CBN and the burden of forex on manufacturers

There is a peculiar challenge facing Nigeria’s economy. It is crystal clear. The cause for this is no one’s fault to be honest as it was driven by the economic fallout of the COVID-19 global pandemic. Almost every country in the world had their share of the economic downturn. However, what is more alarming is that you would expect the manufacturing sector to be the economic driver in a critical period like this, sadly, that is the same sector that is taking the hit of the economic downturn in Nigeria.

Growth rate in the manufacturing sector is projected to suffer further decline as operators come under a renewed wave of inflation and foreign exchange scarcity. The sharp increase in headline inflation was driven by a faster month-on-month inflation, which was up 10 basis points to 1.3 per cent, the highest since June 2017.

This development, according to the sector leaders, was already taking a heavy toll on the manufacturing companies and it has now been complicated by an increasing difficulty in getting foreign exchange to import foreign components for their production.

In truth, this should not be happening if Nigeria as a country is ready to stabilize the already fractured economy. The pandemic has wreaked havoc on the Nigerian economy, as it has on most other economies around the world. The difference is that these other countries are doing a lot to help their manufacturing sector.

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In fairness to the Central Bank of Nigeria, they recognized the importance of manufacturing, the Apex bank has made it a priority to create an enabling environment for local manufacturing. The CBN has continued to implement accommodative monetary policy steps that will help the economy recover faster by increasing the flow of credit to households and businesses in key sectors such as agriculture, information technology, and manufacturing.

But there is an urgent need to grab the bull by the horns – increasing difficulty to source foreign exchange (forex) is one major problem that the CBN needs to sort out.

A lot has been said by relevant stakeholders, the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and others have voiced their concerns about the current state of the economy and the manufacturing sector.

In a discussion with the media, Engr. Mansur Ahmed, President, MAN, revealed that manufacturers have not been able to access the required foreign exchange (forex) from CBN for their operations, about 40 per cent of their forex needs are not met by the apex bank. This means that manufacturers can’t get the required amount of forex that they need to bring in raw materials that are not locally available, or equipment they need to keep their operations running.

Unfortunately, many of these companies have invested millions of naira to the Nigeria economy even during a rough period when economies and businesses have been hit hard by the COVID-19 outbreak, yet they find doing business hard to come by. Earlier this year, Procter & Gamble (P&G) announced a $35 million investment in collaboration with Colori for the local production of Oral B, one of P&G’s Oral Care products, as part of the company’s efforts to localize production in Nigeria. Not only will such massive investment boost the Nigerian economy, but it’ll also create many job opportunities for the citizens.

Last year, GBfoods completed a N20billion Tomato Processing Factory and Industrial Farm in Kebbi, as well as localised the production of their Bama mayonnaise. The factory is the second largest in Nigeria and the only fully backward integrated plant in ECOWAS – and has the largest single tomato farm in Nigeria. When all phases of the project are finished, the factory will be the largest fresh tomatoes processing factory in Sub-Saharan Africa.

There’s no denying that investments like these from P&G and GBfoods are exactly what Nigeria needs to fuel its declining economy. But the critical question is – are these companies getting adequate support in return from the government?

CBN should be looking out for companies who have made Nigeria their manufacturing hub and are never shy from investing significantly in the economy. There’s a need to give a leaning shoulder to such companies. Afterall, building a strong economy is always a collaborative effort between the government and the private sector.

Nigeria should take a cue from a country like India. The country set a turning point; an economic agenda to spur economic growth and job creation this decade. They immediately swung into action with three sets of policy interventions that could—if enacted in conjunction with actions that manufacturing companies themselves can take—accelerate the growth of manufacturing value chains specifically.

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele has reaffirmed the Bank’s commitment to encouraging companies willing to invest in the Nigerian manufacturing sector to expand the economy and that is nothing short of commendation. But now more than ever is the time to walk the talk.

There is, therefore, the need for the government to continue to drive the backward integration and resource-based industrialisation agenda cautiously in full consultation with the private sector while ensuring that in the interim forex is more accessible for manufacturing in the country.

Abang, a Public Affairs Analyst writes from Calabar.