….Loses N300bn in 1 month

By Bimbola Oyesola

THERE seems to be no let on the lamenta­tion of Nigeria’s manufacturing sector as recent government policies introduced to upscale its competitiveness have tended to throw the sector into deeper mess.

Just as the nation’s perennial infrastructural constraints have over the years limited its scope of operation, the recent flexible ex­change rate policy according to stakeholders has left the sector a whopping N300billion deficit in barely one month of implementa­tion.

Apparently heeding the cry of manufactur­ers to smoothen access to foreign currencies for import of raw materials, the Central Bank of Nigeria (CBN), on June 15 2016, unveiled a new foreign exchange policy anchored on market determinism of the naira exchange rate.

According to the apex bank, the policy aims to improve real sector’s access to foreign currencies, which took a worse turn from August 23, 2015 when about 41 items includ­ing some basic raw materials were declared ineligible for foreign currency through the official window.

However, the first auction which took place on June 20, 2016, saw the Naira trad­ing at an average of N282 to the dollar from about N197 before then.

By the time the dust of that maid­en transaction settled, the stakehold­ers had incurred over N300billion arising from outstanding Letters of Credit obligations which the new flexible policy insists would now be settled using the new exchange rate of N282 to the dollar.

Today, stakeholders are crying blue murder, lamenting the flexible exchange rate has rather worsened their woes than ameliorate it.

Industry sources revealed that total outstanding dollar requests based on the Letter of Credits at the old rate of N197, was $4.02billion. Unfortunately for operators who in the past one year had suffered from scarcity of forex, their requests were honoured on the day the new policy commenced but at the new ex­change rate of N282 to the dollar.

Based on the old rate, the ag­gregate amount bidded for by the manufacturers was N827.4billion, but with new rate they were forced to pay N1.176trillion.

The Manufacturers Association of Nigeria (MAN)’s President, Dr. Frank Jacobs, confirmed that the increase in the interbank foreign ex­change rate has already dug a hole in the pockets of most manufacturers who ordered for goods when the offi­cial exchange rate was N197 to a dol­lar as they will now be operating at a loss. “Those that have outstanding letters of credit will find it difficult to make up the difference,” he said.

Background to new CBN’ s intervention

The CBN at its last month’s Monetary Policy Committee (MPC) meeting in Abuja, had adopted a flex­ible forex rate to manage the econo­my. The apex bank said the decision of the Committee was based on the need to stabilise the exchange rate, which had witnessed sharp deprecia­tion in the parallel market due to the shortfall in government’s revenue from crude oil sale and generation of foreign exchange into the country.

CBN Governor, Godwin Eme­fiele, at the MPC meeting, said that economic indices and performances in the country indicated that things were not moving in the right direc­tion yet, noting that the Committee affirmed there was need to tighten the monetary and fiscal policies to salvage the economy from recession.

According to him, the apex bank was committed to maintenance of price stability, reappraisal of the coor­dination mechanism between mone­tary and fiscal policy and implement­ing reforms for the purpose of more efficient policy synchronisation and management.

He said the economy in the first quarter of 2016 suffered from severe shocks related to energy shortage, price hike, scarcity of foreign ex­change and depressed consumer de­mand, among others. He added that consequently, economic agents could not undertake new investments nor procure needed raw materials.

“Shortage of foreign exchange aris­ing from low crude oil prices mani­fested in low replacement levels for raw materials, other inputs as well as new investments. In addition, the energy crisis experienced in the first five months of the year resulted in increased power outages and higher electricity tariffs as well as fuel short­ages, which led to factory closures in some cases,” Emefiele said.

He explained that the prolonged budget impasse denied the economy the timely intervention of comple­mentary fiscal policy to stimulate economic activity in the face of dwindling foreign capital inflows. He added that aggregate credit to the pri­vate sector remained highly tapered while credit to the government grew beyond the programmed benchmark for the period.

The CBN governor noted that many of the prevailing conditions in the economy during the review period were outside the direct con­trol of monetary policy, but hoped that the implementation of the 2016 budget, supported by relevant sectoral policies and easing supply shocks in energy and critical inputs, would provide the needed boost to the economy.

