Nigeria’s manufacturing firms groan as CBN Fx measures bite hard
By Samuel Bankole
This is not the best of time for Nigerian manufacturing companies as the nation’s struggle to keep hold on its foreign exchange resources in the face of depleting revenue from dollar inflows into the country and falling forex reserves.
Nigeria depends largely on dollar inflows from crude oil exports, with revenue from oil exports constituting about 90 percent of forex inflows and 60 percent of revenue.
However, the impact of covid-19 on the global supply chain led to a sharp drop in both demand and price of oil, eating deep into the country’s revenues and forex resources.
In a bid to conserve its foreign exchange reserves, the Central Bank of Nigeria (CBN) had introduced some measures to curtail frivolous demand for forex, devalued the local currency twice this year to achieve exchange rate convergence and reduce arbitraging on the forex market.
The regulatory bank’s recent policy suspending the opening of Form M for companies using third party agents for purchases of raw materials and machinery has dislocated the process of international trade by local manufacturers.
Local manufacturing companies are unhappy with the new directive by the CBN that banks should stop opening Form M for payments routed through a buying company or any other third party.
Some manufacturers said the new measure by the CBN could result in the death of many of the companies already struggling to survive in the face of the impact of the coronavirus pandemic and dollar shortage on their operations.
President of the Manufacturing Association of Nigeria (MAN), Mansur Ahmed said the CBN should have adopted a phased approach in the implementations of the new policy to enable companies to have sufficient time to re-organise and build the required relationships with original suppliers, which they do not currently have.
“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail into the coffin of many of our ailing members,” Ahmed said.
On his part, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf said what is playing out in the foreign exchange market and the associated infractions are symptoms of the policy shortcomings in the management of the market.
“There is high degree of uncertainty which fuels speculation; there is a high component of forex demand driven by the arbitrage opportunities which differential rates offer; there is the component of demand driven by accumulation of inventories of raw materials caused by the current opacity in the market; there is the desperation of the non-resident portfolio investors to exit the Nigerian economy. Therefore, the policy response should be situated in the context of these underlying conditions.
“Across practically all sectors, we are experiencing cost escalation, loss of credit lines enjoyed from foreign creditors, forex remittance challenges and many more. We need an urgent response from the CBN to calm the situation and restore confidence in our foreign exchange management framework,” he said.
Last month, the CBN said it plans to introduce a Product Price Verification Mechanism as part of measures to check over-pricing and wrong pricing of goods and services imported into the country.
The regulatory bank said in a circular to all foreign exchange dealers that the measure was meant to curb overpricing of goods and services by importers and reduce the burden of inflated prices on consumers.
It said banks are to use the mechanism to check price quotations by importers before approving any importation payment document submitted to them by importers.
This, the CBN said would help “forestall over-pricing and/or mispricing of goods and services imported into the country.”
The regulatory banks said; “Authorised Dealers are hereby directed to desist from opening of Forms M whose payment are routed through a buying company/agent or any other third parties.
“Accordingly, all Authorised Dealers are hereby requested to only open Forms M for letters of Credit, Bills for collection and other forms of payment in favour of the ultimate supplier of the product or service.”