The organised private sector (OPS) has said the central bank’s decision to close the Wholesale and Retail Dutch Auctions (RDAS/WDAS) forex windows will spike the cost of production by at least 20 per cent and will equally raise firms’ funding requirements. The CBN last week closed the RDAS/ WDAS (official) window, where importers sourced foreign exchange, to bring sanity into the forex market bedevilled by speculative demand and round-tripping.
In a statement signed by Remi Bello, president, Lagos Chamber of Commerce and Industry (LCCI), the chamber said this will eventually impact on sales performance, profit margins and ultimately capacity utilisation of their firms. “It will result in the escalation of production cost for firms that had access to this forex window. Such firms will experience cost increases of up to 20 per cent,” Bello said.
Import duty and other port charges which are computed as a percentage of import costs will also correspondingly increase, thus piling additional pressure on operating costs for erstwhile beneficiaries of the CBN RDAS forex window, LCCI said. “Many firms, especially manufacturers with high foreign exchange exposure, have been thrown into loss positions as a consequence of the depreciation of the naira over the last couple of months and the eventual closure of the RDAS window. This is a major challenge currently being faced by many real sector operators, especially the medium and large firms,” Bello further said. The statement said exchange rate-induced losses could trigger a new wave of non-performing loans in the banking system and this has negative implications for financial system stability.
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LCCI suggested that the CBN should urgently provide a refinancing facility as a lifeline for investors in the economy which have high foreign exchange exposure while recommending a minimum refinancing. “All critical raw materials and other imported inputs of manufacturing firms should henceforth attract zero import duty,” Bello said.
He said all machinery and equipment should attract zero import duty, while port charges should be waived for raw materials importation and machinery. Many real sector investors are faced with numerous investment climate challenges which include high cost of funds, competition from unbridled smuggling and dumping of finished goods, counterfeiting and faking, high energy costs including electricity tariffs, high cost of regulatory compliance and high transactions costs at the ports.
The ECOWAS Common External Tariff [CET] will soon come into force and would create new competition challenges for domestic firms “Many manufacturing firms will simply close down,” Frank S.U. Jacobs, president of, the Manufacturers Association of Nigeria (MAN) told Real Sector Watch.
