The acute shortage of foreign exchange in Nigeria is a major operational nightmare facing manufacturers in the country, the Manufacturers Association of Nigeria said on Thursday.
The association, in its MAN CEOs Confidence Index for the fourth quarter of 2020, said manufacturers had been facing forex challenges since the second quarter of last year due to a significant decline in the inflow of forex into the country.
It said the situation worsened in the fourth quarter despite the forex injection into the market through Bureaux De Change operators and other interventions,
“Manufacturers still find it extremely difficult to source FX for the importation of raw materials and machinery that are not locally available,” MAN said.
It said constant and large depreciation in forex (as with the naira) made imports expensive, again leading to high inflation.
“Therefore, variability and large depreciation in exchange rate obstruct economic activities and manufacturing production is not in any way insulated,” it said.
According to the report, Nigerian manufacturing across sub-sectors is heavily raw materials import-dependent.
It said a favourable exchange would present good omen and improve manufacturing production.
MAN, however, said the case had always been that depreciation in value of the naira reduced manufacturing production, as observed in the various forex crises.
The report said, “As MAN has consistently observed, FX crisis in which naira value depreciates among convertible currencies such as the US$, strangulates and reduces the size of manufacturing in the country.
“This is because depreciation in naira value causes manufacturing raw materials and machinery imports to be more expensive. The high cost import bill for the productive inputs decreases manufacturing working capital and feeds into manufacturing commodities prices, thereby making the sector less competitive.”
The association noted that COVID-19 rode on the wings of the low international commodity prices, particularly crude oil prices, to trigger the prevailing forex crisis.
It said, “The acute shortage of FX resulting in the erosion in naira parity has been a major operational nightmare to manufacturers in the country.
“In the current survey (Q4 2020 MCCI), most manufacturers reported not being able to adequately source FX for importation of productive raw materials and machinery that are not available locally.”
According to the report, most worrisome is the inability of manufacturers to meet transactional obligations with oversea suppliers as required.
“Moreover, because sourcing FX in the official market has become extremely difficult, operators are daily approaching the BDC segment notwithstanding the high cost implication,” it said.
MAN said the available forex policies and guidelines should be appropriately reviewed to support manufacturing and enable manufacturers to ‘import inputs that are not available locally, particularly in this precarious time’.
“The issues of usage of FX, exclusion of items from the official FX window, concessional FX allocation to critical manufacturing sector and the introduction of Wholesale Dutch Auction System should be thoroughly considered to ensure a productive FX management in the country,” it added.
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