The Manufacturers Association of Nigeria has called on the Central Bank of Nigeria to settle the $2.4bn foreign exchange forward contracts to prevent plunging the manufacturing sector into a crisis
The Director-General of MAN, Segun Ajayi-Kadir, in a statement on Thursday, said that CBN appeared to be reneging on its promise to deliver foreign currency to manufacturers at a specified future date in exchange for an upfront naira payment and warned of damage to the apex bank’s credibility.
Ajayi-Kadir explained that the CBN issued foreign exchange forward contracts promising to deliver foreign currency at a specified future date in exchange for an upfront naira payment but recently revealed that it could not honour the contracts due to an ongoing investigation by the Economic and Financial Crimes Commission into some foreign exchange transactions.
The MAN DG stated that there were far-reaching consequences for the Nigerian manufacturing sector when the CBN delayed in keeping its part of the contract.
He lamented how many businesses had borrowed money from banks to open letters of credit for their companies based on the forward contracts allocated by the CBN and the failure to redeem their contracts had left businesses in a financial bind.
“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.
“This $2.4bn worth of forward contracts from the backlog of $7bn has triggered a severe crisis for the manufacturing sector and the Nigerian economy,” he added.
Ajayi-Kadir disclosed that commercial banks had continued to charge dollar and naira account fees, including a 35 per cent interest rate on the loans taken by companies, leading to an erosion of the companies’ working capital.
“This rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions,” he said.
He noted that manufacturing companies were the worst hit, as they had accumulated over N1.5tn in forex-related transaction losses in the last six months; a situation compounded by the continuous depreciation of the naira by more than 72 per cent, from 450/$ to 1,600/$ over the past year.
Ajayi-Kadir lamented that many small and medium-sized enterprises had been forced to close or temporarily suspend operations, while larger corporations had incurred massive foreign exchange losses exceeding N300bn in the second half of 2023.
“Businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms,” he stated.
The MAN DG declared that the existing challenges and risk of crisis in the manufacturing sector prompted the association to call on the CBN to honour its obligations and prioritise the interests of businesses that have acted in good faith.
“MAN implores the CBN to give serious and expedited consideration to the imperative of the sanctity of contracts, explore avenues to resolve outstanding obligations, and prioritize the interests of businesses that have acted in good faith,” Ajayi-Kadir commented.
He noted that job losses in the sector surged by 108.7 per cent in 2023.
He urged 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, Mr Dele Oye, recently revealed that the failure of the CBN to pay forex forwards had severely crippled affected companies, pushing many towards bankruptcy.