Manufacturers decry N1.5tr FX transaction losses in six months

•35% interest rate eroding working capital of companies

Manufacturers have cried out that, in the last six months, they have incurred over N1.5 trillion in forex-related transaction losses.

The losses, they said, have contributed to the poor and worsening performance of many businesses.

They pointed out that if the government does not step in and prioritise their survival, more companies will shut down, jeopardising the livelihoods of thousands of workers across the country.

They also decry the Central Bank of Nigeria’s (CBN) refusal to honour about $2.4 billion forward contracts, noting that there are no clear allegations of fraud warranting the investigation by the Economic Financial Crimes Commission (EFCC).

MAN’s Director-General, Segun Ajayi-Kadir, said the $2.4 billion forward contracts from the backlog of $7 billion have triggered a severe crisis for the real sector and the entire economy. Worse still, he said, commercial banks have continued to charge 35 per cent interest rate on facilities they have with banks.

He said all these have significantly eroded the working capital of companies that barely make margins of five per cent.

He regretted that breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.

“Businesses with substantial FX liabilities face acute credit and liquidity risks due to their inability to settle forward contracts. This strains cash flow and jeopardises overall financial stability. While many small and medium-sized enterprises have been forced to shut down or temporarily suspend operations, larger corporations have incurred massive FX losses exceeding N300 billion in the second half of 2023.

“This situation has been exacerbated by the continuous depreciation of the naira, which has depreciated by about 70 per cent, from N450 to N1600 per dollar over the past year. Financial planning and budgeting have been severely compromised due to the uncertainty surrounding future exchange rates. The cascading effects on the economy are far-reaching, impacting production, employment, government revenue and overall economic growth,” he said.

Pointing out that the apex bank’s non-fulfillment of its forward contract obligations has led to a cascade of negative consequences, he said manufacturing concerns are worst hit.

The resulting FX differentials and burden of interest payment, he said, have been entirely transferred to manufacturers, increasing production costs and impacting product prices.
He added that the crisis has disrupted manufacturing supply chains, hindered productivity and jeopardised job security.

“Consequently, businesses are struggling to meet loan repayments. Due to challenges such as high production costs and low consumer demand currently confronting manufacturers, there is little hope of meeting financial obligations as scheduled, which leads to even higher interest rates.”

The DG revealed that the immediate implication of the crisis is the declining contribution of the sector to the overall economy while eroding trust among foreign suppliers and financial institutions.

He implored the CBN to give serious and expedited consideration to the sanctity of contracts, explore avenues to resolve outstanding obligations and prioritise the interests of businesses that have acted in good faith.