New challenges

In spite of the optimism by the CBN and commendation it thus re­ceived from the country’s organised private sector (OPS), the manufac­turers seem no longer comfortable with the turn of event, more so as they argued that flexible exchange rate regime cannot function well in an economy with multiple FX windows because of the existence of parallel market that would not per­mit equal exchange rate.

They argued also that the chal­lenge of hoarding by banks which may source FX from the CBN and withhold it for speculative purposes will still be there, particularly as the new policy stipulates the CBN will not sell forex to BDCs but to banks.

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In their view, banks may sell to any entity, and this means that they can sell to BDCS, wondering how the policy would cope with such collusion without the economy experiencing further exchange rate deterioration.

A stakeholder who spoke on condition of anonymity lamented that the country’s forex policy had negatively impacted on the manufac­turing sector as lack of access to forex had hampered manufacturing activi­ties in the country.

This was further corroborate by the Vice President of Manufactur­ers Association of Nigeria, Dr. Stella Okoli, who said the forex policy and the high interest rate payment have constrained nigeria’s manufacturing industry in no small measure.

“Last year, we bought dollars at be­tween N170 and N200 but now we buy at N350. You can see how this is affecting the manufacturing industry negatively,” she said.

She noted that although manu­facturers could bid at N282 at the interbank rates, but they do not usu­ally get what they bid for. “We were told that if we had bidded at over N280, we would get all the money we wanted even if it is a billion dol­lars but those who bidded lower than N280 will have to wait till about three to four months to get the forex they need.

“Now, the problem here is that our monies are tied up with the bank, which means we don’t have access to our Naira or the forex that we have bidded for and this is affecting our business.”

Okoli, expressed that the new challenge has forced more com­panies in the sector to close down, while those still in operations are laying off staff, thereby advocating for new policies to make the local manufacturing industry competitive in the international community.

She stated, “Government must formulate policies that would en­gender the growth of manufactur­ing, and regulatory agencies must work together to ensure smoother exports.”

To further worsen the crisis, the Nigeria Custom Service recently raised the tariff on goods coming into the country, which the manufactur­ers say would make them to pay almost double on raw materials com­ing into the country.

All these challenges, operators in the sector maintained call for quick intervention of the CBN before things get out of hand.

The Manufacturers Association of Nigeria as an advocacy group had received quite a number of complaints on the latest challenges and though not yet confirmed, but may be meeting the apex body in the week to present facts and figures on how many companies presently been affected and the number of jobs that will be lost.

Revisiting the banned items list

The manufacturers and the Organ­ised Private Sector likewise believed that CBN was adamant to the call to remove the embargo placed on the barred 41 items from accessing forex was equally detrimental to the sector,

Manufacturers have been consis­tent in the call for a review of the list of 41 items, which according to them include some critical inputs for the manufacturing process.The umbrella body of the manufacturers said more factories had shut down in the last two months and more have notified the association that they would be shutting down.The CBN had in June 2015 issued a circular preventing importers of the 41 items from ac­cessing foreign exchange from the of­ficial market.But the CBN governor is insisting the decision was taken to grow the local manufacturing sector and also conserve foreign exchange.

For most stakeholders, the policy seemed to have achieved the oppo­site of what it was set out to achieve because recently, the manufacturing sector rather growing, had been shrinking.

Analysts have noted that the year 2016 has so far witnessed more job losses and factory closures than any other period in recent history. For instance 2015 and April 2016, it is reported that more than 1,500 of the 2,500 registered manufacturing com­panies was discovered to have shut down due to shortage of raw materi­als to continue production. Millions of employees of various manufactur­ing firms have likewise lost their jobs within the period.

The National Bureau of Statistics recently published a report that showed a declining growth in the manufacturing sector in the first quarter of 2016.

The NBS data showed that of the 13 activities in the manufacturing sector, only three had managed to record minimal growth. The three are oil refining; cement; and food, beverages and tobacco.

The NBS report also showed that the contribution of the sector to nominal Gross Domestic Product dropped to 9.93 per cent in the first quarter of 2016 from 10.17 per cent recorded in the corresponding period of 2015.

The positive side of the policy

Irrespective of the daunting chal­lenges and the reprisal effects, some stakeholders still could not but com­mend the CBN on the new policy, which they see as a saving grace for a dwindling and deteriorating economy.

The MAN President Frank Jacobs noted that in spite of all odds, the new policy has been positive in terms of making dollars available, although at an increased exchange rate of N280.