- 60% Forex Allocation to Manufacturers, a Hoax
Manufacturers Association of Nigeria, MAN, described yesterday, Central Bank of Nigeria’s approval of 60 percent foreign exchange allocation to manufacturers to bring in their raw materials, plants and machinery, as a hoax.
Recall that more than two months ago, the apex directed commercial banks and other authorised dealers in the foreign exchange (FX) market to ensure that they channel 60 per cent of total FX purchases from all sources (interbank inclusive) to manufacturers strictly for the purpose of importation of raw materials, plant and machinery.
In a follow – up on the directive, the President of MAN, Dr Frank Jacobs, said: “As far as I am concerned, it hasn’t worked. Our members have not benefited from it. “I came close to calling it a hoax in the sense that it was something they dangled on our face without substance,” he said.
Earlier, CBN said it took the decision following its review of returns on the disbursement of FX and observed that a negligible proportion of FX sales were being channelled towards the importation of raw materials for the manufacturing sector.
Foreign exchange purchases
The CBN gave the directive in a circular signed by its acting Director, Trade and Exchange Department, Mr. W.D. Gotring. The letter dated August 22, 2016, was posted on the central bank’s website.
It said: “Following the review of returns on the disbursement of foreign exchange to end users, it has been observed that a negligible proportion of foreign exchange sales are being channelled towards the importation of raw materials for the manufacturing sector.
“Against this background and in order to address the observed imbalance, authorised dealers are hereby directed to henceforth dedicate 60 per cent of total foreign exchange purchases from all sources (interbank inclusive) to end users strictly for the purpose of importation of raw materials, plant and machinery.“The balance of 40 per cent should be used to meet other trade obligations, visible and invisible transactions. For the avoidance of doubt, authorised dealers are to continue to publish weekly sales of FX to end users in the national newspapers and to render statutory returns on same to the CBN promptly. Please ensure compliance accordingly, until otherwise advised.”
Also, recall that when the directive was announced by the apex bank, it received a lot of applause from investors in the economy, especially those operating in the manufacturing sector.
“The CBN with this directive has prioritised the real sector so that industries can bring in their raw materials, machines and equipment without having to wait for the banks for weeks and months on end to smile their way.
“This means that the banks and authorised dealers will be required to seek out and prioritise their customers who need to bring in raw materials, plant and machinery for production and not the other way round. “This is bound to have a positive impact on productivity in the manufacturing sector and hopefully will lead to a drop in the prices of goods that they produce,” said an operator.
LCCI differs: But the Lagos Chamber of Commerce and Industry, LCCI, faulted the allocation of 60 per cent foreign exchange to the manufacturing sector.
In a position statement signed by its Director-General, Mr. Muda Yusuf, described the directive as one of the policy inconsistencies of the government making it difficult to regain the confidence of investors.
Said LCCI:”Another policy development that could pose a risk to the stability and transparency of the foreign exchange market is the recent policy on sectoral allocation of foreign exchange. The CBN circular did not indicate any Harmonised System, HS Code to properly define what would qualify as raw materials and machinery.
“The first concern will be that of definition. The result of this will be discretionary interpretation by the banks as what qualifies as raw materials and machinery. The second major concern is the potential crowding out of other sectors in the forex market. Sectors outside the manufacturing account for over 85 per cent of the country’s GDP and jobs in the economy.
They all have varying import contents in their operations.”
It stated that the major challenge facing the Nigerian economy at this time was the inability to regain the confidence of investors, both local and foreign.
“Regrettably, the instability and inconsistency in the foreign exchange management policy have been complicating matters.
“The economy has a major structural defect of being heavily import-dependent. This cannot be fixed in the short term. Therefore, the shocks arising from the collapse of oil price and the corresponding depreciation in the naira exchange rate were inevitable. But the policy responses could make a whole lot of difference in the profundity of the impact of these shocks on the economy and the citizens.”