It is a welcome development that the Senate recently opened an investigation into the alleged $2.4 billion foreign exchange transactions pronounced invalid by the Central Bank of Nigeria (CBN) from the outstanding $7 billion obligations.
Olayemi Cardoso, the CBN governor earlier this month, said that a forensic audit of $7 billion of overdue foreign exchange transactions the bank had been trying to clear uncovered irregularities around $2.4 billion in transactions.
It is hard to fault CBN, but obviously, the outcome of the probe by the Upper Chambers will reveal the true situation in the transactions by either identifying the culprits and bringing them to justice or validating some of the transactions declared invalid.
It is possible that some of the transactions declared invalid could have resulted from unverified or non-provisional documentation.
This position was underscored by organisations like Social Integrity Network (SINET), which, in a report published in Eagle Online, requested that CBN reconsider honouring the forward contracts that are eventually found to be genuinely backed up with proper compliant documents for utilisation against each Letter of Credit opened by the commercial banks using the forwards as a hedge.
While any action associated with fake foreign exchange transactions could be regarded as economic sabotage, it is appropriate and welcome that the Senate is stepping in for a second look to possibly separate the wheat from the chaff by perhaps identifying the genuine ones. It is also appropriate that the Senate is wading in on the lack of consultation with the manufacturers before the amount was invalidated.
The Senate probe, which will eventually identify those who are guilty and perhaps absolve some firms of blame, will help to obviate the repercussions of the invalidated forward contracts for some of the companies.
In the end, honouring the forward contracts that are eventually found to be genuinely backed up with proper compliant documents will definitely ease some of the pressures experienced by the manufacturers, who are facing a number of challenges already.
“An average member of MAN is subjected to no less than 30 different forms of taxes, fees, and levies. The consequences of the incidence of multiple taxes are immense and include the rising cost of doing business and rapid divestment in the manufacturing sector. These issues combine to depress demand, worsen job losses, and increase the incidence of poverty and low revenue generation from the sector,” MAN says in a report. In addition to epileptic electricity supply, poor road network, poor water supply, and insecurity about the distribution of goods, other serious impediments hampering the growth of the manufacturing sector in Nigeria include poor infrastructure and inefficient port facilities.
For an industry analyst, it is important to identify the genuine companies that are perhaps wrongly grouped in the invalidation, and that is why the Senate probe is considered crucial at this time. Ordinarily, the adverse effect of the invalidation on all the manufacturers, whether genuine or not, will be disastrous. This is premised on the fact that the forwards have been utilised to establish LCs for valid Form M transactions at rates within N600/USD, and the repayments of the obligations would have to be done at N1,500/USD. Due to the devaluation of the naira, the invalidation by the CBN has increased the cost of transactions by N900/USD for genuine and non-genuine businesses. It is important that the genuine ones be spared from this huge business loss.
The analyst further argues that some of the adverse effects of this cancellation on genuine companies and even those who tendered wrong documents for the forex deals include a possible increase in the unemployment rate: Due to the increased cost of operations, various companies would be forced to downsize their workforce. This will lead to a high unemployment rate within the country.
Though the number of those companies involved in the invalidated $2.4 billion forex transactions is not ascertained, it is obvious that the invalidation would affect the manufacturing sector.
The industry is currently burdened by the effects of fuel subsidy removal and devaluation of the naira, which have led to a hyper-increase in the cost of production. With the cancellation of forward contracts for any genuine manufacturer who has already utilised it for LC establishments, shipment, and costing of products, it would be practically impossible to recover this cost on current production.
It is pertinent to state that genuine businessmen and women across the country borrowed funds from commercial banks, some with interest rates as high as 30 percent, to secure forex from the CBN through their respective commercial banks since the CBN does not sell the dollars to individuals directly. The same funds were deposited with CBN for the past 1 and a half years for forwards allocated, for which many of them are declared invalid.
To the analyst, it is important for the CBN to re-evaluate this invalidation and ensure that customers with valid export documentation are exempted from the list of invalid forward contract obligations. This can be ascertained by requesting documents to prove that the funds were used for importation.
This will help the CBN separate genuine customers that have utilised the forex allocation for legitimate business from those who may have diverted the forex for other uses.
DANIEL OBI; Editor, Marketing and Brands: BusinessDay Media
