The inability of manufacturers to access foreign exchange for the importation of raw materials, equipment and machinery has led to a backlog of dollar-denominated letters of credit valued at $729,450,430.
Data obtained from the Manufacturers Association of Nigeria showed that outstanding Euro-denominated letters of credit are worth €50,718,603 while unmet demand for pounds sterling by manufacturers amounted to £6,545,228.
Members of the association complained that banks had been unable to meet their forex needs for inputs that are not available locally, citing the scarcity of foreign currency.
The global fall in oil prices induced by the coronavirus pandemic had affected the flow of foreign currency to Nigeria, whose major source of forex income is oil imports.
Analysts note the scarcity of forex and myriads of other challenges affected the performance of the sector as seen in the Purchasing Managers’ Index for September in which the manufacturing sector contracted for the fifth time.
The September 2020 PMI survey was conducted by the Central Bank of Nigeria from September 7 to 11, 2020.
The survey indicated that out of the 14 subsectors surveyed, electrical equipment; transportation equipment; cement and non-metallic mineral products subsectors recorded expansion.
However, the report stated that the remaining subsectors reported contractions.
The subsectors are petroleum and coal products; primary metal; furniture and related products; printing and related support activities; food, beverage and tobacco products; textile, apparel as well as leather and footwear.
Others are chemical and pharmaceutical products; fabricated metal products and plastics and rubber products.
Findings showed that the paper product subsector was stable.
As a result of the forex scarcity, Nigerian banks in August introduced spending limits for naira denominated debit cards used for paying for transactions abroad.
They informed their customers via email SMS that they had set a withdrawal limit on international payments via POS, Web, and ATM.
To ensure stability in the market, the Central Bank of Nigeria officially changed the exchange rate of the naira to the dollar from N361 to N379 in August.
The apex bank had earlier expressed its decision to unify the exchange rates in the country as forex scarcity persisted.
However, the manufacturers’ group appealed to the CBN to exempt outstanding credit commitments to foreign suppliers of raw materials from the unified exchange rate.
The President, MAN, Mansur Ahmed, urged the apex bank to consider unpaid credit from the second quarter of 2019 to date, which had been agreed with suppliers at N345 to a dollar.
This, according to him, will allow banks to redeem their obligations to foreign suppliers on behalf of manufacturers at between N330 and N360 per dollar.
He said, “CBN should as a matter of urgency put a measure in place to minimise the intensity of the pain by considering outstanding obligations of manufacturers from the second quarter 2019 to date given at N345 to a dollar prior to unification and allow such to be settled at between N330 and N360 per dollar.”
Ahmed warned that failure to consider this might lead to the closure of many manufacturing companies and affect CBN stimulus packages to the manufacturing sector due to cash flow crunch.
– Punch