By Bimbola Oyesola
AS much as the members of the Organised Private Sectors (OPS) would like to continue to express optimism in the nation’s economy, recent trend in the country has given the manufacturers a serious cause for concern.
Since the Central Bank of Nigeria (CBN) unveiled its controls in June, on the new Foreign Exchange policy, manufacturers have had to deal with foreign suppliers who are increasingly getting worried they won’t get paid after supplying raw materials to Nigerians. They are also struggling to convince banks to approve dollar payments.
Investigations revealed that it now takes minimum of 10 days to get dollars as against the pre-control days when the cycle was done within 24-48 hours. Even then, most manufacturers say they get below what they actually requested.
Some firms have defaulted on contracts and lost credit lines. “Many companies have defaulted in fulfilling foreign obligations … even blue chip companies … for the first time,” said Muda Yusuf, Director General of the Lagos Chamber of Commerce and Industry (LCCI).
He noted that companies also suffer from the CBN’s attempt to stop the dollarisation of the economy, adding that a ban on cash deposits of foreign currency has forced firms to use informal “transfer markets”, whereby people abroad wire dollars on a company’s behalf.
With the exchange rate well below the official rate to the dollar, it has also been discovered that some manufacturers now carry bags of cash to deposit in neighbouring countries.
Another survey report of members by LCCI revealed there is now delay in the processing of Form ‘M’ to import and meet demands, leading to loss of market share and slower consumer demand and lower profits.
The report further stated that export business is hugely affected as they are unable to sponsor and pay marketing activities outside the country and that they are also experiencing payment delay.
A respondent to the survey report said, “export proceeds have become idle while in need of forex to import through other banks. Companies in the Fast Moving Consumer Goods sector are unable to settle outstanding obligations to foreign suppliers, which has slowed down their ability to get fresh supplies for production.”
The survey also added that there are now “delays in sourcing forex to import spare parts to meet breakdown of production machinery, adding that spare parts that were picked off the shelves before will now need to undergo series of processing before forex is made available to import them.
The operators claimed that Form M opened for items on the list prior to the CBN policy are not processed for payment leading to credit defaults with foreign suppliers.
The President of Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said doing business in Nigeria for the operators in the private sector is daily getting unbearable as there is growing inability of Nigerian businesses to pay foreign creditors on account of the CBN forex policy.
The association’s boss also said that some manufacturers are unable to manufacture due to lack of foreign exchange to import raw materials.
According to Jacobs, the crux of this challenge emanated from the decline in crude oil prices recorded in the last quarter of 2014 and the first quarter of 2015.
“The trickle-down effects of the declining price of crude oil created a highly challenging environment for the manufacturing sector in the country, which has been historically challenged by dearth of infrastructure,” he said.
But the last straw that broke the camel’s back, he said, was the problem of inadequate foreign exchange and the new foreign exchange guidelines of the CBN, which he said to a large extent, negatively affected productivity by increasing the cost of manufacturing.
Jacobs explained that since the policy came out, the manufacturers now experience difficulties in importing raw material inputs into the country.
“All these, without doubt, could result in factory closures and consequent loss of jobs, if not addressed quickly,” he said.
He further warned that the above challenges conspicuously reflected in the performance of key macroeconomic indicators and as corroborated by statistics churned out by the Nigeria Bureau of Statistics (NBS), the CBN and the Organisation of Petroleum Exporting Countries (OPEC).
MAN said the review of performances of key indicators in the first quarter compared with the second quarter, on the negative side, reflected that the real GDP growth still hovered around 3.96 per cent, which is below 5.94 per cent recorded in the last quarter of 2014, the External Reserves also declined from $29.81 billion to $29.01 billion; Average Interest Rate significantly increased from 16.84 per cent to 26.48 per cent while the Inflation Rate increased from 8.2 per cent to 8.6 per cent.
Speaking on the new policy, which listed 41 items that are not valid for foreign exchange by the CBN in its effort to address the sliding value of the naira, the association said after studying the content of the circular, it observed that essential raw materials input were included in the list and as such pointed out to CBN that only imported finished items should be on the list for it to be truly beneficial to the manufacturing sector and the economy generally.
Jacobs said MAN was very concerned with the exclusion of such items as palm kernel/palm oil/vegetable oil; cold rolled and galvanised steel sheets, among others, from the inter-bank forex market, which he said, was as a result of difficulties in determining what constitutes raw material and finished product.
He stated further that, “the reality is that one company’s finished product could be input material for another. In fact, most of the items included in the list were raw materials being used by some manufacturers in their production. This action implies that the companies involved may not be able to import their needed raw materials for production and the implication could mean massive retrenchment and on the extreme, factory closure.
The MAN President harped that the two sectors mostly affected are Food, Beverages and Tobacco and Steel sectors, which incidentally are the largest employers of labour among MAN sectoral groups, warning that a shake-up in these two sectors would diminish the little headway already made in employment creation and poverty reduction in the country.
He said, “the position of the association was formally communicated to the CBN vide a letter dated June 29, 2015, which detailed ambiguities contained in the circular. MAN enumerated some essential raw materials that are not available locally that were lumped together with finished goods.
Source : SunOnline