Manufacturers, importers, publishers groan as forex restriction takes toll on economy

Exchange (forex) policy introduced by the Central Bank of Nigeria (CBN) was making the business climate inclement for investment, the apex bank has defended its stand.
The bank has insisteted that it has no plans to roll back the policy soon, saying that the good intention behind the introduction of the policy was incontrovertible.
It explained that it removed the 41 products from access to its forex window they could easily be sourced and produced locally.
According to the bank, it makes no economic sense to spend the country’s reserves on importing materials that could be sourced in the country, insisting that the policy was aimed at boosting local production.
The affected items include rice, cement, clothes, textiles, toothpick, poultry products, meat and processed meat, margarine, palm kernel/palm oil and vegetable oils, private airplanes/jets, tinned fish, incense and wooden doors.
Also on the prohibition list are soaps and cosmetics, tomato/tomato paste, woven fabrics, table ware, kitchen utensils, furniture, plywood boards and panels, wood particle boards and panels and glassware. Cold rolled steel sheets, galvanised steel sheets, wire mesh and steel nails.
Largely because of the import-dependent nature of the economy, the slide in oil prices in the international market, which started mid-last year, caused an unprecedented fall in the value of the naira. The development necessitated the need for a policy intervention to defend the naira value and protect the nation’s foreign reserves in the midst of dwindling oil revenue.
The CBN has a responsibility to use foreign reserves to defend the naira, but the reserves have been depleted as a result of the sharp fall in oil revenue. Industry watchers have faulted the CBN policy of defending the naira. They spoke of the need for the apex bank to allow market forces to determine the real value of the naira.
However, CBN’s decision to devalue the naira in October 2014 through March 2015 unleashed serious and unintended negative consequences on operators in various sectors.
The wish of real sector operators is a review or outright cancellation of the policy, but CBN Governor, Godwin Emefiele, has said none of the options is on the card.
At the International Monetary Fund (IMF)/World Bank Group meeting in Lima Peru, Emefiele, sealed manufacturers’ hopes when he said CBN would continue to deny importers access to forex to bring in goods which can be produced locally.
He explained that contrary to insinuations, the finance sector regulator has not banned any goods from being imported.
He said: “We have not banned any items. What we just did was to exclude them from accessing foreign exchange; items that can be produced in the country.
“We think that because of the problems we’ve had, the drop in commodity prices and revenue accruing to the nation and because we know that these items have been produced in large quantities in this country in the past that provision still stands. The CBN is not reconsidering the ban, the exclusion still stands.”
The CBN chief added that since the policy came into force, he has been prompted from various quarters to even elongate the ‘excluding items’ list, but that the CBN would confine itself to the items presently in the restriction basket.
However, with the negative impacts of the policy now creeping into several sectors, the consensus of not a few industry operators is that there is urgent need for a review by the regulator.
Real sector operators, especially manufacturers were among the first to scream blue murder being at receiving end of crippling effects of the Foreign Exchange (forex) policy introduced by the Central Bank of Nigeria (CBN) to encourage consumption of local materials. They have been contending with the trend since mid last year when oil prices tumbled at the global market, forcing a sharp drop in accruals to the foreign exchange reserves. The devel devaluation of the naira was the apex bank’s bank’s immediate response.
The continued slide of the naira against the dollar and other major currencies has thrown manufacturers into confusion. Manufacturers, who buy their inputs or raw materials from abroad are hurting. No thanks to the exchange rate. They now pay more naira for each unit of imported raw materials, including machineries, spare parts and other import-dependent procurements.
Besides, manufacturers, who rely on loans from banks to import raw materials, have been doing so at higher interest rates. The rates hover between 25 and 30 per cent. Many operators are finding it difficult to fund their import bills. Those who manage to do so, have to contend with shrinking profit margins. Operators in the Small and Medium Enterprises (SMEs) sector are the worst hit. The manufacturers’ grouse is that some of them, who use products on the restricted items’ list as raw materials, are adversely affected since they no longer have access to forex. Impliedly, manufacturers, who require any of the 41 restricted items, either as inputs or raw materials, may soon could close shops as the apex bank is not in a hurry to relax the policy.
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, highlighted some of the crippling impacts of the policy on real sector operators. He said the restriction on the use of export proceeds by exporters has made settlement of bills difficult for importers. It has also caused a decline in bank’s revenue due to loss of transactions as operators approach alternative market, though at higher rate. This, he said, has been eroding the already shrunk profit margins.
