The directive by the Central Bank of Nigeria (CBN) to banks to give 60 per cent of their foreign exchange allocation to the real sector of the economy has been mired in controversy, as manufacturers and lender are at logger heads over how the initial $650 million was disbursed under the policy.
While the apex bank quoted reports indicating that over $650 million of the funds had been disbursed to local manufacturers through the banks in the last one month, the manufacturers alleged that the lender had been frustrating efforts by its members to secure the 60 per cent allocation, which is meant for local manufacturers to build c apacity in the industry.
Besides, the local manufacturers also noted that reports from the banks showed that it was only $300 million that the CBN pumped into the special forex window.
The controversy is coming just as the Lagos Chamber of Commerce and Industry (LCCI) is demanding that the banking watchdog reviews the current Monetary Policy Rate (MPR).
President, Manufacturers Association of Nigeria (MAN), Dr. Chief Frank Udemba Jacob, told New Telegraph in Lagos that it had been difficult for members and other local manufacturers to access the funds because of banks’ lackadaisical attitude to the policy. Specifically, he said many of the banks are complaining that they cannot grant forex to local manufacturers at 60 per cent, as the apex bank is yet to honour the policy.
The MAN president noted that the apex bank meant well for local manufacturers, but the banks are frustrating the policy that is meant to grow the real sector of the economy.
Jacob said: “We’ve been asking for special forex window all along. But on CBN’s recently announced 60 per cent allocation to local manufacturers, it was a laudable idea.
The only challenge we are having about the policy as operators is that the banks are not cooperating at all on the scheme. And the reason is not far-fetched, because the banks are telling us (manufacturers) that CBN didn’t put enough money into that special foreign exchange market. They say we don’t have any moral right to come and dictate to them on how they are going to spend the forex they got from other markets.
“Otherwise, CBN means well by coming out with that policy, unfortunately our banks are not playing balls.”
Speaking further on the aggregate forex local manufacturers would need from the financial authorities, the MAN boss said that as at the last check, the demand was $818 million. “Already, the last time they asked members to submit their requirements, I think they got $818 million, and they were able to make available $300 million. So I cannot exactly say how much it is going to be, based on their demands,” he noted.
But Deputy Director, Communications, CBN, Isaac Okoroafor, debunked the MAN’s allegations. He said that many local manufacturers had benefitted from the funds with ease, which has impacted positively on their operations. He said that commercial banks in the country had disbursed over $650 million to local manufacturers, who needed forex to import goods such as machinery/ technology into the country.
He explained that the banks furnished the apex bank with details of the forex transactions with local manufacturers, adding that the CBN had already directed all banks to submit their forex transactions. Okoroafor said: “In the last one month, manufacturers in terms of importa tion of raw materials such as plants and machinery have received over $650 million.
These things I am telling you are not hearsay, but they are published. Go and look at the publications by various banks on forex allocation to manufacturers in the published reports.
This forex allocation that is given by the banks to the manufacturers is set aside from the inter-bank rate. It is based on that 60 per cent forex we are working on. “The monies were got through the banks by the manufacturers. We (CBN) gave directive to the banks on the disbursement of the forex and the banks have been complying by publishing these transactions.”
Many indigenous manufacturing companies have been groaning over scarcity of forex in circulation, forcing them to shut down operations. Already, local tomato manufacturer, Erisco Foods Limited, has shut down its business amidst harsh operating environment.
Consequently, the shutdown of the factory has affected about 1,500 local workers out of its 2, 520 entire work force. President/Chief Executive Officer of the company, Chief Eric Umeofia, at a media briefing in Lagos, said that the cost of running both the Nigerian farms in Katsina and fresh tomato paste processing plant business in Lagos had become so exorbitant given the high cost of sourcing forex, as well as the inability of regulatory agencies to halt the high rate of importation and dumping of imported tomato paste in the country.
Meanwhile, Director, Research and Advocacy, LCCI, Dr. Vincent Nwani, has said that reduction of the MPR would stimulate the economy through improved access to credit facilities. The Monetary Policy Committee (MPC) had, on July 26, increased the MPR by 200 basis points from 12 per cent to 14 per cent to combat inflation and stimulate growth.
MPR is the benchmark rate at which commercial banks can borrow from the CBN. The News Agency of Nigeria (NAN) quoted Nwani as saying the private sector had long been chased away from the banking halls, as MPC raised MPR from 12 per cent to 14 per cent in the wake of recession. Nwani noted: “Today, private sector can only borrow between 25 per cent and 35 per cent from commercial banks and if you are borrowing from microfinance banks, it can be as high as 50 per cent.
“Who borrows such money? To do what? Except if you are doing an illegal business; even the ease of getting this credit is cumbersome. “The challenge of high interest rate in the country has made government’s effort at stimulating the real sector of the economy ineffectual,” Nwani said.
He noted that the challenge had exacerbated the dearth of SMEs, low capacity utilisation, staff rightsizing, increased cost of production, reduced purchasing power and increased non-performing loans.
The director argued that the country’s improved ranking in access to credit indicator, recently released in the 2017 World Bank’s Ease of Doing Business report, was theoretical. “I watch the market and economy every day. The improvement in ease of getting credit is not in reality with what is on ground in the country.
If we are talking about ease of banks to borrow money to the government, it has improved. “If it is about private sector, it has been worsened by higher interest rate and harsh business environment,” he said.
Nwani, who lauded the various intervention funds of the CBN, however, noted that efforts should be geared toward ensuring that targeted recipients access the funds. He stressed that the lending process utilised by financial institutions should be simplified and be investment friendly to accelerate economic growth.
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