Foreign Suppliers Shut Credit Lines To Nigerian Business, CBN Accuses Operators For Round-Tripping

*Hotels saddled with large amounts of idle foreign cash
*Quality of loan assets in banking system at risk
*Export proceeds idle
*Tyre prices up by 25%

The organised private sector weekend said that members are finding it difficult to pay foreign creditors for goods imported before the CBN restriction on 41 items access to foreign exchange market in Nigeria. They also said that many hotels in the country are saddled with large amounts of cash, foreign currency which they could not lodge into their domiciliary accounts or do business with.

According to a survey report of members of Lagos Chamber of Commerce and Industry and other operators in the private sector sighted by Vanguard, there is growing inability of Nigeria businesses to pay foreign creditors on account of items imported prior to the CBN policy. It also said that some manufacturers are unable to manufacture due to lack of foreign exchange to import raw materials.

CBN Governor, Mr Godwin Emefiele

According to the survey, there is now delay in the processing of Form ‘M’ to import and meet demands. This has led to loss of market share and slower consumer demand and lower profits.  But an official of the CBN who would for now want to maintain silence on this issue accused leaders of the organised private sector of speculative demand for foreign exchange and the unpatriotic act of round-tripping. He said that some of these private sector leaders have been doing round-tripping of foreign exchange, thus putting undue pressure on the naira. He challenged the members to come out with the list of items that are input to their productions that are not available locally for the authorities to see.

But the operators said that Palm oil for instance, is needed for production of some consumer goods and since local supply cannot meet industrial usage, the inability to import it has caused some difficulties for manufacturers in such sectors. Prices of such products have to increase at least marginally. They claimed that there is a supply gap of about 600,000 metric tonnes of palm oil annually in Nigeria.

According to them, “Form M opened for items on the list prior to the CBN policy are not processed for payment leading to credit defaults with foreign suppliers. They equally said that vegetables and processed vegetable products used by Quick Service Restaurants are included in the list and this has affected negatively the availability of forex to import these materials. Sourcing locally will mean lower standards than international levels. Operators in their response to the survey said “Sourcing of foreign exchange at exorbitant rates from alternative sources is eroding already thin margins and that job losses are inevitable as the bottom line is being adversely affected.

A respondent to the survey report said  “Export proceeds have become idle while in need of forex to import through other banks. Companies in the Fast Moving Consumer Goods sector are unable to settle outstanding obligations to foreign suppliers which has slowed down their ability to get fresh supplies for production. It further said that export business is hugely affected as they are unable to sponsor and pay marketing activities outside the country and that they are also experiencing payment delays.

The survey also discovered that there are now “delays in sourcing forex to import spare parts to meet breakdown of production machinery. Spares that were picked off the shelves before will now need to undergo series of processing before forex is made available to import them. It said that for suppliers that need to be paid in advance to arrange for supplies, it has become impossible to do so under the current regime.

According to the survey report, there is now “Default in repayment agreements with foreign suppliers and banks. The Bills for Collection opened in respect of the 41 items prior to the CBN policy have suffered non-performance.’

It said that “Tyre is a composite product of more than 200 raw materials. It is therefore technically wrong to classify tyre as rubber instead of being termed an automotive part. Tyre business operators cannot source for forex to remain in operation. As a result, the prices of tyre have increased by 25 per cent since July 2015. This, they said, has led to increased spate of smuggling into the country with implications for loss of revenue from import duty and risk of increased road accident from fake vehicle tyres”.

Private sector operators in their complaint said that “some raw and packaging materials that are required in manufacturing process are on the exclusive list. These materials are not available locally and have to be imported. There are issues with the ambiguous classification of the items on the list. For instance, glassware and glass bottles, especially different small sizes needed for packaging of medicines; the glass bottles have been classified as glassware and as such, cannot access foreign exchange to import them. Local bottlers do not produce the small sizes as local requirements are not large enough to attract them into producing small glass sizes”.

In the Pharmaceutical sector, they said: “There is now “Scarcity of Pharmaceutical package materials such as glass and plastic bottles. Industry operators have almost run out of key packaging input with implications of shut down and job losses in near term”.

They further complained: “It takes up to two months to get foreign exchange for even products that are not in the prohibited list. This is waste of time and leads to loss of opportunities. There is about 10 to 15 per cent increase in the cost of transfers and there are also security issues with such transfers”.

According to the survey report, “Companies operating in Free Trade Zones operate under statutes that exclude them from CBN Foreign Exchange regulations. The CBN has disregarded these provisions as companies operating in Free Trade Zones are meant to comply with foreign exchange restrictions. Operators at free trade zones are now regulated/legislated out of business; this they claim is a breach of the law/status that established the free trade zone as a country within a country.”

They also argued that restriction of key input/raw materials such as wood particle boards and panels; wood fibre boards and panels; plywood boards and panels; woven fabrics has constrained those operating in the sector saying “there are no local producers of these basic raw materials that could have served as alternative to the import. Capacity utilisation now stand at 50 per cent from 70 per cent in December 2014 as a result of non-availability of these basic raw materials. Many of the products on the list of the 41 products are intermediate goods which are critical inputs for many manufacturing firms as well as other critical sectors of the economy.

They stated: “The list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation. The HS codes of the items are not indicated in the CBN circular. Discretionary interpretations create room for corruption.

It said that there is a “Breach of right of the entrepreneur to utilise export proceed on legitimate goods/services which falls within the 41 banned items. Many SMEs are now forced to wire their transactions from neighbouring countries. This, they say, poses Sovereign risk and poor perception of the country which could lead to closure of credit lines as a result of credibility crisis by foreign partners.

They also said that this could lead to loss of confidence on Nigerian business operators by their foreign partners due to their inability to fulfill their obligations especially in ongoing transactions before the new forex policy. There is anxiety among foreign investors as repatriation of investment proceeds may not be guaranteed and  there is also now the Challenges of foreign banks honouring letters of credit from Nigerian banks and long delay of banks in Nigeria before honouring their obligations relating to letters of credit even after the goods have been delivered.

“The quality of loan assets in the banking system and sustainability of many enterprises are now at risk. Many parents are currently faced with the predicament of how to remit funds for the upkeep of their children abroad, especially those in schools. Only fees paid directly to the schools can be remitted under the present regulation”.

- Vanguard