In a recent development, the Manufacturers Association of Nigeria (MAN) has highlighted a pressing concern regarding the failure of the Central Bank of Nigeria (CBN) to redeem $2.4 billion in FX forward contracts. This situation is deemed as a major threat to the survival of manufacturing companies in Nigeria, putting thousands of jobs at risk.
Making this known, the Director General of MAN, Mr. Segun Ajayi-Kadir, underscored the seriousness of the matter in a recently published report titled “The Implications of the Continued Unsettled Forex Forward by the CBN and Its Impact on the Manufacturing Sector.” He emphasized that the non-payment of these FX forwards has had severe consequences on affected companies, potentially leading them towards insolvency.
Entering into agreements with the CBN in 2022 and 2023, Nigerian businesses, including Small and Medium Enterprises (SMEs), engaged in FX forward contracts to hedge against exchange rate fluctuations. Despite the maturity of these contracts, the CBN is yet to fulfill its obligations, causing significant distress in the manufacturing sector.
MAN’s statement outlined that the CBN’s failure to settle the FX forward contracts has resulted in over N1.5 trillion in forex-related transaction losses for manufacturers, leading to a sharp increase of 108.7% in job losses in 2023 and prompting the closure of numerous SMEs, negatively impacting the Nigerian economy.
Mr. Ajayi-Kadir mentioned, “The CBN’s failure to meet its forward contract obligations has triggered a chain of adverse effects, particularly hitting manufacturing businesses hard. The mounting forex-related losses, exchange rate differentials, and increased loan interest burdens have been unfairly passed on to manufacturers, escalating production costs and affecting product prices.”
These unresolved obligations could potentially lead to losses of around N2.4 trillion for affected companies, posing a significant threat to Company Income Tax (CIT) revenues and ultimately risking the federal government’s income in the coming years.
While the CBN announced the settlement of valid FX backlogs in March, with claims of addressing a $7 billion backlog, a portion of $2.4 billion remains disputed. This discrepancy has led to an audit by Deloitte Management Consultant, with the involvement of the Economic and Financial Crimes Commission (EFCC) to investigate suspicious transactions.
Despite the CBN’s reassurances, MAN argues that many of its members are still grappling with the unresolved FX forward contracts, causing financial strain and hindering operations. Ajayi-Kadir expressed, “This crisis has disrupted manufacturing operations, impacted productivity, and endangered job stability, leading to loan restructuring and heightened interest rates.”
Urging for immediate action, MAN calls for a comprehensive resolution to the unsettled FX forwards, emphasizing the importance of CBN honoring its commitments and collaborating with relevant stakeholders to devise a sustainable framework for resolving outstanding issues and boosting foreign exchange inflows.
“By prioritizing the survival of the manufacturing sector, the government can mitigate the adverse effects of this crisis and promote economic recovery,” added Ajayi-Kadir.