The Manufacturers Association of Nigeria (MAN) has stated that the failure of the Central Bank of Nigeria to clear $2.4 billion worth of foreign exchange (forex) forward contracts has caused serious problems for manufacturers leading to a hike in the prices of products and closure of businesses.
In a statement, the Director General of MAN, Segun Ajayi-Kadir, said the continued delay was eroding trust of investors in the bank to fulfil contracts signed with manufacturers in purchasing goods pegged in foreign currency.
Daily Trust reports that the CBN since the assumption of office of the Olayemi Cardoso-led management has cleared over $4bn out of the inherited $7bn while about $2.5bn is yet to be cleared, raising concerns from manufacturers.
Recall that the apex bank invited the EFCC to probe the claim.
But the MAN DG noted that while the bank cited an ongoing investigation by EFCC for the delay, businesses that borrowed money from banks to get the letter of credit had made huge losses with the increase in the rate of dollar to naira between 2023 and 2024.
- Economy will prosper if climate threats are tackled – NESG
- FG suspends plan to sell N40,000 subsidised rice to civil servants
He said, “This $2.4bn worth of forward contracts from the backlog of $7bn has triggered a severe crisis for the manufacturing sector and Nigerian economy. Worse still, the commercial banks have continued to charge dollar accounts along with other baira bank charges such as 35 per cent interest rate on the facilities that these companies have with their banks. All these have significantly eroded the working capital of the companies who barely make margins of 5 per cent on the sales of the products. This rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.”
He added that businesses with substantial foreign exchange liabilities faced acute credit and liquidity risks due to their inability to settle forward contracts.
He said, “This strains cash flow jeopardises overall financial stability. While many small and medium-sized enterprises have been forced to close or temporarily suspend operations, larger corporations have incurred massive foreign exchange losses exceeding over N300bn in the second half of 2023. This situation has been exacerbated by the continuous depreciation of the naira, which has depreciated by more than 72 per cent, from N450 to N1,600 per dollar over the past year.”
He noted that manufacturing concerns had been worse hit within the last six months, with companies incurring over N1.5trn in forex-related transaction losses.
He stated that to prevent further damage, there should be collaboration between the CBN, the Federal Ministry of Finance and the private sector to develop a sustainable framework for resolving outstanding forward contracts and improving foreign exchange inflows.
CBN auctions $876m to banks
The CBN was yet to respond to our correspondent’s enquiry as at press time, but the apex bank on Wednesday auctioned $876m to clear part of the retail forex request.
This was done through the Retail Dutch Auction System (RDAS) which is designed to facilitate forex sales to end users directly, promoting a more transparent market, reducing information asymmetry and aiding in price discovery.
In a statement, the CBN said: “In the latest testament to the Central Bank of Nigeria’s (CBN’s) ongoing commitment to support the proper functioning of the foreign exchange market by enhancing liquidity when necessary, the apex bank offered $876m to fulfil bids submitted by customers at an auction concluded on Wednesday, August 7, 2024.
Join Daily Trust WhatsApp Community For Quick Access To News and Happenings Around You.
