CBN’s non-redemption of $2.4b forex forward contracts threat to manufacturing —MAN

The Manufacturers Association of Nigeria (MAN) has described the inability of the Central Bank of Nigeria (CBN) to honour a legally- binding foreign exchange (forex) forward obligations as posing grave danger to the nation’s manufacturing.

The apex bank recently announced its inability to honour $2.4 billion worth of forward contracts due to an ongoing investigation by the Economic and Financial Crimes Commission (EFCC) into some foreign exchange transactions.

Faulting the decision, MAN, in a statement issued by its Director-General, Segun Ajayi-Kadir, argued that its members had continued to bear the brunt of the decision despite the fact that no clear allegations or infractions had been communicated to any of them and none indicted for any infractions.

It disclosed that over N1. 5 trillion in forex-related transactions losses had been incurred by companies within the last six months, while the sector recorded 108.7 percent increase in job losses in 2023 alone.

The association further stated that unless quickly addressed, some manufacturers are presently faced with the grim prospect of either shutting down or downsizing their operations due to the financial strain the development had caused them.

According to the association, non-fulfilment of such legally-binding obligation had led to a cascade of negative consequences, with manufacturing concerns being the worse hit.

Besides companies incurring over N1 5 trillion in forex-related transactions losses, within the last sixmonths, the association argued that the resulting exchange rate differentials and the burden of interest on loans to meet naira deposit requirements have also been entirely transferred to manufacturers.

This, it added, had increased production costs, impacted product prices, disrupted manufacturing supply chains, hindered productivity and jeopardised job security.

“Consequently, businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms. Due to numerous challenges, such as high production costs and low consumer demand currently confronting manufacturers, there is little hope of meeting financial obligations as scheduled.

“As a result, these rescheduled loans often come with higher interest rates. The immediate implication of this is the declining contribution of the sector to the overall economy,” it stated.

While calling on the CBN to give serious and expedited consideration to the imperative of the sanctity of contracts and also explore avenues to resolve outstanding obligations, the association noted that reneging on legally- binding obligations such as that potentially undermines the apex bank’s credibility, while also damaging investors’ confidence.

MAN, therefore, called for a 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.

By prioritising the survival of the manufacturing sector, it added, the government would be able to mitigate the negative impacts of this crisis and foster economic recovery.

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