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End undue interference in FX market, manufacturers urge CBN

The Manufacturers Association of Nigeria (MAN) has urged the Central Bank of Nigeria (CBN) to allow the forces of demand and supply to determine the exchange rate and avoid the temptation of interfering in it in the future.

In a statement sent to BusinessDay, MAN commended the apex bank for working to unify the exchange rate market, saying that a market-friendly rate would facilitate stable production planning and engender sustainable economic growth.

The CBN is pushing for rate convergence around the Investors and Exporters (I&E) window, devaluing the naira to attract investors. The bank had since 2016 maintained multiple exchange rates that frustrated investors and created uncertainty. But there are concerns that the rate convergence is taking a long time.

However, MAN said it was a welcome development that should engender increased investment inflow into the real sector of the economy and a laudable initiative that had come at the right time, particularly now that the economic outlook was gloomy in light of the ravaging impact of Covid-19 pandemic.

“The World Bank had attributed the country’s loss of Foreign Direct Investment (FDI) to investors’ exasperation from perceived manipulation of the foreign exchange market,” MAN said.

“A piece of advice was hitherto rejected by the monetary authority until very recently when it became conditionality for monetary support,” MAN further said.

The association said it was important to recognise the existence of the unavoidable pains that naturally came with the transition from a multiple exchange regime to the domain of a single exchange rate, particularly the burden of dollar-denominated loans and offsetting existing credit commitments to foreign suppliers of raw materials.

MAN urged the CBN to, as a matter of urgency, put a measure in place to minimise the intensity of the pain by considering outstanding obligations of manufacturers from the second quarter of 2019 till date and allow such to be settled at between N330 and N360 per dollar to enable banks to redeem these obligations to foreign suppliers of manufacturers.

The association said anything otherwise could lead to factory closures.

“CBN stimulus packages to the manufacturing sector will suffer a huge setback as cash flow crunch becomes the order of the day,” MAN said, referring to the possible effect of settling obligations at the current rate of N345/$.

It asked the CBN to ensure that the strategy pursued two fundamental objectives: first, to limit the short-term pains until efficiency gains materialised by responding swiftly with an inward-oriented rescue guideline, and second, seeking to boost the pace at which such efficiency gains materialised.

“Submit all the instruments of exchange rate determination gradually to the unseen forces of demand and supply as a matter of necessity and completely avoid the temptation of interference in order to fully harvest all the benefits that foreign exchange unification can offer,” MAN told the CBN.

It urged the apex bank to ensure that the implementation of the critical aspects of the unification process be done as fast as possible, to enable Nigeria take her portion from the meagre capital currently available in the global economy.

“This is not unconnected with the fact that the intensity of the prevailing aggressive competition for resources occasioned by the backlashes of COVID-19 may deny some countries

from accessing the much-needed capital inflow, as investors holding scarce resources by default rationally settle for destinations where investment is safe and earnings can be easily repatriated,” MAN advised.

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