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COMFORT EKELEME
The Manufacturers Association of Nigeria (MAN) has urged the Central Bank of Nigeria (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.
MAN in a statement signed its Director General, Segun Ajayi-Kadir said by prioritizing the survival of the manufacturing sector, the government can mitigate the negative impacts of this crisis and foster economic recovery.
According to MAN, the continued non-redemption of the $2.4 billion forward contracts poses a grave threat to the survival of some Nigerian manufacturing companies and jeopardizes the livelihoods of thousands of workers.
MAN said, as companies grapple with the inability to fulfill their offshore obligations due to the CBN’s non-delivery of dollars, many face the grim prospect of downsizing or shutting down operations completely, stressing that this gloomy scenario is avoidable and the time to end the impasse is now.
“However, the CBN recently announced its inability to honour $2.4 billion worth of forward contracts, citing an ongoing investigation by the Economic and Financial Crimes Commission into some foreign exchange transactions.
“It is expedient to note that many businesses borrowed money from banks for working capital that was used by the banks to open clean line for letter of credit for the companies based on the allocated forward contract from the CBN.
“In this case no clear allegations or infractions have been communicated to any of our members and non-have been indicted for any infractions. The forwards have remained unredeemed.
“This $2.4 billion worth of forward contracts from the backlog of $7 billion has triggered severe crisis for the manufacturing sector and Nigerian economy.
“Worse still, the commercial banks have continued to charge dollar account along with other Naira bank charges such as 35per cent interest rate on the facilities that these companies have with their banks,” the statement reads.
The association further noted that all these have significantly eroded the working capital of the companies who barely make margins of 5per cent on the sales of the products.
MAN also noted that this rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.
“Businesses with substantial foreign exchange liabilities face acute credit and liquidity risks due to their inability to settle forward contracts. This strains cash flow and jeopardizes 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 N300 billion in the second half of 2023.
“Quite frankly, the CBN’s non-fulfillment of its forward contract obligations has led to a cascade of negative consequences.
“Manufacturing concerns have been worse hit. For instance, within the last 6 months, companies have incurred over N1.5 trillion in forex-related transactions losses, contributing to the poor and worsening performance of many businesses.
“The resulting exchange rate differentials and the burden of interest on loans to meet Naira deposit requirements have been entirely transferred to manufacturers, increasing production costs and impacting product prices.
“This crisis has disrupted manufacturing supply chains, hindered productivity, and jeopardized job security.
“Consequently, businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms.
“The manufacturing sector has borne the brunt of this crisis, with a staggering 108.7per cent increase in job losses in 2023 alone,” the statement added.
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