In this interview, the Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir tells EDIDIONG IKPOTO the impact unremitted dollar debts are having on manufacturing firms
The Manufacturers Association of Nigeria had said that contrary to claims by the Central Bank of Nigeria that it had settled all valid outstanding forex backlog, many of its members still had dollar requests unsettled. In what way has this situation affected the industry?
It is a very difficult situation for manufacturers. You can imagine that some of these forwards are more than two years old. The point is that some of those transactions have been concluded. The raw materials have been imported, and the raw materials have been used to produce goods. Those goods have been sold. The account has been closed for that financial year. So, the situation we are in now is that we are still paying interest on both the naira and the dollar debts because most manufacturers borrowed money to deposit forex in the first instance. When the corresponding bank of your local bank, that is the one abroad, pays the dollar on your behalf, you pay interest as well.
So, manufacturers have continued to pay because the matter has not been fully resolved. That means that the dollar has not been fully paid back by the CBN, which is the forward nature of this transaction. The situation now is such that it undermines our capacity to operate. Most of our members, who get their raw materials and use them as a basis for production to generate funds to be able to make another round of production, are having it difficult. They are piling up the interest that they are paying.
For instance, within the last six months, our companies have incurred not less than N1.5tn in forex-related transaction losses. By the time our results are out for Q1, in terms of the performance of companies, this will be very clear.
So, you cannot imagine a situation where the CBN is completely insulated from this challenge because they have fully received the naira cover for the forward purchase. The banks are also collecting interest on their naira credit facilities for manufacturers. The corresponding bank outside the country is also earning interest on the dollar component.
Do the corresponding banks earn interest on transactions that have not yet been finalised?
The money has been fully paid. The product has been procured. The corresponding bank has paid for your raw materials. It is not only that they have paid, the manufacturers have collected the goods. They have used it to produce. And, here they are, the debt is still piling in their books. And, until they pay what they owe, they cannot go for fresh raw materials, because you’ll be seen as a bad customer. So, nobody is going to give you any more advances.
Whenever you have something like this, it disrupts the supply chain — productivity, your loan repayment schedule, employment target and the contribution of the sector to the GDP will be compromised. Whenever something like this happens to manufacturers, it has serious implications for the logistics value chain. It impacts security and, of course, the level of our well-being reduces, because wherever you can, you have to pass the cost to the consuming public. That is when you are even able to produce. When the financials for the first quarter are out, you will see that it is a dire situation for the manufacturing sector.
During the meeting with the minister of trade and industry, what were the grey areas that manufacturers asked the CBN and the commercial banks to clarify?
During the last meeting, the commercial banks said that they had fully responded to the query raised by the auditors of the CBN. What we expected was for the CBN to reply to them and tell them where our explanations were defective. To the best of my knowledge, this has not happened. Let us look at it, Form M was open; the transaction was concluded and the CBN had started to release the forms. There was no indication that profit had not been indicated by any of these companies. So, they have not been known to be offenders in any foreign exchange transaction. They are not engaged in any round-tripping, over-invoicing, or any shady dealings. So, what has transpired is that the time has passed. The CBN has not fulfilled its own part of the bargain. Along the line, it changed its mind.
But the CBN said the forex requests that were not attended to were invalid. What is the reaction of manufacturers to this?
It was not that the transactions were not carried out. It is not that we did not buy what we said we were going to buy. In some instances, one of our members told me that they said they received more than they asked for. So, if you ask for N1m, they will give you $50 today, $100 tomorrow. Then, as you were asking in batches, at a point, you now asked for $200,000. Then, if they decide to give you $400,000 in that tranche, were you given more than you asked for? Remember that you are owed $1m. You have been paid in bits, but the total you have been paid is about $400,000. You now ask for $200,000 in one batch, out of the remaining $600,000 they will now pay $300,000. It means they are still owing $300,000. Meanwhile, they have collected all the $1m. So, what are they talking about?
Having met with the minister of trade and industry, we understand that the affected manufacturers will be meeting with the National Assembly as efforts continue to resolve the issue. What will be the thrust of the manufacturers’ demands at the meeting?
We have just one prayer: they should pay it. There is nothing else to say other than the fact that they should pay. There is no doubt that the goods that we paid for came into the country. There is no doubt that we used it in manufacturing. So, how can you abort a pregnancy that someone has given birth to?
Are there worries that manufacturers may be asked to come and get back their money if they are unable to settle the FX forwards?
That would be very unfair. How do we take back our money? What is the exchange rate now? When some of those transactions took place, the exchange rate was about N750/$. So, if you give them back their money, what will they do with it? Give them back their money for a transaction that has ended. They were the ones who delayed settling the backlog, and the assumption at that time was that it would be settled in a maximum of 90 days. They did not fulfil their end of the bargain, so they cannot come back after almost two years to ask us to take back our money.
Some affected businesses had said they were contemplating legal action against the banks to force the CBN to intervene in the matter. Do you think this is likely?
No, I believe that something could be done. You also know how the court system is. Time is of the essence and I believe that with the stakeholders’ engagement that is taking place, the one that the minister of industry, trade and investment has done, the one that the National Assembly is ongoing and consultations also with the CBN, we should be able to resolve the matter.
Going to court may be a last resort, but it is not something that I believe is in anybody’s particular interest. You know the judicial system can be slow. We are already saying that the forward has taken one year and a half or so. I don’t know how long this one is going to take, knowing that it can go through all the different layers of the judicial process.
So, I hope that it will not get to that. I am not ruling it out, but I am saying that I am confident that it shouldn’t get to that and that we should be mindful of the implications for the national economy, particularly the productive sector of the economy. The implication would be dire. Already, you are saying that industries are closing shop. So, we shouldn’t do anything to aggravate the situation.
The N1.5tn that you said manufacturers lost, is it as a result of interest paid on the unremitted dollar debts or is it due to the depreciation of the naira?
It includes the interest paid on the dollar debts. It also includes what they are asked to pay in excess of the import duty assessment. Even though we have issues with this FX forward, many of us have had to resort to going through the black market or autonomous market for our foreign exchange.
So, in terms of the losses that we have made as a result of this foreign exchange, in terms of this transaction with the banks, with the customs, that is what we have calculated to arrive at that figure.
