FOREX Hardships Cripple Tricycle Assembly Plants

Forex

DIFFICULTY to accessing foreign exchange to bring in Completely Knocked Down (CKD) parts have started crippling tricycle and motorcycle assembling plants in the country with spillover effects on outsourcing companies that supply labour to the industry.

A reference point is Dag Motorcycles Industries Nigeria Limited, the assemblers of Bajaj tricycles and motorcycles.

Ademuyiwa Abe , the company’s Secretary/Legal Services, said the firm has been forced to cut down its 1,000 per day production capacity by 40 percent and terminated the services of Ashton Consulting Ltd, who supply the labour, until the situation improves.

According to him, the forecast for the Nigerian economy for 2016 is not looking too good, hence, we were forced to cut back on some of our operations.

“In the last few months of last year, there was restriction on foreign exchange by the Central Bank of Nigeria (CBN); so most of the time, there was no foreign exchange to bring in the CKD, not just the CKD, but other items required for assembling. Since there was no more foreign exchange, the situation became so bad that we had no choice but to terminate the services of our contractor who supplies the workers that do the assembling,” he said.

“We are appealing to the government to consider manufacturers in the country, the exchange rate is gradually killing our business, we import at a certain rate and by the time we want to order for more materials we find that the value would have gone up to what we cannot afford thereby increasing the cost of production.

“We are doing all we can to make sure that we actually remain in business. We have submitted our list to the CBN to include us in the priority list but secondly, there is a fallout consequences that may come up because the exchange rate will not be the same with what it was,” he stated.

Fielding question on the impact of the forex on products price, he said: “Today it’s N285 to a dollar at the parallel market and if we factor other costs into it, you will find out the cost of the finished product will be out of the reach of the poor. When you think of buying a motorcycle with almost half a million, you will either think of buying a small car to use . With the current situation, the finish product will no longer be affordable and if it is unaffordable, the market segment is out of reach because there will be no demand and the purchasing power will definitely be affected.

“I will like to say this is a foreseeable problem likely to be encountered even if the foreign exchange is available for the manufacturing sector. This is a big problem” he said.

He explained that the production cuts affected Ashton Consulting Limited which supplies the workforce to the company.

“With this decision, there is bound to be reactions, because we are talking of 250 workers. The contractors understood the situation very well but the workers are the ones creating issues with fallout to the end users of the motorcycles. The workers have already gone to some media houses to express their grievances, so we felt we have to let the public know what really happened so that there will be no mismanagement of information. If the situation improves and CBN lifts the ban on forex, we will call on them to recruit new or existing workforce,” he said.

“There had been allegations that we terminated our contracts with our consultant based on the fact that we did not increase salaries, this is not the true position of what transpired. We are all aware about the CBN’s foreign exchange restriction policy. The motorcycles and the tricycles we assemble here were brought in as CKD for us to assemble, but the rate at which these CKD are coming, we could not afford the exchange rate bearing in mind other factors included in cost of production.

“We notified our contractors based on the contract we had in hand because we do not deal with the workers directly but the contractors who recruited them. At the moment we are not producing hoping that as things improve, we can get back to operation.

“Ashton is an independent contractor and also a limited liability company and independent of us. It is just the contractual partnership we have with them and there is simply no nexus with the company. This partnership has lasted for over 5 years. We did not terminate this contract based on poor performances by the workers but simply doing this based on a national issue.”

Vanguard

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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