Manufacturers hopeful CBN forex policy will check rising input costs
Citing the abuse of the foreign exchange market by Bureau De Change (BDC) operators, local manufacturers have expressed optimism that the decision by the Central Bank of Nigeria (CBN) to discontinue the weekly sale of the United States dollars to BDC operators will help to stem rising input costs.
According to them, the dominance of the BDC market has unpleasant implications for the manufacturing sector, as manufacturers source foreign exchange at the BDC window at exorbitant cost, notwithstanding the consequent implication on cost of production and competitiveness of the sector.
MAN, in a statement signed by its Director-General, Segun Ajayi-Kadir, stated that the directive of the CBN on the BDCs corroborated with its view and may help address the activities of operators in the BDC market.
“However, much of the efficiency and effectiveness of the new guidelines will be determined by how determined the CBN and commercial banks will be to ensure that FX gets to genuine users.
“For instance, with the new policy, manufacturers will depend solely on the interbank market for their FX needs. We hope the banks will provide a seamless process and timely execution of foreign exchange applications by manufacturers,” the association added.
Ajayi-Kadir also noted that MAN had made various submissions on the need for the CBN to collapse various FX windows into a single official foreign window.
“We believe that a single FX window will eliminate the excesses of middlemen, save the value of the naira and allow for available FX to be allocated productively using the official banking protocols,” he added.
MAN further argued that a major challenge with FX allocation to the BDC segment, “is that the operators always lacked the ability and the will to continuously adhere to set guidelines. Most times their operations drift into round tripping and other financial incongruities that negate the overall objective of creating the BDC foreign exchange market.
“The end result was always the escalation of the premium of foreign exchange in BDC compared to the official window and further depreciation of the naira.”
It would be recalled that manufacturers had identified the negative impact of the depreciation in Naira value and acute shortage of forex as huge challenges in the first quarter of 2021, adding that the situation calls for more intentional actions from the government with a focus on supporting productive activities to drive better performance in the remaining quarters of the year.
Ajayi-Kadir however reiterated the need for the government to intensify its intervention initiatives and follow through on the cost reduction aspect of ease of doing business, as there is an urgent need to create a friendlier operating environment and deliberately support the productive sector in a strategic manner.