To help manufacturers, the Central Bank of Nigeria (CBN) dirceted banks to allocate 60 percent of their foreign exchange to them. But, months after, manufacturers are still running around for forex because of what some call “ineffective monitoring and enforcement” of the policy. Assistant Editor CHIKODI OKEREOCHA reports.
It took sustained push by members of the Organised Private Sector (OPS) and others to get the Federal Government to heed the call for a 60 per cent special foreign exchange (forex) allocation window for manufacturers. The intervention was supposed to allow manufacturers fund importation of critical raw materials, plants and machinery not available locally.
Specifically, it was envisaged that the preferential forex allocation window would help cushion the effects of forex scarcity, which hit real sector operators, particularly import-dependent manufacturing businesses, following the Central Bank of Nigeria’s (CBN’s) policy that restricted importers of 41 items from accessing its official forex market.
Manufacturers kicked against the policy, describing it as “obnoxious, superfluous, and ill-conceived”. They argued, for instance, that apart from not being consulted, those who needed the raw materials and products restricted from the forex market as their primary products in the manufacturing process were adversely affected.
The inclusion of essential raw material input for manufacturing in the CBN import prohibition basket forced many firms to shutdown, leading to massive job losses. So, manufacturers were relieved when the CBN, last August, directed commercial banks and other authorised dealers in the forex market to allocate 60 per cent of their total forex purchases from all sources (interbank inclusive) to them.
But five months after, manufacturers are still running around for forex The forex scarcity persists, forcing some firms to shut down, relocate to other countries or scale down their operations. Many of them still complain of inability to access forex to import critical raw materials.
For instance, Erisco Foods Limited, one of the key players in the tomato paste industry, has since relocated to China, citing lack of forex access. That move alone cost about 1,500 workers, mostly Nigerians, their jobs. Only 40 members of staff are left to run the Nigerian company.
The company’s President/CEO, Chief Eric Umeofia, lamented: “My business has been deliberately frustrated by the way the CBN has managed forex bidding and allocation. They won’t give us forex to import machinery, machine spare parts and raw materials for processing Nigerian fresh tomatoes into paste in our Lagos factory and they won’t give us approval to use our own money generated from our foreign operations to import our raw materials.”
Umeofia’s decision to vote with his foot by relocating the manufacturing aspect of his business to China from where finished products would be imported and sold to consumers in Nigeria and other parts of the world was pre-warned.
The relocation of the $150 million tomato paste processing plant came after the expiration of a 30-day ultimatum he handed down to the Federal Government to compel the CBN to make available enough forex to import raw materials and equipment to keep the plants run profitable.
Before shutting down the Nigerian plant, with a production capacity of 450, 000 metric tons of tomato paste yearly, Umeofia said the company, which had 22 brands with over 2,000 workers in Nigeria, lost over N3.5 billion in Nigeria. This was partly why he made relocation as his final option.
“This decision is final and there is no going back on it; nothing will make us come back even in the future because we have found out that we can import tomato paste into Nigeria and still make huge profits,” the obviously embittered and frustrated entrepreneur said, at a briefing in Lagos.
Umeofia is not alone in his agony over lack of access to forex despite CBN’s 60 per cent preferential forex allocation to manufacturers. Nigerian Textile Manufacturers Association (NTMA) Director-General, Mr. Hamma Kwajaffa, also lamented that no textile manufacturer had accessed forex in spite of the $660 million earmarked for manufacturers at the official interbank market.
It would be recalled that the CBN, in keeping with its promise to strengthen the real sector by ensuring that 60 per cent of available forex goes to manufacturers, made available $660 million worth of forex to manufacturers through the inter-bank market for the purpose of procuring industrial input.
The injection of the fund was expected to provide a new lease of life in the manufacturing sub-sector, thereby boosting industrial output and employment. But Kwajaffa said despite this gesture, the textile industry nearly went into extinction due to inability to access foreign exchange for critical raw materials.
Similarly, May and Baker Managing Director, Mr. Nnamdi Okafor, said manufacturers’ inability to access forex through the interbank had affected industrial production and contributed to inflation. “It’s been a herculean task running any business in Nigeria, especially import-dependent manufacturing business.
