Manufacturers Association of Nigeria has urged the Central Bank of Nigeria to resolve the $2.4bn foreign exchange forward contracts to avoid plunging the manufacturing sector into a crisis.
This was disclosed in a statement by the Director-General of MAN, Segun Ajayi-Kadir on Thursday, according to The Punch.
Ajayi-Kadir said that CBN seems to be breaking its pledge to provide foreign currency to manufacturers at a specified future date in exchange for an upfront naira payment and warned of the consequence of this to the apex bank’s credibility.
He clarified that the CBN had issued forward contracts for foreign exchange, guaranteeing that it would deliver foreign currency at a predetermined future date in return for an upfront payment of naira. However, it had recently disclosed that it was unable to fulfill the contracts because the Economic and Financial Crimes Commission was still looking into certain foreign exchange transactions.
The MAN DG said it had far-reaching effects on the Nigerian manufacturing sector, when the CBN failed to fulfill its end of the bargain.
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 $7bn has triggered a severe crisis for the manufacturing sector and the Nigerian economy,” he added.
Ajayi-Kadir revealed that commercial banks had persisted in charging fees for dollar and naira accounts, along with a 35 percent interest rate on company loans, which had caused the working capital of the enterprises to erode.
“This rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions,” he said.
He pointed out that manufacturing companies were the most severely impacted, having lost almost N1.5 trillion in forex-related transactions in the previous six months. This was made worse by the naira’s ongoing devaluation, which has caused it to drop from 450/$ to 1,600/$ since last 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 stated that the association called on the CBN to fulfill its commitments and prioritise the interests of businesses that have acted in good faith due to the current difficulties and crisis risk in the manufacturing sector.
“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.
The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Mr Dele Oye, recently disclosed that the failure of the CBN to pay forex forwards had severely crippled affected companies, driving many towards bankruptcy.
