The Manufacturers Association of Nigeria (MAN) has urged the Central Bank of Nigeria (CBN) to promptly settle the $2.4 billion in foreign exchange forward contracts to prevent a severe crisis in the manufacturing sector.
MAN’s vital appeal to CBN: settle $2.4bn forex contracts
MAN’s Director-General, Segun Ajayi-Kadir, in a statement on Thursday, expressed concern that the CBN appears to be failing to fulfill its promise to provide foreign currency to manufacturers at a future date in exchange for upfront naira payments. He warned that this could damage the CBN’s credibility.
- Retail investors may shun bank stocks after N1.6tn loss
- MAN DG, Multinationals’ exit, opportunity for domestic industries
- CBN sells $148m to 29 authorized dealers
Ajayi-Kadir explained that the CBN had issued foreign exchange forward contracts, committing to deliver foreign currency at a specified future date in return for upfront naira payments.
However, the CBN recently indicated that it might not be able to honor these contracts due to an ongoing investigation by the Economic and Financial Crimes Commission (EFCC) into certain foreign exchange transactions.
The MAN DG emphasized the severe consequences for the Nigerian manufacturing sector if the CBN fails to uphold its part of the contract.
He pointed out that many businesses had borrowed money from banks to open letters of credit based on the CBN’s forward contracts. The failure to redeem these contracts has left businesses in financial distress.
Ajayi-Kadir stated, “In this case, no clear allegations or infractions have been communicated to any of our members, and none have been indicted for any infractions. The forwards have remained unredeemed.”
He highlighted that the $2.4 billion worth of forward contracts, part of a $7 billion backlog, has triggered a severe crisis in the manufacturing sector and the broader Nigerian economy.
He also disclosed that commercial banks continue to charge fees on dollar and naira accounts, including a 35 percent interest rate on loans taken by companies, which has significantly eroded their working capital.
“This concerning breach of contract has further increased currency risks for businesses, leading to substantial financial losses and operational disruptions,” he added.
Ajayi-Kadir noted that manufacturing companies have been the hardest hit, with over N1.5 trillion in forex-related transaction losses in the last six months.
The situation has been worsened by the continuous depreciation of the naira, which has fallen by more than 72 percent from 450/$ to 1,600/$ in the past year.
He lamented that many small and medium-sized enterprises (SMEs) have been forced to close or temporarily suspend operations, while larger corporations have incurred massive foreign exchange losses exceeding N300 billion in the second half of 2023.
“Businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms,” he said.
In light of these challenges and the risk of a crisis in the manufacturing sector, Ajayi-Kadir called on the CBN to honor its obligations and prioritize the interests of businesses that have acted in good faith.
“MAN urges the CBN to seriously and expeditiously consider the importance of honoring contracts, explore ways to resolve outstanding obligations, and prioritize the interests of businesses that have acted in good faith,” Ajayi-Kadir stated.
He also noted that job losses in the sector increased by 108.7 percent in 2023 and called for collaboration between the CBN, the Federal Ministry of Finance, and the private sector to develop a sustainable framework for resolving outstanding forward contracts and improving foreign exchange inflows.
The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, recently revealed that the CBN’s failure to pay forex forwards has severely crippled affected companies, pushing many towards bankruptcy.
