Real Sector Operators Resort To Transfer Market As CBN Policies Bite Harder

A good number of operators in the realsector of the Nigerian economy have devised a means of survival and to remain afloat as recent monetary policies by the Central Bank of Nigeria (CBN) continue to bite harder.

They have opted for what experts refer to as ‘Market transfer’ (MT) for foreign exchange needed for international business transactions, in the face of present difficulties getting forex at the interbank market.

The CBN recently placed 41 items on indirect import prohibition list, as they were banned from benefitting from the country’s forex market. Those wishing to import these items cannot source foreign exchange locally for their shipment and exporters cannot use their proceeds to ship them into the country neither. Worse still, proceed of export domicile in one bank cannot be transferred to another bank, going by the recent monetary regulation by the CBN.

The Apex bank also prohibited the deposit or transfer of foreign currencies from domiciliary accounts, with deposit banks. This situation has caused pains to business owners, as operators can no longer transfer money freely to meet obligations to their foreign partners.

But the Lagos Chamber of Commerce and Industry (LCCI), said last week that operators in the real sector have now developed “Transfer market”, with which they now source foreign exchange to finance their international transactions, to navigate the CBN policies.

The Director, General, Mr. Muda Yusuf, who explained the impact of the Nigeria’s monetary policies on the real sector, said Nigerians are now travelling to Cotonou to exchange and transfer fund for their transactions.

According to him, many rich Nigerians in Diaspora are now operating parallel foreign exchange market by accepting to settle transaction cost on behalf of their friends or associates, who will in turn pay in Naira into their Nigeria account at a rate above what is obtainable in the local parallel foreign exchange market.

Nigerians are now travelling to neighbouring countries to use transfer market. Some are transferring money by using some companies, friends and associates abroad to offset transaction cost with the agreement to pay the Naira equivalent and at a rate above the exchange rate in the parallel market into their local account. In this method of transfer, there is about 10 to 15 percent increase in the cost of transfer. There are also security issues with transfers,” he said.

Yusuf, who said the findings are based on research conducted by the chamber on the impact of CBN policies on the real sector, said the policies, especially the one on domiciliary account, has made investors to give up confidence on Nigeria as a destination for investment.

When you talk about country risk in the global business environment, one of the element is the risk with which you can move money in and out or do international business without hindrance. If people have no confidence that when they come to do business, they can easily go away with their profit, or that letter of credit will be respected, they will not come. We have businessmen, who have outstanding settlement before the new policies; they can no longer remit fund. These are business organisations that have transactions, and credit lines in foreign currencies. They have defaulted.

This default affects confidence internationally, because they cannot meet up with their obligations to their financial partners. Bills for collation is a facility that companies used to enjoy. They ship in goods for weeks, months before paying back. This has become an issue because of default resulting from inability to transfer fund. This affects credibility. We know that there is liquidity challenge in the market, which the CBN is trying to manage. But the apex bank is not managing it well. They should allow the fundamentals of demand and supply to determine the exchange rate. The market should be allowed to adjust to the reality of demand and supply. That approach is more efficient, transparent and less destructive.”

When you talk about country risk in the global business environment, one of the element is the risk with which you can move money in and out or do international business without hindrance. If people have no confidence that when they come to do business, they can easily go away with their profit, or that letter of credit will be respected, they will not come. We have businessmen, who have outstanding settlement before the new policies; they can no longer remit fund. These are business organisations that have transactions, and credit lines in foreign currencies. They have defaulted

The LCCI, in a position paper made available to The Guardian, listed the impact of the various policies of the CBN on business and the economy, saying forex restriction on 41 items has not only caused reduction in volume of trade, it has caused negative country risk perception by foreign banks. This it said has led to restriction on foreign credit lines.

According to the chamber, the restriction has caused loss of customers to dealers in the parallel markets since banks have been unable to source forex for their customers trade transactions.

It said the policy is biting hard on manufacturers of food and household products, tyre and rubber manufacturers, pharmaceutical production, oil and gas, free trade zone and many other sectors, which may collapse if the policy is not relaxed soonest.

It said manufacturers are unable to do business due to lack of forex to import raw materials and delay in the processing of form M to import and meet demands leading to loss of market share.

