Manufacturers in Nigeria are now only able to get about 5 percent of the foreign exchange they need from banks for the importation of raw materials due to the shortage of dollars, BusinessDay has learnt.
A source in the financial sector said the Central Bank of Nigeria (CBN) had reduced the sale of dollars to eligible businesses, pushing more demand for the greenback from the official market to the parallel market.
“Manufacturing companies receive about 5 percent of required FX for their businesses, leading to more dependence on the parallel market,” the source said.
Following the dollar shortage at the official market, banks have reduced the amount of dollars they sell to eligible customers.
“Please be informed that we have reviewed the process of fulfilling foreign currency requests in order to optimise our FX allocation and meet the needs of more of our valued customers,” Access Bank said in a notice to customers.
“Between now and December 2022, we will process only one maintenance/upkeep request yearly per applicant for a maximum amount of $1.500 and only for customers whose school fees were processed through Access Bank. This is subject to maintenance/upkeep not having already been disbursed previously at any time this year.”
Currently, some banks require a 30-day period to fulfil requests for foreign exchange needs for school fees, upkeep and rent payment. This was supposed to be consummated within 24 hours after filling out CBN-approved documentation known as Form M.
Last year, the CBN pegged access to dollars for Personal Travel Allowance and Business Travel Allowance to a maximum forex of $4,000 or $5,000 every quarter and not more than $20,000 yearly.
Mansur Ahmed, president of the Manufacturers Association of Nigeria, said manufacturers have very limited options with commercial banks.
“Most manufacturers have to buy more than 70 percent of foreign exchange from the black market or through any other avenue rather than the official I&E rate,” he said.
He said the high cost of forex had adversely affected manufacturers’ productivity and profitability.
According to the Manufacturers CEOs Confidence Index for the fourth quarter of 2021, 75.1 percent of manufacturers said forex sourcing by the sector did not improve during this period, noting that it became worse compared to the previous quarter.
Opeyemi Alaran, acting director-general, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, said manufacturers depend on the black market for 70 to 80 percent of their dollar needs.
“The primary reason for the depreciation of the naira is the scarcity of foreign exchange at official market despite excess demand, forcing the business community to obtain foreign exchange from alternative sources,” he said.
According to Alaran, to solve this problem, there is a need to increase the supply of forex through increased foreign direct investment, exports, and diaspora remittances.
Read also: Forex crisis in Nigeria’s economy
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said the forex scarcity was becoming more severe than before and this has increased the reliance of manufacturers on the parallel market.
“Nigeria’s import-dependent nature as a country has significantly pressured the demand for FX, as we need to import petroleum products and manufacturing inputs; most of the core industries that are supposed to provide these products are not in place,” he said.
He added that some people are taking advantage of the premium between the official rate and the black market rate.
“On the supply side, the current FX policy is making it difficult for supply to improve because dollar inflow is pegged at N415 and this is a disincentive to sources of FX such as foreign direct investors, foreign portfolio investors, oil companies, exporters, diaspora remittances,” Yusuf said.
Olayinka Arewa, chief financial officer at Parthian Partners, said part of the reason for the pressure on the parallel market is political activities ahead of the 2023 elections.
“The CBN is obviously struggling to check the pressure but I believe that they can do this if they are determined,” Arewa said.