“I can confirm to you that as a company, we have not been able to access official forex allocation in the past six months. In fact, some of the Letters of Credit (LCs) we opened as far back as the fourth quarter of 2015 have not been funded by the banks,” he said.
Okafor and, indeed, other operators’ outcries over banks’ refusal to fund LCs have been on since June, last year when the apex bank announced the flexible, market-driven forex regime. Manufacturers had hoped that this policy would drive down the exchange rate of the naira to the dollar, spurred economic growth and development, and encouraged more Diaspora remittances, among others.
But, as it turned out, the new forex policy appeared to have left the real sector operators worse than it met them. For instance, the Apapa branch Chairman of Manufacturers Association of Nigeria (MAN), Mr. Babatunde Odunayo, said manufacturers had lost N500 billion to CBN’s implementation of the flexible forex policy.
Odunayo, who spoke in Lagos at the Annual General Meeting (AGM) of the branch with the theme: “Economic recession and the future of manufacturing in Nigeria”, said the losses arose from the exchange rate difference between the approved Form ‘Ms’ and LCs before the CBN introduced the new flexible exchange rate system on June 20, last year.
According to him, the LCs and approved Form Ms were documented at the CBN intervention rate at about N197/US$, but affected manufacturers are now expected to redeem them at the flexible exchange rate of N320/US$.
“The pricing of related manufactured goods was made at between N197 and N198 to a US dollar at the time the Form Ms was approved and LCs established,” Odunayo said, lamenting: “Unfortunately, this unfolding situation posed a great burden on manufacturers.”
He added that the huge exchange rate loss of N500 billion, which must now be reflected in manufacturers’ profit and loss accounts, was already leading to factory closures, loss of unemployment and investments in the sector.
Good policy marred by lack of enforcement
To manufacturers, the CBN’s 60 per cent preferential forex allocation was a ruse. “As far as I am concerned, it hasn’t worked. Our members have not benefited from it… It was something they dangled on our face without substance,” MAN President Dr. Frank Jacobs reportedly said.
Indeed, findings by The Nation showed that the policy intervention described as revolutionary by some operators might have failed to make any significant impact on manufacturers because of the CBN’s lack of proper monitoring, supervision and enforcement to ensure that banks and other authorised dealers in the forex market comply with the directive.
“Of course, the challenge, as always, is how to enforce the directive. This is always our default line. Good policies, good intentions, good pronouncements and launching ceremonies, but after that, the Nigerian factor steps in,” former President/CEO, Neimeth International Pharmaceuticals PLC and Managing Consultant, Starteam Consult, Mazi Sam Ohuabunwa, said.
The industrialist, who spoke at an event organised by the Ikeja branch of MAN, said for the palliative to work, the CBN would have to watch the backs of banks and analyse their monthly returns and publications on forex utilisation.
Ohuabunwa also said manufacturers also have a role to play. “They (manufacturers) have to set up a mechanism to monitor weekly allocations and provide feedback to the CBN and Nigerians because emergency manufacturers will arise, which will not be entirely bad, if only they will actually manufacture. Industry groups have to authenticate their memberships,” he said.
He did not stop there. Ohuabunwa also said to eliminate possible abuse by manufacturers , the CBN and banks must ensure that forex allocated is used strictly to import manufacturing input only and not finished goods or diverted to other uses. “We must have a way of assessing the impact of this initiative to be sure it is achieving the intended objective,” he recommended.
For the immediate past President of National Union of Textile Garment and Tailoring Workers of Nigeria, Comrade Oladele Hunsu, the 60 per cent forex benchmark for manufacturers, ab-initio, should not have been in place if the government was serious to drive Gross Domestic Product (GDP) growth through the real sector, which is economy’s growth engine.
“Who measures the benchmark,” Hunsu asked, insisting: “Manufacturers must be allowed unfettered access to the CBN official forex window rather than the 60 per cent special forex allocation”. He told The Nation that rather than a piecemeal approach, a holistic review of the nation’s monetary and fiscal policies had become imperative to eliminate ill-conceived ones that are inimical to manufacturing sector’s growth.