On the effect of restriction on use of export proceeds by exporters, the chamber said it had made it difficult to settle customers import bills, caused decline in revenue of banks due to loss of transactions from businesses and encouraging use of alternative market at exorbitant rate, thus eroding already thin margins.

More importantly, according to the chamber, export proceed could become idle while in need of forex to import through other banks.
The chamber also listed the impact of prohibition of foreign currencies cash lodgment into domiciliary account as:The non-seamless of online purchase of items that do not require the rigours of form A documentation.
Difficulties of repayment of foreign dominated credit

Sourcing of forex at exorbitant rate from alternative sources, and the inability to settle outstanding obligations to foreign suppliers, especially by companies in fast moving consumer goods sector and increasing spate of smuggling with attendant implications, especially the loss of revenue from import duty.

Yusuf, who spoke extensively on the impact of government policies on productive sector, challenged the CBN to publish the list of those who had benefitted from foreign exchange market so far in order to fault his claim of non-transparency in the interbank market.

Getting forex for foreign transaction is a problem. The Nigerian foreign exchange market is no longer for all comers. It is no longer transparent. There is no guarantee that when you fill the required forms that you will get foreign currencies for international transactions. This is not good. If you want to be a member of the global financial market, there should be free financial transactions. We urge the CBN to publish the list of beneficiaries of forex, under the new dispensation, for the purpose of transparency because not everybody is getting forex on application, even when what you need the money for is not in the list of 41 restricted items.

Some manufacturers are unable to substantiate the existence of a transfer market as a result of CBN’s policies, but they agreed that cross border forex transaction is not strange in a situation where there is acute shortage of foreign exchange as it is.

The President of Manufacturers Association, Dr. Frank Udemba Jacobs said that forex users, who are desperate can go to any length to source forex in order to sustain their businesses, even if it involves going across the borders.

We would not encourage manufacturers and industrialists to go to that extreme because of the illegality this may entail, but one may not be able to preclude actions that may be decided upon by individuals in order to ensure the continuous existence of their businesses. The Manufacturers Association of Nigeria (MAN) met with the CBN and made appropriate presentations that will be useful in solving the forex allocation problems. Factories must remain in production if the economic growth and job creation expectations of the government are to be met,” he said

He however acknowledged shortage of forex at inter bank market. “The little forex that flows into the country is rationed and so sourcing forex becomes increasingly difficult. The effect of the extremely harsh operating environment brought about by these policies on manufacturers is high, although we cannot place a specific figure on it yet. However, the recent performance of the sector corroborates the extremity of the development as all manufacturing indices have crashed: capacity utilization, production value and manufacturing investment witnessed a decline.

On the effect of the monetary policies on production at Export Processing Zones, he said, going by zones design framework, manufacturers operating in them are not allowed to source forex in the available forex markets/window, but to use foreign exchange earnings from their export proceeds to fund their raw-materials imports.

He said CBN action is a contributory factor to the prevailing rise in inflation orchestrated by the growth in Consumer Price Index (CPI), which started in December 2014 in the wake of the oil price crash.
“Bye and large, the CBN actions of devaluation of the Naira, closure of the DAS window and exclusion of 41 items (most of which are raw-materials for the manufacturing sector) from forex market induced high cost of production in the sector, which by extension increased commodity prices.”

According to Jacobs, the negative impacts of the monetary policies on manufacturing are beginning to manifest, as he said, “information from the National Bureau of Statistics (NBS) shows that the sector performed abysmally low in the second quarter of 2015 in term of output and contribution to the Gross Domestic product (GDP).

Thus, manufacturing real output grew by 3.82 percent in the second quarter of 2015, from 14.01 percent of the corresponding period of 2014; thus indicating a 17.83 percentage point decline over the period, while manufacturing sector contribution to nominal GDP in the second quarter of 2015 fell to 9.29 percent as against 9.77 percent of the corresponding period of 2014; indicating 0.48 percentage point decline over the period.”

To the manufacturers, the escalation in the CPI can be checked by diversification of the economy through the sustenance of the Backward Integration Agenda (BIA), in order to increase the availability of local raw-materials, reservation of a significant proportion of forex for manufacturing machinery, spare accessories and raw-material inputs, until such a time when the economy is adequately diversified; and by fast-tracking the establishment of Development Bank of Nigeria for credit needs of the industrial sector, including manufacturing.