Manufacturers fume as CBN closes official window

Manufacturers in the country have expressed dissatisfaction with the Central Bank of Nigeria’s (CBN) decision to close the Retail and Wholesale Dutch Auction System window, stating that the move could result in closure of many companies within the shortest possible time.

The CBN had, last week, closed the RDAS/WDAS (official) window, where importers sourced foreign exchange, with the aim of bringing sanity into the forex market bedevilled by speculative demand and round-tripping.

According to the CBN, the move was made to avert the emergence of a multiple exchange rate regime and preserve the country’s forex reserves that had been on a free fall. The decision, therefore, leaves importers, including manufacturers that source raw materials from abroad, to now go through the inter-bank market for dollars.

Before the closure, naira-to-dollar rate was N168/$, with a wider band of ±5 percent, while the parallel market rate was N214/$ (as of last week).

The implication of this move is that there will be an added pressure on the cost of production, which could lead to retrenchment in many firms. Manufacturers may pass on part or whole of the costs to consumers, but analysts say this may be more difficult now when disposable incomes are not up.

According to the manufacturers, the move would not augur well for real sector at this point when economic diversification had become the Federal Government of Nigeria’s mantra, following disappointments in the oil market.

“Many manufacturing firms will simply close down,” Frank S.U. Jacobs, president, Manufacturers Association of Nigeria (MAN), told Real Sector Watch.

“Given the fact that oil prices are falling, we all say there is the need to diversify the economy. But how can you diversify without manufacturing. How can you diversify the economy by doing things that will rather destroy the sector,” Jacobs said.

The MAN’s helmsman, who was visibly angry while speaking with Real Sector Watch, said manufacturers believed that the action was capable of destroying the sector that now reeled under different challenges.

Other manufacturers who spoke with Real Sector Watch expressed disappointment that there had not been good realationship between them and the CBN in recent times.

In reaction, the Lagos Chamber of Commerce and Industry (LCCI) said the closure of the RDAS would lead to the escalation of production costs for firms that had access to the forex window and impact negatively on sales performance, profit margins and capacity utilisation of manufacturers.

December last year, the CBN listed some items, including raw materials and electronics, that would be entitled to the RDAS. But manufacturers also complained then that they were not even allowed to access the official window.

“Even raw materials and equipment for industrial use are being denied access to the RDAS window. A great deal of uncertainty has been created in the foreign exchange market and this has greatly undermined the confidence of investors,” Remi Bello, president, LCCI, had said.

ODINAKA ANUDU