Nigerian Manufacturers Sound Alarm Over CBN’s Unsettled Forex Contracts, Warns of Looming Crisis
The Manufacturers Association of Nigeria (MAN) has raised serious concerns regarding the Central Bank of Nigeria’s (CBN) failure to settle outstanding foreign exchange (forex) forward contracts, which amount to billions of dollars.
The breach, according to MAN, has severely heightened currency risk for businesses, resulting in significant financial losses and operational disruptions within the manufacturing sector.
Forex forward contracts are financial instruments widely utilized to hedge against exchange rate volatility.
Typically, the CBN issues these contracts, committing to deliver foreign currency at a future date in exchange for upfront naira payments.
However, in a shocking development, the CBN has recently disclosed its inability to honor $2.4 billion worth of these contracts, attributing the delay to an ongoing investigation by the Economic and Financial Crimes Commission (EFCC).
MAN highlighted the dire consequences of this breach, pointing out that numerous businesses had borrowed funds from commercial banks to participate in the allocated forward contracts.
Unfortunately, these contracts have remained unredeemed, plunging the manufacturing sector into an unprecedented crisis.
The situation has become even more precarious as commercial banks, left holding the bag, have begun charging dollar accounts and imposing high-interest rates on facilities.
This development, MAN warns, threatens to destabilize not only the manufacturing sector but also the broader Nigerian economy.
In a detailed statement, MAN outlined the cascading negative effects of the CBN’s non-fulfillment of its forward contract obligations:
1. Massive Foreign Exchange Losses: The manufacturing sector has suffered foreign exchange losses exceeding N300 billion in the second half of 2023 alone.
2. Naira Depreciation: The naira has depreciated by over 72% in the past year, further compounding the challenges faced by manufacturers.
3. Disrupted Supply Chains: Manufacturing supply chains have been severely disrupted, leading to reduced productivity and threatening job security across the sector.
4. Loan Repayment Struggles: Many businesses are now grappling with loan repayments, leading to the rescheduling and restructuring of loan terms, adding further financial strain.
5. Erosion of Trust: The non-redemption of forward contracts has eroded trust among foreign suppliers and financial institutions, potentially damaging Nigeria’s business reputation on the global stage.
MAN has implored the CBN to prioritise the interests of businesses that have acted in good faith and to explore immediate avenues for resolving the outstanding obligations.
The association stressed the importance of maintaining the sanctity of contracts, which is crucial for sustaining business confidence and economic stability.
Furthermore, MAN has called for urgent collaboration between the CBN, the Federal Ministry of Finance, and the private sector to develop a sustainable framework for resolving the outstanding forward contracts and improving foreign exchange inflows into the economy.
The continued non-redemption of the $2.4 billion forward contracts, MAN warns, poses an existential threat to the survival of Nigerian manufacturing companies and jeopardizes the livelihoods of thousands of workers.
The association has urged the CBN to take immediate and decisive action to address this crisis and prevent further damage to the manufacturing sector and the broader Nigerian economy.