According to him, the fortunes of operators are on the decline since they spend more patronising the alternative market. They could no longer meet their obligations to foreign suppliers.
In a paper where the LCCI listed the impacts of CBN’s various policies on businesses and the economy, Yusuf said apart from reduction in trade volume, the forex restriction has caused a negative risk perception for the country by foreign banks because of the restriction on foreign credit lines.
The LCCI chief added that the restriction has caused loss of customers to the parallel markets since banks have been unable to meet their customers’ forex demands for tbusiness transactions. He said the lack of forex to import raw materials and the delay in processing form ‘M’ to import and meet demands has led to loss of market share.
President of Manufacturers’ Association of Nigeria (MAN), Dr. Frank Udemba Jacobs, said the impacts of the policies on his members can be gleaned from National Bureau of Statistics (NBS) figures, which showed that the sector performed abysmally low in the second quarter of the year in terms of output and contribution to the Gross Domestic product (GDP).
Relying on the NBS figures, Dr. Jacobs said real output in the manufacturing sector grew by 3.82 per cent in the second quarter from 14.01 per cent in the prededing year. This, according to him, showed a 17.83 percentage point decline over the period.
Also, the manufacturing sector’s contribution to nominal GDP in the second quarter fell to 9.29 per cent as against 9.77 per cent recorded last year, indicating 0.48 percentage point decline. He lamented the crash of all manufacturing indices, noting that capacity utilisation, production value and manufacturing investment, have been on the decline.
Local banks are losing customers, who turn to neighbouring West African countries of Ghana, Benin Republic and Cotonou, where the import procedures and forex policy are friendlier. The local banks could no longer meet their customers’ forex needs, forcing them to go outside the shores of the land to exchange and transfer funds for transactions.
Yusuf confirmed that many rich Nigerians in the Diaspora have been operating parallel foreign exchange market by accepting to settle transaction cost for friends and associates, who in turn, pay in naira into their local bank accounts at above the rate in parallel forex market.
The LCCI chief, who hinged his claim on a research conducted by the Chamber on the impact of the CBN policies on the real sector, said: “Under the transfer arrangement, there is about 10 to 15 per cent increase in the cost of transfer, excluding the security-related issues.”
He alleged that the policy, especially, the one on domiciliary account, has eroded investors’ confidence in making Nigeria as their destination of choice.
The rejection of dollar deposits by banks has created a business boom for forex speculators while importers are also diverting their consignments to the ports of neighbouring countries. The ports of Tema and Tokoradi in Ghana as well as the Port Autonome de Cotonou, in The Republic of Benin are their preferred choices.
In essence, the CBN policy is boosting businesses in neighbouring countries at the expense of Nigeria.
Operators in virtually all the sectors have been thrown into confusion following the June 2015 CBN monetary policy that barred importers of 41 items that can be sourced locally from accessing to its official forex window.
The issuance of the prohibition list by the CBN has banned importers of such items from benefitting from CBN’s forex window, which is the cheapest. Those wishing to import these items can no longer source forex locally for their shipment. Exporters cannot use their proceeds to ship them into the country neither.
Under the new regime, export proceeds domiciled in one bank cannot be transferred to another bank. The apex bank also prohibited the deposit or transfer of foreign currencies from domiciliary accounts, with deposit banks.
Since the CBN forex squeeze came into force, operators in key sectors, such as manufacturing, banking, oil & gas, maritime and telecommunuications, among others, have difficulties in transfering funds freely to meet obligations to their foreign partners.
Although, importers and manufacturers were the first to scream blue murder over the policy’s debilitating effects on their businesses, the crippling effects of the policy has now spread like a wildfire to other sectors.
The print media industry appears to be the latest to be hit by the forex regime described as vexatious by many operators. Although, newsprint, which is the most critical raw material for newspaper publishing business, is not among the 41 restricted items, publishers have been finding it difficult to open Letters of Credit (LCs) with their bankers for the importation of the material. This is becoming a source of concern as most media organisations have run out of newsprint stock.
Prior to the policy came into force, banks were using between a week and a month to convert LCs to the equivalent of the forex required by importers and manufacturers to import or carry out transactions. But because the volume of foreign currency available for business transactions has seriously reduced on account of the new policy, banks now insist that customers must pay the full value in the local currency of what they are importing within 48 hours before their LCs could be processed.

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