Manufacturers lament over N1.5trn forex losses in 1h 2024
Maureen Aguta
The Manufacturing companies recorded N1.5 trillion in foreign exchange-related losses in the first six months of the year, following the impact of the unsettled forward contracts worth $2.4 billion by the Central Bank of Nigeria (CBN).
Consequently, the Manufacturers Association of Nigeria (MAN), warned that the continued non-redemption of the $2.4 billion forward contracts by the CBN poses a grave threat to the survival of some Nigerian manufacturing companies, reports Vanguard.
In a statement yesterday, Director General of MAN, Segun Ajayi-Kadir, Forex forward contracts are financial instruments used globally to enable businesses to hedge against exchange rate fluctuations by locking in a future exchange rate.
Ajayi-Kadir said that CBN traditionally issues these contracts, promising to deliver foreign currency at a specified future date in exchange for upfront naira payment.
He, however, noted that the apex bank recently announced its inability to honour $2.4 billion worth of forward contracts, citing an ongoing investigation by the Economic and Financial Crimes Commission, EFCC into some foreign exchange transactions.
His words: “It is expedient to note that many businesses borrowed money from banks for working capital that was used by the banks to open a clean line for Letter of Credit for the companies based on the allocated forward contract from CBN. In this case no clear allegations or infractions have been communicated to any of our members and none have been indicted for any infractions. The forwards have remained unredeemed.
“This $2.4 billion worth of forward contracts from the backlog of $7 billion has triggered a severe crisis for the manufacturing sector and Nigerian economy.
The MAN DG further stated: “The CBN’s non-fulfilment of its forward contract obligations has led to a cascade of negative consequences. Manufacturing concerns have been worse hit.
“For instance, within the last 6 months, companies have incurred over N1.5 trillion in forex-related transaction losses, contributing to the poor and worsening performance of many businesses. The resulting exchange rate differentials and the burden of interest on loans to meet Naira deposit requirements have been entirely transferred to manufacturers, increasing production costs and impacting product prices.
“This crisis has disrupted manufacturing supply chains, hindered productivity, and jeopardized job security. Consequently, businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms.
“The continued non-redemption of the $2.4 billion forward contracts poses a grave threat to the survival of some Nigerian manufacturing companies and jeopardizes the livelihoods of thousands of workers.
“As companies grapple with the inability to fulfil their offshore obligations due to the CBN’s non-delivery of dollars, many face the grim prospect of downsizing or shutting down operations completely,” he concluded.
MAN therefore called on CBN to explore all avenues to resolve these outstanding obligations, adding that reneging on the legally binding contracts potentially undermines the apex bank’s credibility.