Following the Central Bank of Nigeria (CBN)’s decision to ban sales of foreign exchange (forex) to Bureau De Change operators in the country, Nigerian manufacturers under the auspices of Manufacturers Association of Nigeria (MAN) have urged the apex bank to prioritise forex allocation to them for production. TAIWO HASSAN reports
Indeed, many manufacturing firms operating in the country’s real sector have suffered enough from forex unavailability for production. Apparently, FX squeeze has been heightened due to COVID- 19 and sharp decline in crude oil price at the international market, which affected the country’s revenue earnings from oil. No doubt, the Central Bank of Nigeria, the official regulator of the country’s monetary policy, has been doing its best to ensure all sectors, especially, the key ones, get forex for utilisation. However, the real sector of the economy has become one of the key sectors in dire need of FX following its involvement in large scale production. To serve the sector right, the apex bank decided to ban BDC operators from the sale of forex in order to stop arbitrage and round tripping.
Reason for halting BDCs
Irked by the over profiteering of the operators, the Central Bank of Nigeria said it took the drastic step by stopping sales of foreign exchange to Bureau De Change operators. Prior to the CBN’s decision, the BDCs had continued to make huge profits while Nigerians suffered. Rather than serving the purpose for their existence by providing forex to retail user, they rather became wholesale and illegal dealers. Announcing the decision to stop forex sales to the BDCs, the CBN Governor, Godwin Emefiele, said: “The MPC noted with disappointment and great concerns that the BDCs had defeated their purpose of existence to provide forex to retail user, but instead, they had become wholesale and illegal dealers.” He, however, said commercial banks would be monitored to provide forex for the legitimate use of Nigerians.
Shifts in FX distribution
However, MAN is agitating for prompt supply of forex to the real sector. Precisely, the association explained that the move could bring down inflation in no distant future if CBN mandates the commercial banks to give right of first refusal to Nigerian manufacturers in the new forex regime. Director-General of MAN, Segun Ajayi-Kadir, in a chat with this newspaper, explained that forex squeeze was the number one crisis facing operators in the country’s manufacturing sector since they cannot compete adequately with their counterparts in neighbouring countries. At the same time, Ajayi-Kadir explained that constant review of external sector performance in Nigerian economy reflected continued exposure of the domestic economy to external shocks, saying stronger oil prices had failed to give revenue and external reserves the much needed boost owing to the low production volume followed by OPEC’s supply reduction policy. To him, this is the main cause for continued forex rationalisation in the economy. Speaking further, the MAN DG noted that a cursory assessment of the capital importation data in the country’s GDP showed high level of pessimism on the part of foreign investors. For context, he stated that Nigeria attracted $2.8 billion worth of private capital in the first half of this year compared with $11.8 billion and $14.6 billion reported in the corresponding periods of 2018 and 2019, respectively and even lower compared to $7.1 billion attracted in the troubled year of 2020. The MAN official emphasised that weakening forex supply from oil revenue and foreign inflow, the two major sources of forex supply, continued to push the domestic currency (naira) under severe pressure and amidst rising forex demand.
Unilever’s FX ordeal
In a dramatic outcome, Unilever Nigeria Plc is being compelled to buy dollars above the market rate because rationing of foreign-exchange by the CBN has caused a shortage of the U.S. currency. Information emanating from the local unit of Unilever Plc revealed it bought the greenback from money changers and lenders at between N440 to N450 on an average in the first-half of the year. Adesola Sotande-Peters, Finance, Director at the company, disclosed this at an investor conference call in Lagos recently. That compares with N410.72 to a dollar. This shows that Nigeria has been rationing dollars as the pandemic-induced slowdown, and a slump in oil prices put pressure on reserves.
MAN’s defense of FX regime
Speaking in support of the CBN’s new forex policy regime, MAN stated that it would eliminate excesses of middlemen, save the value of the naira and allow available forex to be allocated productively using the official banking protocols. Ajayi-Kadir, while stating the association’s position, said that the association had always written numerous letters to the CBN hierarchy on the need to collapse the various forex windows into a single official window to ensure smooth distribution nationwide. He explained that the dominance of BDC market had an unpleasant implication for the manufacturing sector. To him, manufacturers source forex at the BDC window at exorbitant cost, notwithstanding the implication on cost of production and competitiveness of the sector.
Indeed, MAN members and other members of the organised private sector are of the opinion that the new forex regime should usher in availability to the real sector in order to jumpstart manufacturing post-COVID-19.