• Manufacturers ration raw materials as crisis deepens
• Inflation hits consumer, household products
AN alleged ineffective regulatory framework may have worsened the nation’s foreign exchange (forex) crisis. The Central Bank of Nigeria (CBN), the police and the Nigeria Immigration Service , are among the regulatory agencies that are supposed to ensure the proper use of forex.
But their ineffective regulatory process has paved the way for poor audit checks to cross-match declarations on Form M with the actual value of items imported at later dates, thereby resulting in round-tripping. Round-tripping which is normally associated with forex occurs when a person or an institution like a bank collects forex from the CBN (at an official rate which is usually lower) and diverts it and sells it at the parallel market (at an unofficial rate which is higher.)
The Form M is a document in an electronic format for transaction and payment for foreign trade, which also details items of importation and is used to request forex.
Meanwhile, faced with an imminent decline in their stocked raw materials arising from inability to access more for their local production, local manufacturers have started rationing what they have as inflation hits consumer prices.
Already, prices of consumer products and household items like mobile phones, electrical components and electronics have been inflated by over 20 per cent, as such products are imported and assembled locally.
But while importers and manufacturers are getting public sympathy for difficulties in accessing forex, indications have emerged that some are now exploiting the widening exchange rate gap at the parallel market trending around N400 per dollar. The cheap-money-making scheme, The Guardian learnt, is described “as a perfection through coded scheme,” and riding on the back of over-invoicing of Form M.
Last week, a new twist emerged from the forex pressure on the naira that the demands are not all about import, but that foreign companies are now looking for exit for fear of being indicted by the financial investigations currently going on in the country.
The source affirmed that people are actually demanding and buying the dollar at the exorbitant rate of N400 for fear of uncertainty, while companies and individuals, who may be linked with some personalities in the country in one way or another are now reducing investment as well as using the dollar to facilitate capital flight.
But a source close to importers and manufacturers confided in The Guardian at the weekend that the Form M arrangements involve collaborations with the suppliers, that would “perfect everything possible” to save the balance in foreign accounts.
“Granted, the cash is not handed to the importer by banks, but transferred straight to the suppliers’ accounts, but the amount is usually inflated, even by some who really want to import.
“Sometimes, the items are switched to others after the disbursement and like some Nigerian exporters, the proceeds are remitted into their foreign accounts. I am telling you that this is currently going on,” the source said.
With an estimated $5 billion trade credit hanging at present and allegations that it takes lobby and a period of about two months to get forex disbursement at far less than what is demanded, importation of raw materials for production may be less attractive than round-tripping.
The Acting President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, has been consistent in his call for measures to block leakages in the system.
Gwadabe, who told The Guardian at the weekend that such an illegality might be possible, noted that besides the declarations in the importation document to access forex, there were no particular trails on actual importation of the declared items.
He also disclosed that ABCON was fine-tuning arrangements to launch into the global forex market to attract more liquidity into the system.
The plan, which would see the association review and update its operational guidelines, may now bring them into live trading of currency on the web, automation of transaction documentations, pressing for change of the enabling act and participation in diaspora remittance processes.
The Director-General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, noted that the widening gap between the official and parallel market exchange rate was enough to attract ‘an angel’ into round-tripping.
He said that the challenge was not about the round- tripping, but the situation giving rise to such an illegal activity.
According to him, since the oil resources are no longer providing enough, the autonomous sources should be made attractive through policy choices.
Also, capacity utilisation in the manufacturing sector which dropped to 50.69 per cent at the end of 2015 has continued to witness a southward trend as manufacturers produce with limited raw materials.
According to stakeholders in the real sector, the shallow and fragmented parallel market has further deepened the crisis in the real sector with many manufacturers finding it difficult to continue their operations.
The naira, which dropped to an all-time high of N391 against the dollar at the parallel market on Friday, dropped to N370 yesterday, even as it remained pegged at 199 to $1 at the CBN’s interbank market.
MAN President, Dr. Frank Jacobs, noted that about 680 HS codes were identified following the breakdown and classification of the 41 restricted items by the CBN from the official forex window into HS codes, adding that of the 680 HS codes, 95 HS codes are raw materials used in the course of production in the factories and they are presently restricted from access to forex market.
While the CBN might have made a pronouncement unveiling its resolve to give priority to some of the HS classified products, manufacturers believe the order of priority needs to be addressed urgently as there are outstanding requests to meet local production needs.
“We have appealed to the CBN to remove those items from the list and if that had been done, we would have been shouting for joy because the rest of the 585 items will be to the benefit of the country because if those items are not imported; it will be better for the economy,” he said.
Former Chief Executive Officer of Honeywell Flour Mills, Babatunde Odunayo said there was a huge shortage of raw materials as many industries were running at far below their capacity utilisation level.
“We do not see the dollar value of oil going up. What can the nation do? Something has to be done by increasing the supply of the dollar to industrial firms. Many companies are already on the expansion plan, but this plan is presently being threatened by lack of access to foreign exchange. Devaluation will hurt many of those industries. Industries believe government should relax its policies. If people have other sources of money, let them use it.
“Sourcing dollars from other sources have never been questioned until now. However, asking firms to show inflows is further hurting sourcing of foreign exchange. There is going to be significant loss of employment if the situation is not addressed.
“The CBN made a mistake by making a general announcement that they will not sell to bureau de change operators as this hiked the price of dollar in the parallel market. I believe they should have done it covertly”, he added.
The Group Managing Director of Vitafoam Nigeria Plc, Taiwo Adeniyi, lamented the plight of manufacturers and pleaded that the Federal Government should address the chronic shortage of the dollar and also revive Eleme Petrochemical Industry to live up to its strategic objective of serving as a hub for providing raw materials.
According to him, many industrial firms that have submitted their bids for forex are yet to access such funds from the CBN, a situation that has continued to inhibit access to raw materials.
Gwadabe stated that the rates in the parallel market were not realistic as they were based on speculations by multinationals which were mopping up forex from the markets for repatriation.
“Companies are also stocking up dollars for long-term use rather than for the short term. We need a strategic partnership between BDCs and the CBN to turn around the market for efficiency. The BDCs should be currency options. We are the closest to the retail sector where the needs lie,” he added.