Forex: Dollar shortage upsets Nigerian manufacturers’ operations

* Scarcity of raw materials to affect production of consumer goods  

* MAN members seek bigger loans, lower interest rates

Isola Moses | ConsumerConnect

Sequel to the recent relaxation of the Coronavirus-induced lockdown and expected resumption of business activities in the nation’s economy, the Nigerian manufacturers currently, are struggling to remain in business because of scarcity foreign exchange.

The development was reported to have been spawned by the collapse in prices in the international oil market, which means they cannot import raw materials, according to Bloomberg.

Report says the difficulties in accessing the much-needed foreign exchange are the latest signs of strain in the country’ foreign exchange regime.

Central Bank of Nigeria Headquarters, Abuja

Recall the Central Bank of Nigeria (CBN) practically, was forced to devalue the national currency, Naira in March 2020, as income from crude sales that generate 90% of the West African nation’s export earnings dwindled.

Foreign investors looking to repatriate their funds have been asked to be patient, the source stated.

Members of the Manufacturers Association of Nigeria (MAN) have been unable to access hard currency for the past five weeks, the Association was quoted to have said in a recent report.

Investment bank FBNQuest estimates there’s a $1billion backlog of unmet Dollar demand in Nigeria.

Mansur Ahmed, President of MAN, Monday, May 11, said: “Everybody is trying to remain afloat.

“Certain sectors will suffer more than others, notably those companies that are heavily dependent on imports”, such as pharmaceuticals, electrical-products and automobile businesses.”

The Naira currently trades at 445 per Dollar on the streets of Lagos, the nation’s commercial capital, compared with the official rate of 386 per Dollar.

Twelve-month Naira forwards were trading at about 514 per dollar Monday, suggesting investors see the currency falling to around that level in a year, said the report.

Turning to domestic suppliers

As manufacturers turn to domestic suppliers for raw materials, machinery and spare parts, the association appealed to the central bank to review rules hindering the ability of lenders to extend credit.

This includes “policy contradictions” that require banks to lend 65% of their deposits     ─ a measure aimed at stimulating credit ─ while parking 27.5% of their capital with regulators, which makes a “lesser quantum of money available for lending,” MAN disclosed in a statement.

Manufacturers are also seeking lower interest rates and bigger loans, the size of which “has shrunken greatly” as increased borrowing by the government excludes companies, according to the Association.

The nation’s monetary policy committee bucked the global trend of slashing borrowing costs to minimise the fallout of the Coronavirus pandemic because of persistently high inflation, keeping its benchmark rate at 13.5% in March.

The central bank previously had multiple exchange rates that applied to exporters, investors, foreign-exchange bureaus and others.

The system was an effort to control demand for Dollars and help keep the Naira steady — a lynchpin of President Muhammadu Buhari’s economic policy.

It was further gathered that the Bank abandoned the policy on March 21, 2020, when it devalued the currency after oil prices more than halved, raising pressure on the currencies of crude-dependent economies like Nigeria.

The country is Africa’s largest producer of the commodity.

Mr. Godwin Emefiele, Governor of CBN, Sunday, May 10, was quoted to have said the Apex Bank had put in place an orderly process for investors looking to repatriate their funds, but they’ll need to wait.

The country’s available foreign-exchange holdings will be devoted to strategic imports or to service obligations that are a priority, Emefiele stated.

As part of its request for $3.4 billion of emergency funding to help the government deal with the fallout from the Coronavirus pandemic, the Central Bank of Nigeria, in April, promised the International Monetary Fund (IMF) it would seek a more flexible and unified Naira.

The CBN has said that 1 trillion Naira ($2.6 billion) of its virus intervention fund will be used to support domestic manufacturing.

The industry was the biggest borrower in the nine months through February, which the CBN has attributed to its policies that forced lenders to extend more debt to the private sector.

Kindly Share This Story