Manufacturers Warn of Crisis as CBN Delays $2.4bn Foreign Exchange Contracts

The manufacturing sector is facing a severe crisis following the Central Bank of Nigeria’s (CBN) delay in settling $2.4 billion worth of foreign exchange forward contracts.

This warning from the Manufacturers Association of Nigeria (MAN) highlights the mounting challenges faced by businesses that have been adversely affected by the CBN’s failure to honor its commitments.

Segun Ajayi-Kadir, Director-General of MAN, expressed grave concerns about the impact of the delay during a statement on Thursday.

He noted that the CBN had promised to deliver foreign currency at a future date in exchange for upfront naira payments, but recent revelations suggest that the bank may not be able to fulfill these contracts due to an ongoing investigation by the Economic and Financial Crimes Commission (EFCC).

“The delay in fulfilling these contracts is causing substantial financial strain on manufacturing companies,” Ajayi-Kadir said. “Many businesses have taken loans from banks to open letters of credit based on these forward contracts, and the failure to redeem them has left these companies in a precarious financial situation.”

Ajayi-Kadir further criticized the CBN for its apparent breach of contract and the erosion of its credibility.

He highlighted that no specific allegations or infractions have been communicated to affected businesses, and none have been indicted, yet the contracts remain unredeemed.

“The $2.4 billion in forward contracts, part of a larger backlog of $7 billion, has triggered a severe crisis in the manufacturing sector and the broader Nigerian economy,” Ajayi-Kadir emphasized.

He pointed out that companies have been hit hard by this breach, with many small and medium-sized enterprises forced to suspend operations or close, while larger corporations have faced massive forex-related losses exceeding N300 billion in the second half of 2023.

The impact on the sector has been compounded by the continued depreciation of the naira, which has fallen by more than 72% from 450/$ to 1,600/$ over the past year.

This depreciation, coupled with the lack of foreign exchange, has led to substantial financial losses, operational disruptions, and difficulties in meeting loan repayments.

Ajayi-Kadir called for urgent action from the CBN, urging the bank to honor its contractual obligations and prioritize the interests of businesses that have acted in good faith.

“The sanctity of contracts must be upheld, and immediate steps should be taken to resolve outstanding obligations and improve foreign exchange inflows,” he stated.

The situation has also prompted calls for greater collaboration between the CBN, the Federal Ministry of Finance, and the private sector to develop a sustainable framework for managing forward contracts and enhancing forex availability.

The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Mr. Dele Oye, has also voiced concerns, revealing that the failure to settle forex forwards has severely crippled affected companies, pushing many towards bankruptcy.