CBN Forex Policy: Why Manufacturers Are Protesting

The Central Bank of Nigeria (CBN) has removed third parties or middlemen from its Secondary Market Intervention Sales (SMIS) forex window through Form M forex purchases. But, the policy does not go down well with manufacturers, who argue that it is inimical to the survival of manufacturing concerns and should, therefore, be reversed. CHIKODI OKEREOCHA reports.


Real sector operators, particularly manufacturers, are literarily up in arms against the Central Bank of Nigeria (CBN) over its recent policy that removed buying agents/firms or any third parties from accessing its Secondary Market Intervention Sales (SMIS) forex window through Form M forex purchases.

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The aggrieved manufacturers argued that the policy, which effectively eliminated third parties or middlemen from transacting in forex deals in its official SMIS window, was inimical to the survival of many manufacturing concerns and should be reversed in the interest of the manufacturing sector and the economy in general.

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CBN, in a circular dated Monday, August 24, 2020, instructed that ”Authorised dealers are hereby directed to desist from opening of Form M, whose payment is routed through a buying company/agent or any other third parties.”

The apex bank explained that its decision was based on the need to ”Ensure prudent use of our foreign exchange resources and eliminate incidences of over invoicing, transfer pricing, double handling charges, and avoidable costs that are ultimately passed to the average Nigerian consumers”.

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It also instructed authorised dealers to only open Form M for letters of credit, bills for collection, and other forms of payments in favour of the ultimate supplier of the product or service.

However, the policy does not go down well with manufacturers. The Manufacturers Association of Nigeria (MAN) said while it acknowledges the good intention of the bank, the impact of such decision will be inimical to the survival of many manufacturing concerns that are not involved in any unethical practices.

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MAN said this is so especially at a time when the nation is implementing gradual ease on lockdown due to Covid-19 pandemic.

“We believe that this additional hamstring on the economy is likely to erode the recent improved performance on the ease of doing business ranking,” MAN President Mansur Ahmed said, in a statement obtained by The Nation, last week.

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Given more details of its opposition against the perceived obnoxious policy, MAN drew the attention of the apex bank to the fact that most manufacturers, especially Small and Medium Enterprises (SMEs), deal with accredited agents for their supplies as many Original Equipment Manufacturers (OEMs) abroad do not sell directly to individual buyers.

“Furthermore, it is in line with global best practice for OEMs and large international manufacturing companies operating in multiple countries and with sourcing needs in various jurisdictions to leverage on the economics of scale to secure lower prices through centralised procurement.

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“In Nigeria, central procurement plays a critical role in the production process; an absence of same will hamper manufacturers operating in the country and may result in factory shutdowns,” Ahmed said.

He stated that in the absence of a global procurement agency, most companies would not have access to the final suppliers, who consider the inherent country risks a disincentive for trading directly with firms in Nigeria.

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“The procurement agencies have provided a vital interface between the final suppliers and the manufacturers and allows same extended payment timelines by granting credit in periods of foreign currency scarcity,” he pointed out.

It is pertinent to point out, Ahmed said, that many companies have gone into contractual agreements via the procurement agencies for the 2020 financial year and in some cases beyond.

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According to him, default on these contractual obligations may result in expensive lawsuits across jurisdictions, bring disruptions to the production process and further undermine the resilience of the manufacturing sector.

“Consequently, the multiplier effect on the economy will be reduction in productivity; loss in business revenue; supply chain disruption and, ultimately, loss of employment,” the MAN president argued.

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He, however, recommended that if the CBN is of the view that the audit of the activities of a central procurement agency in terms of price verification is impossible, a phased approach should be adopted to the elimination of their use in Nigeria.

His words: “This will enable companies have sufficient time to re-organise and build the required relationships with original suppliers which they do not currently have.”

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Similarly, to checkmate abuse, MAN said the apex bank can put in place a monitoring mechanism to ensure that unverifiable claims by some manufacturers are identified and dealt with accordingly rather than stifle the business of genuine manufacturers whose interest and commitment is to grow the economy.

“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail on the coffin of many of our ailing members,’’ he said.

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[The Nation]

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