MANUFACTURERS ASSOCIATION OF NIGERIA ADDRESS THE CBN NEW POLICY ON FOREX ALLOCATION TO BDCs
The Manufacturers Association of Nigeria (MAN) have expressed their concerns regarding the Central Bank of Nigeria policy on Forex Allocation to BDCs.
The exchange rate has an impact on the manufacturers in Nigeria , this is because manufacturing across sub-sectors is heavily dependent on importation of raw materials.
Most of the machines and spare parts manufacturers use are imported.
However, a favourable exchange, a case of appreciation of the Naira, no doubt, would present good development and improves manufacturing production.
Unfortunately, the case has been the consistent depreciation in value of the Naira as observed in the various forex crises.
It's important that we note that the forex crisis in which the Naira value depreciates among convertible currencies such as the US Dollar strangulates and reduces the size of manufacturing in the country.
This is because depreciation in Naira value causes manufacturing raw-materials and machinery imports to be more expensive.
The high-cost import bills for the productive inputs decreases manufacturing working capital and feeds into manufacturing commodities prices, thereby making the sector less competitive.
It cannot be overemphasized that COVID-19 majorly triggered the recent forex crisis through low international commodity prices, particularly crude oil prices.
The acute shortage of forex and the all erosion in Naira parity has been nightmarish to manufacturers in the country.
In a recent survey during the last quarter of 2020, most CEO of manufacturing companies reported inability to adequately source forex for importation of productive raw-materials and machinery that are not available locally.
A major challenge with forex allocation to BDC segment is that the operators always lacked the ability and will to continuously adhere to set guidelines.
Most times their operations drift into round-tripping and other financial incongruities which negates the overall objectives of creating the BDC forex market.
The end result was always the escalation of the premium of forex in BDC compared to the Official window and further depreciation of the Naira.
Perhaps the history of BDC forex market may have the answer to this challenge. The truth is that most operators in the market came from the so called “Black market”. Unfortunately, the inappropriate modus operandi in the Black Market followed these operators to the BDC, even with CBN’s regulation.
MAN had made various submissions on the need for the CBN to collapse the various forex windows into a single official forex window.
They believe that a single forex window will eliminate the excesses of middlemen, safe the value of Naira and allow for available forex to be allocated productively using the official banking protocols.
Consequently, with the new policy, manufacturers will depend solely on the Interbank market for their forex needs.
MAN hopes that the banks will provide a seamless process and timely execution of forex application by manufacturers.
In the face of the new policy, it is imperative that the available forex policies and guidelines should be appropriately reviewed to support manufacturing.
Lastly, the issues of usage of Forex’, exclusion of items from the official forex window and concessional forex allocation to critical manufacturing should be reviewed to ensure a production enabling forex management in the country.
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