After four months of intense engagement by stake holders, the Central Bank of Nigeria (CBN) eventually yielded to sound reasoning and released a circular, allowing importers of the restricted 41 items, that have letters of credit opened prior to the policy change, access to the foreign exchange market. The CBN had on June 23, 2015 come up with a controversial circular that excluded 41 items from the Nigerian foreign exchange market, in a bid to conserve foreign reserve, facilitate the resuscitation of domestic industries and improve employment generation.
Stakeholders had expectedly piled pressure on the CBN since then as the policy had a retroactive effect, denying transactions initiated prior to the release, access to the foreign exchange market. The real issue wasn’t that the importers of such products were denied access to the foreign exchange market but that the policy took immediate effect and its implementation was retroactive as the CBN excluded letters of credit opened long before the circular was released. The affected Companies were unwilling to source funds in the parallel market, culminating in a pile up of matured obligations as they sought for some respite. The impact of this on the fragile reputation of Nigerian banks became even more telling, with foreign banks threatening to blacklist the country as the size of unmet matured obligations continued to grow. The CBN was in dire straits in handling the impact of the falling oil prices on the country’s external reserves and the release of the circular heaped more pressure on them as the composition of the list irked many manufacturers, who ironically were among the key players they had set out to protect.
In my piece published here, titled; “A ray of hope for beleaguered manufacturers?”, I had pointed out the negative impact of the policy on manufacturers, who were at the verge of shutting down, as essential raw material inputs for their production were included in the list of items not valid for foreign exchange. The implication was that the cost of procuring those items went up by about 20%, as they were compelled to source the required foreign exchange from the parallel market at about N240/$, while interbank sales was going for less than N200/$. For most manufacturers operating in the country, it was an uphill task to recoup such a hike in cost from their typically low margins.
The sustained pressure on the CBN by the banks, coupled with the timely involvement of the Manufacturers Association of Nigeria (MAN) in engaging the CBN Governor; Mr. Godwin Emefiele, played a major role in their decision to soft pedal. This commendable step by the CBN, though not a solution to the lingering foreign exchange scarcity, will offer some palliative to the manufacturers and importers and go a long way in lifting the parlous mist that has pervaded the economy in recent months. The relief that will accrue from this development, will definitely augur well for the economy, as many players will be encouraged that the regulators are listening.
With the imminent conclusion of the senate screening of the ministerial nominees, it is expected that the uncertainty will clear as soon as a Finance Minister is named and the economic team sets out to map a clear path for the ailing economy.
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