital and long-term investment financing.
High borrowing costs constrain expansion
Tourism businesses require substantial upfront investment in buildings, vehicles, equipment, technology and customer facilities, often before generating sufficient revenue to recover their costs.
Hotels must finance room upgrades, power infrastructure and maintenance, while tour operators, travel agencies, transport companies and event centres require working capital to manage operating expenses and meet customer demand.
Aliyu said expensive credit had prevented some operators from proceeding with planned expansions and upgrades, limiting their capacity to improve services and respond to market opportunities.
A reduction in borrowing costs could improve project viability by lowering interest expenses and reducing the cost of financing new investments. Existing businesses could also benefit from refinancing expensive loans, potentially freeing up cash for renovations, digital systems, equipment replacement and energy-efficient facilities.
However, the extent of these benefits will depend on banks’ funding costs, their assessment of borrower risk, collateral requirements and the terms attached to new or restructured loans.
The MPR serves as a key monetary policy benchmark, but commercial lending rates are also influenced by liquidity conditions, credit risk, operating costs and banks’ pricing decisions. Consequently, the CBN’s reduction does not guarantee an equivalent decline in the rates offered to tourism businesses.
Investment beyond major cities
FTAN is also seeking to channel more investment towards tourism destinations outside Nigeria’s major commercial centres, where inadequate roads, accommodation and visitor facilities continue to constrain development.
Aliyu said cheaper credit could help investors develop under-served destinations, creating opportunities for local businesses and generating employment in surrounding communities.
Such investment could support the development of accommodation facilities, tour services, recreation centres, restaurants and transport links, while expanding the range of destinations available to domestic and international visitors.
However, the commercial viability of these projects depends on more than access to finance. Investors must also consider visitor demand, accessibility, security, utilities and the availability of complementary services.
In destinations where roads, electricity and supporting infrastructure remain inadequate, lower interest rates alone may not be sufficient to attract private capital. Public investment and coordination with state and local authorities would remain important to reducing project risks and improving the conditions for tourism development.
Infrastructure and operating costs remain obstacles
FTAN acknowledged that the interest rate reduction would not, by itself, resolve the structural problems facing tourism operators.
The federation identified poor infrastructure, unreliable electricity, multiple taxation, insecurity, foreign-exchange instability and weak destination marketing as continuing constraints on the sector.
These pressures can raise operating costs, undermine profitability and make lenders more cautious about financing tourism projects. For hotels and other accommodation providers, for example, unreliable electricity can increase expenditure on alternative power sources, while insecurity and poor transport links can weaken visitor demand.
The combination of high financing costs and expensive day-to-day operations is feared to have implications for the sector’s ability to attract investment, modernise facilities and compete for visitors.
