Firms incur losses on $2.4bn FX forward delays

Firms have incurred N1.5 trillion in losses in the last six months as the Central Bank of Nigeria (CBN) delays honouring the outstanding $2.4 billion foreign exchange (FX) forward contracts, according to the organised private sector (OPS).

In a formal submission to Lateef Fagbemi, attorney general of the federation and minister of justice, the OPS expressed its frustration with the CBN’s failure to honour the contractual obligations, which were originally designed to support businesses in mitigating currency risks in their international transactions.

The delay, according to the OPS, has left manufacturers and other businesses in financial distress, with some companies incurring substantial losses.

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“We have followed all due process in securing these forward contracts, and yet we are left in limbo,” said a representative of the OPS, which includes influential bodies like the Manufacturers Association of Nigeria and the Nigerian Economic Summit Group (NESG).

The past 15 months have seen more than 10 multinational companies exit Nigeria, with many citing the FX crisis and harsh business environment.

Just recently, multinational consumer goods company, PZ Cussons, said it had begun plans to sell its African subsidiaries to any interested buyer as FX fluctuations and the 70 percent devaluation in the naira impacted its financials.

“The impact of the $2.4 billion FX forwards on businesses, especially manufacturers, is far-reaching. It has a way of spooking investors who may be cautious to tie in their money in a market whose sole regulator may not fulfill its obligation,” a source familiar with the matter said.

Analysts warn that the prolonged delay could further erode trust in the country’s ability to meet its foreign exchange obligations, deepening concerns about liquidity in Africa’s largest economy.

When contacted, the CBN’s corporate communication department could not respond to a call and a message sent as at press time.

Olayemi Cardoso, governor of the CBN, had earlier this year explained that the leadership of the apex bank inherited a total of $7 billion FX backlog from the former administration, which was investigated to ascertain validity.

He said that the CBN had settled verified FX requests amounting to $2.3 billion but would not pay off $2.4 billion, which he declared as invalid FX backlog claims.

FX forwards are contracts in which parties agree to exchange a certain amount of foreign currency at a future date, typically used by investors to hedge against currency risk. The CBN had earlier promised to provide the dollars required to settle these contracts, but persistent delays have sparked fears of potential financial losses, especially among foreign investors who rely on these payments to manage risks tied to the Nigerian naira’s volatility.

The CBN had initially agreed to settle the forward contracts—designed to provide foreign currency at a future date after immediate payment in naira— but has cited ongoing investigations by the Economic and Financial Crimes Commission (EFCC) into foreign exchange transactions as the reason for the hold-up.

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“No corporate entity has been informed of any allegations or infractions regarding their involvement in the FX forward contracts,” the OPS said, adding that the CBN had previously approved the transactions which were backed by valid documentation.

Samuel Sule, the chief executive officer of Renaissance Capital Africa said the manufacturing  sector is already reeling from a high inflationary environment, stressing that not honouring the Forwards could be “tumultuous” for them. 

Sule added that the “high cost pressures” faced by the manufacturers is “lurking away their liquidity which could be used to support their enterprises”.

Muda Yusuf, CEO of Center for the Promotion of Private Enterprise, stated that the CBN has claimed to have settled all obligations related to the FX backlog.

According to Yusuf, the apex bank, in collaboration with the EFCC, conducted an investigation and cleared all verified obligations.

Regarding the unsettled cases, Yusuf suggested that there might be underlying issues. He recommended that the CBN and the EFCC should engage with those whose cases have not been verified, allowing them the opportunity to present their cases.

The gravity of the situation is underscored by recent figures showing that 767 manufacturing companies shut down operations in the past year, with an unprecedented 108.7 percent increase in job losses in the sector.

“We are pleading for immediate action. This is not just about FX forwards; it’s about the survival of the Nigerian economy,” said one manufacturer whose company is on the brink of closure due to the forex crunch.

The OPS requested the AGF to intervene by compelling the CBN to honour its contractual obligations within 60 days and by urging the EFCC to clarify the alleged infractions that have held up the payments.

They argued that reneging on these contracts could deal a severe blow on Nigeria’s credibility on the global stage and lead to the collapse of more businesses, deepening the country’s economic woes.

“Honoring these contracts is a matter of survival for many businesses,” the OPS emphasised. “Without urgent action, the negative ripple effects will continue to spread, impacting not only manufacturers but also financial institutions, external trade, and overall investor confidence in the Nigerian economy.”

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As Nigeria battles rising inflation, fluctuating oil revenues, and mounting debt, the stakes appear to be high.

“We need immediate relief, or the future of manufacturing in Nigeria looks grim,” said the OPS, calling on the CBN to partner with the Ministry of Finance and private sector stakeholders to devise a sustainable solution.