Manufacturers allege threat to operations by CBN’s forex policy
• Outstanding claims on EEG, NDCC hit N450b • Small businesses are moving to nearby countries
SOME manufacturers in the country have alerted the Central Bank of Nigeria (CBN) to what they described as a serious threat the implementation of its foreign exchange forex policy poses to their operations, seeking some reliefs to save their companies.
Essentially, the manufacturers are seeking access to foreign exchange to import some of the 41 items restricted from the subsidised official forex window of the apex bank.
The CBN had earlier in the year, restricted the items in a bid to defend the naira and salvage dwindling foreign exchange earnings.
The apex bank had explained that the move became necessary to “encourage local production of these items”, adding that “implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”
Furthermore, the CBN alleged non-remittance of forex earnings by some manufacturers and members of the organised private sector, stating that they usually retain such earnings in foreign domiciled accounts thereby mounting demand pressure on the bank for foreign exchange.
Among the 41 items are cement, margarine, palm kernel, vegetable oil, poultry products (chicken, eggs and turkey), Indian incense, tinned fish in sauce (Geisha, Sardines), cold rolled steel sheets, galvanized steel, roofing sheets, wheelbarrows, head pans, metal boxes and containers, and enamelware.
Others are steel drum, steel pipes, wire mesh, steel nails, wire rods, security wire, wood particle and board, wood fibre boards and panel, plywood board and panel, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles and wooden fabrics, plastic and rubber products, and soap and cosmetics.
Members of the Organised Private Sector (OPS) and the manufacturers differ with the apex bank on the classification and definition of some of the products restricted from access to forex market, stating that some of them are raw materials used in the course of production in their factories.
The private sector operators, under the aegis of Lagos Chamber of Commerce and Industry (LCCI), raised the alarm that many companies are on the brink of collapse because of inability to access foreign exchange for raw materials and other critical inputs. They claimed that many small businesses have moved to neighbouring countries to effect transfers to their suppliers abroad, a situation that encourages operation of offshore bank accounts to the detriment of the Nigerian economy.
Similarly, members of the Organised Private Sector Exporters Association (OPEXA) have appealed to the Federal Government to revive the Export Expansion Grant (EEG) scheme as well as honour outstanding Negotiable Duty Credit Certificate (NDCC) claims, both of which have hit over N450 billion. According to OPEXA, the failure of the Federal Government to honour the trade agreements has negatively affected non-oil export earnings within the last two years.
The EEG, which was operated through the Nigeria Customs Service, with instruments known as NDCCs, was suspended in August 2013 by the previous administration which promised to review it. The review, however, did not happen before the exit of the immediate past administration.
Presenting an impact assessment report on CBN forex policies in Lagos yesterday, LCCI President, Remi Bello, noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss. According to him, the policy has negatively affected the financial services sector, manufacturing sector, tyre and rubber industry, pharmaceutical sector, the free trade zones, and furniture and foam manufacturers, among others.
“The Lagos Chamber of Commerce and Industry (LCCI) and the business community are concerned about the consequences of the CBN approach to the management of foreign exchange market over the last few months. We appreciate the challenge of scarcity of foreign exchange. Tough choices have to be made. But we have serious reservations over the policy choices of the CBN in managing the current crises. Significant disruptions, distortions and dislocations have been created in the business environment by the CBN.
“The sovereign risk perception of Nigeria has worsened over the last two months. Several credit lines for Nigerian investors have been lost following the numerous cases of payment defaults to foreign suppliers. Even reputable blue chip companies have defaulted for the first time in the several years of business relationship with their foreign suppliers. Considerable damage has been done to the image of many companies and the country in the international trade and investment arena. A major confidence crisis has been created for investors.
“The manufacturing sector has experienced an inability to manufacture due to lack of foreign exchange to import raw materials, there are delays in the processing of Form ‘M’ to import and meet demands and this has led to loss of market share. Similarly, the sector is experiencing slower consumer demand and lower profits, while job losses are inevitable as the bottom line is adversely affected.
“Palm oil for instance is needed for production of some consumer goods and since local supply cannot meet industrial demand, the inability to import it due to inability to access foreign exchange has caused some difficulties for manufacturers in such sectors. Prices of such products have to increase at least marginally. There is a supply gap of about 600,000 metric tonnes annually in Nigeria. Some raw and packaging materials that are required in manufacturing process are on the exclusive list. These materials are not available locally and have to be imported. There are issues with the ambiguous classification of the items on the list,” Bello added.
The LCCI urged President Muhammadu Buhari to urgently intervene in the matter before further damage is done to the private sector and the economy at large. According to him, if there are sectors that need to either be penalised or incentivised, the instrumentality of fiscal policy of tariffs and taxes should be used, not exclusion from the foreign exchange market.