Following the sudden drop in global oil prices and the emergence of novel coronavirus, which translated to reduction in foreign exchange (forex) inflow into the country, there are indications that local manufacturers’ letter of credit (LC) requests to their foreign partners for raw material importation are being rejected by Nigerian banks following scarcity of forex, New Telegraph has learnt. Particularly, this newspaper gathered reliably from Manufacturers Association of Nigeria in Lagos that local manufacturers were currently battling to meet up with payment of their foreign business partners’ request via the LC already with the Nigerian banks as the banks insist that such request cannot be granted for now until there is improvement in forex inflow from CBN.
With this in place, MAN explained that the situation posed high risk to the country’s manufacturing sector in terms of producing at optimum capacity. New Telegraph gathered that despite the Federal Government’s duty waiver granted for importation of medical facilities and personal protectective equipment (PPE) following the COVID-19 outbreak, the pharmaceutical sector, manufacturers/ importers are finding it difficult to ship in their orders since their LC requests submitted to banks were not treated for payment to their foreign business partners due to forex scarcity.
It was learnt by this newspaper from MAN that banks were insisting that anyone seeking to pay business partners abroad with naira debit cards should do so in the currency of the beneficiary’s country, as against the previous practice where lenders debited the naira accounts of customers at the prevailing exchange rate and remitted dollar equivalent to the offshore beneficiary’s account.
It was gathered that the old practice was depleting foreign reserves and putting pressure on naira–dollar exchange rate at a time Nigeria’s dollar earnings are on the decline due to low oil prices caused by coronavirus outbreak.
Besides, many banks are not only insisting that customers pay in the currency of the recipient’s country, but also that it must be through inflows from abroad in line with CBN’s domiciliary account policy, which directed that only electronic fund transfers into domiciliary accounts can be transferred from such accounts to third parties, while cash deposits into such accounts can only be withdrawn in cash. In addition, the MAN source noted that rejections and slowdowns were trailing LC request from local manufacturers.
MAN says that many local firms are wary of the multiplier effect of these on the naira and are keenly watching out for the direction where the econmy is going in order not to incur further forex losses in their operations post-COVID-19. Speaking in an interview with New Telegraph on the forex saga, the Managing Director, May&Baker Plc, Nnamdi Okafor, explained that the non-processing of the LCs had resulted to huge exchange rate losses, which run into billions of naira for manufacturing firms and closure of various factories. He said that inability of manufacturers to source forex through the official window had caused discerning economic effect on their productive capacities and inflation to the economy.
CBN Governor, Godwin Emefiele, had rolled out policies to conserve foreign exchange and protect the naira. The new domiciliary account policy that set limits on dollar transactions, restriction of importers’ access to dollars and sale of high-yielding debt to foreign portfolio investors are some of the policies. CBN also restricted importers of milk from accessing foreign exchange from he official window and limited the importation of milk and other dairy products to six firms – FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only) and Integrated Dairies Limited. Emefiele had also assured foreign investors that repatriating of their funds from the country was secured, despite forex related revenue shortages.
He said the apex bank has put measures in place to ensure an orderly exit for those that might be interested in doing so and also urged investors to be patient as such repatriations are processed, owing to the bank’s policy of orderly exit of investments.