CBN dollar policy raises manufacturing capacity to 52%
There was an uptick in the capacity utilisation of the manufacturing sector by the end of 2016, thanks to the decision of the Central Bank of Nigeria (CBN) to allocate 60 percent of dollars in the foreign exchange market to manufacturers.
Capacity utilisation measures the extent to which productive capacity of a plant is being used in the manufacturing process.
According to the Manufacturers Association of Nigeria (MAN), capacity utilisation in the sector in 2016 rose from 50.17 percent in 2015 to 51.80 percent by the end of 2016, indicating 1.63 percentage point increase over the period.
“The result suggests that 2016 was fairly better than 2015. This may be due to momentum gained by economic activities in the second half of the year following policy adjustments and the 60 percent preferential FX allocation to the manufacturing sector,” Frank Udemba Jacobs, president of MAN, said in an e-mail note to Real Sector Watch.
The CBN in August 2016 directed banks to allot 60 percent of available dollars to manufacturers to boost local production and encourage import-substitution industrialisation in Nigeria.
Many manufacturers complained last year that they were not sure of what 60 percent meant, as they could only get two to ten percent of their dollar needs.
However, some others commended the CBN for the initiative, saying that it provided succour to domestic productivity.
MAN, which is an umbrella body of all manufacturers in Nigeria, believes the 2016 directive had a positive impact on the manufacturing sector.
“It is gratifying to affirm that the 60 FX allocation restored production in the sector reasonably as more manufacturers were able to source FX for importation of raw-materials, spares and machinery that are not available locally,” said a separate position paper forwarded to Real Sector Watch by MAN.
In February this year, the apex bank announced a new policy targeted at making more dollars available to commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowances (BTA) for onward sale to customers.
The CBN directed banks to open FX retail outlets at major airports and reduced the tenor of its forward sales from the maximum cycle of 180 days to no more than 60 days from the date of transaction. The new decision removed manufacturers’ 60 percent preferential FX access.
The position paper by MAN says in view of the positive trickle down effects of the concessionary FX allocation policy in 2016, manufacturers have drawn up investment, expansion, production and export plan for 2017 with great expectation of improvement in production.
MAN says, however, that the new decision, which removed 60 percent FX allocation to the sector, is challenging the positive steps made so far by manufacturers in the country.
The body adds that the new policy ensures that large enterprises have easy access dollars, it makes forex access difficult for small and medium players.
Nigerian manufacturers need dollars to import raw materials, machines, spare parts and packaging materials.
ODINAKA ANUDU