Chairman of the Manufacturers Association of Nigeria (MAN), Apapa Branch, Mr. Babatunde Odunayo, has disclosed that manufacturers lost not less than N500bn to the Central Bank of Nigeria’s (CBN) flexible exchange rate policy in less than six months.
The revelation is coming few days the CBN said it has given out about $660mn to the manufacturing sector of the economy.
He gave the details during the branch’s 45th Annual General Meeting in Lagos, Letters of Credit and Form MS approved to manufacturers at N197/US$ before the introduction of new flexible exchange rate on June 20, are now expected to be redeemed at N320.
Experts say a letter of credit is a letter from a bank guaranteeing that a buyer’s payment to a seller would be received on time and for the correct amount.
Odunayo said the unfolding situation poses a great burden on manufacturers since the pricing of the related manufactured goods was made at N197 or N198 to US dollar when it was approved.
He added that “Manufacturers currently face up to N500 billion in exchange difference between the approved Form M and Letter of Credit established rates and the flexible market rate of N320 to a dollar.
“This is a huge loss that manufacturers are expected to bear, whereas the related goods had been mostly sold before the commencement of the new exchange rate system.
According to him, the exchange rate loss of N500 billion reflected in their accounts and had led to factory closure, unemployment and loss of investments in the sector.
“The exchange rate losses will require additional working capital to shore up cash difference between N320 and N197.
“Many of our members are in the middle of factory projects execution, but the viability of such projects is now questionable due to recent forex developments,” he said.
He said if loans were not reversed to pre-flexible exchange rate at which the transactions were contracted, losses to manufacturers would be colossal.
To him, the best bet for the government will be to remove pre-approved form MS from the flexible foreign exchange market and deal with it through a structured sovereign loan to save manufacturers; otherwise, the $660bn given to MAN will be eroded.
