The Manufacturers Association of Nigeria (MAN) has disclosed that the on-going liquidity crisis in the country’s foreign exchange (forex) market has worsened risk perception of Nigeria in the international trade arena as foreign payment obligations are not being met by Nigerian business owners. President of MAN, Mansur Ahmed, an engineer, in an interview with New Telegraph in Lagos, pointed out that local manufacturers were already in difficulties with their foreign partners.
Ahmed noted that some domestic investors had, in fact, lost their credit lines as a result. According to him, the micro, small and medium scale enterprises and some low category manufacturers are the most vulnerable and the first set of casualties of the forex policy because they do not have the capacity to place huge orders that the main manufacturers would require. He said that many of them currently enjoyed suppliers’ credit from the agents from whom they buy, a privilege they would not get from original product manufacturers. Ahmed, however, stated that the proposal on price verification would amount to another layer of bureaucracy with the attendant problems that comes with such bottlenecks. “Some enjoy up to six months’ bills for collection on raw materials imports.
The liquidity crisis in the foreign exchange market has worsened the perception and country risk of Nigeria in the international trade arena as many foreign payment obligations are not being met. Some domestic investors have in fact lost their foreign credit lines as a result. This naturally creates difficulty in doing business with the main manufacturers or suppliers,” he said.
The MAN president stressed that the disposition of the apex bank to suppress market forces in the foreign exchange arena was a major issue. He explained that attempting to subdue the market in a free enterprise economy was like swimming against the tide.
His words: “It is not sustainable. It creates distortions, transparency problems, corruption and drives forex and international trade transactions underground and into the informal space. It also obstructs the inflow of foreign exchange, either from foreign investors or remittances.
These are potential sources of foreign exchange inflows, which could stabilize the forex market. Diaspora remittances, for instance, had consistently been around $20 billion annually over the past few years. “A market driven forex policy would also incentivise the repatriation of export proceeds.
It is unfair and unjust to compel exporters to offer their proceeds at N380 to dollar when the open market is around N470 to the dollar. This disparity would naturally create compliance issues. It also contradicts the craving of government to promote export development. Exporters deserve an unfettered access to their export proceeds.” On the way forward, the MAN boss said: “What is playing out in the foreign exchange market and the associated infractions are symptoms of the policy shortcomings in the management of foreign exchange market.
There is high degree of uncertainty, which fu-els speculation; there is a high component of forex demand driven by the arbitrage opportunities, which differential rates offer; there is the component of demand driven by accumulation of inventories of raw materials caused by the current capacity in the market; there is the desperation of the non-resident portfolio investors to exit the Nigerian economy. Therefore, the policy response should be situated in the context of these underlying conditions.”