The Manufacturers Association of Nigeria (MAN) has decried the depreciation of the naira and the shortage of forex in the country.
In the association’s Confidence Index for 2020’s fourth-quarter report, MAN said that manufacturers in Nigeria have faced forex difficulties since the second quarter of 2020.
It stated that it was a challenge for manufacturers to source forex for the importation of raw materials and machinery that cannot be purchased in Nigeria.
MAN said, “Manufacturers still find it extremely difficult to source FX for the importation of raw materials and machinery that are not locally available.
“Therefore, variability and large depreciation in exchange rate obstruct economic activities and manufacturing production is not in any way insulated.
“As MAN has consistently observed, FX crisis in which naira value depreciates among convertible currencies such as the US$, strangulates and reduces the size of manufacturing in the country.
“This is because depreciation in naira value causes manufacturing raw materials and machinery imports to be more expensive. The high cost import bill for the productive inputs decreases manufacturing working capital and feeds into manufacturing commodities prices, thereby making the sector less competitive.
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“The acute shortage of FX resulting in the erosion in naira parity has been a major operational nightmare to manufacturers in the country.
“In the current survey (Q4 2020 MCCI), most manufacturers reported not being able to adequately source FX for importation of productive raw materials and machinery that are not available locally.
“Moreover, because sourcing FX in the official market has become extremely difficult, operators are daily approaching the BDC segment notwithstanding the high cost implication.
“The issues of usage of FX, exclusion of items from the official FX window, concessional FX allocation to critical manufacturing sector and the introduction of Wholesale Dutch Auction System should be thoroughly considered to ensure a productive FX management in the country.”
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What is Forex?
Forex is a combination of foreign currency and exchange. It is the act of changing one currency into another for reasons that include commerce, tourism, and trading.
Why Does This Matter?
The manufacturing industry is one of the most important sectors in a country’s economy, and forex traders track the industrial sector more than any other sector.
If there is a drop in the value of the industrial market in Nigeria, it could trigger a drop in its Gross Domestic Product (GDP).
The GDP is the sum of value added – goods and services produced – within an economy.
Once the GDP is affected, other factors like unemployment, inflation, low business profits, among others will be triggered and will affect the naira.
MAN speaks about how difficult it is for manufacturers to gain access to forex for the importation of raw materials. This inability to access forex will lead to a significant drop in production in Nigeria and the value of the naira would further weaken leading to the triggering of issues listed above.
