Manufacturers express concerns over new forex policy
Manufacturers have expressed concerns that the new forex policy announced last week by the Central Bank of Nigeria (CBN) might worsen the spiraling inflation in the country in the short and medium terms, as it is expected to raise aggregate prices of commodities.
The President, Manufacturers Association of Nigeria (MAN) Dr.Frank Udemba Jacobs, who gave the implication of the new policy said consumer real income would diminish to reduce consumption, adding that the situation would be unhealthy for manufacturing.
According to him, Nigeria is the hub of Foreign Direct Investment (FDI) destination in Africa because of the high consumer demand, adding that diminished consumer real income will reduce consumption as well as the propensity of foreign investment inflow.
The Manufacturers argued that flexible exchange rate regime cannot function well in an economy with multiple FX windows because of the existence of parallel market that would prevent equal exchange rate.
“The challenge of hoarding by banks which may source FX from the CBN, will still be there. Again, according to this new policy, the CBN will not sell Forex to BDCs but to banks; but banks may sell to any entity, which means that they can sell to BDCs. How would the policy cope with such collusion so that the economy will not experience unbounded exchange rate deterioration? He questioned.
He was, however, optimistic that the policy has potential to enhance macroeconomic stability if implemented and effectively monitored by the CBN.
“The policy, if faithfully implemented, would impact positively on the manufacturing sector as it has potentials for enhanced macroeconomic stability. With macroeconomic stability, manufacturers would be able to plan their production and further invest more effectively. The Forex window for special transactions, which also includes FX for importation of manufacturing plant and machinery is a welcome development as it supports the backward integration and resource-based Industrialisation policies of the Government. The concern to manufacturers, however, is the reality of the framework and ease of accessibility of the special forex window.
“The economy will certainly improve following the action, depending on the implementation and monitoring frameworks which are yet to be released by the CBN,” he said.
The Lagos Chamber of Commerce and Industry (LCCI) commended the adoption of a flexible exchange rate regime.
The Director General, Mr. Muda Yusuf who reacted to the development, said the forex policy change would improve the efficiency of foreign exchange allocation in the economy, reduce the distortions that characterised the forex market to bring the economy closer to equilibrium.
Enumerating the advantages of the new forex policy regime, the LCCI boss said it would almost remove the uncertainty, which investors have been grappling with over the last one year and restore investors’ confidence
“ We also welcome the decision of the CBN to refrain from further tightening of monetary policy at this time. The current context is that the economy has been declining. The Gross Domestic Product (GDP) has contracted for the first time in twelve years; unemployment is on the rise; manufacturing capacity utilisation has been weakening; and investors’ confidence has been at its lowest ebb. The decision not to tighten monetary policy is therefore appropriate.”
The chamber said it would need clarifications “on what the CBN describes as a special window for critical transactions for which preferential rates will apply. We would like to caution against possible abuse and distortions that such a window could create. It could pose a risk to the entire system. We would like to be assured that the window for the critical transactions will be managed transparently and in a manner that it will not create distortions in the economy.”
The chamber renewed it advocacy for the use of export proceed by exporters, who should be given the liberty to bring the forex proceed of all foreign transactions into the country at will.
“Export proceeds, capital importation and Diaspora remittances should be allowed into the economy through the autonomous window at prevailing market rates. The owners of such funds should have unhindered access to their funds.
CBN should revisit the list of items that have been placed on exclusion list of the FOREX market. Many critical inputs of manufacturing companies are on the list and this has crippled the operations of such companies creating significant job and output losses.”