While Nigeria faces shortage of foreign exchange, it is essential that critical sectors of the economy that would spur growth and development have access to dollars in order to speed up the recovery of the the nation’s economy.
Last year, Nigeria was officially said to be in recession although the symptoms had been there for years. Many companies closed down as they were run over by imports and agricultural produce which many years ago was a major income earner almost became non existent.
Manufacturing companies stopped producing and importation increased thereby exporting Nigerian jobs abroad. Apart from productivity level which dropped, this saw unemployment level of the country rise.
The effect of this became a reality when the oil price crashed and dollar revenue was no longer sufficient to support the import habits of the country. The value of the naira was affected and prices skyrocketed driving inflation to almost 19 per cent from 9.6 per cent in the space of 12 months.
In reversing this trend, manufacturing and agricultural sectors of the economy which are critical to employment and economic growth are being revived. This is being done through various intervention funds and more particularly by ensuring that manufacturing, agric and agricultural value chain companies get the needed foreign exchange for smooth operation of their businesses.
Last week, the Central Bank of Nigeria (CBN) released the forex utilization allocations by banks for the month of December 2016 and January 2017. In these two months, $2.83 billion was disbursed for utilization in the critical sectors of the economy such as manufacturing, agriculture aviation, petroleum products.
According to the apex bank, priority was given to manufacturing, raw material and agriculture above other demands as its disbursements are targeted at employment generating and wealth creating sectors of the economy.
The sum of $609 million and $228 million were released for raw materials in the months December and January respectively while manufacturing also attracted the sum $53 million and $71 million respectively during the same period.
The foreign exchange utilization figure also indicated that the sums of $1.839 billion and $0.989 billion respectively were extended to critical sectors like manufacturing, agriculture, petroleum products and airlines among others in December 2016 and January 2017.
This is in line with the 60:40 Foreign Exchange Policy of the CBN, which prioritises forex sales to manufacturers, agriculture, plant and machinery, critical raw materials, among others to ensure that scarce foreign exchange is made available for the use of productive ventures such as the purchase of raw materials, plants and machineries.
In November last year, data released by the apex bank show that over N1 billion worth of foreign exchange had been sold for the purposes of importation of raw materials, plants and machineries, petroleum products, aviation and agricultural materials.
Plants and machineries as well as raw materials took the lion’s share of the foreign exchange sold as data showed that the foreign exchange utilization of these importations took up 48.1 per cent of the foreign exchange sold on the interbank market in December.
The apex bank in its determination to ensure seamless flow of activities in critical sectors of the Nigeria economy, said it gave access to requests for foreign exchange valued at N1.003 billion through the inter-bank window to enable respective industries procure industrial raw materials and machine spare-parts.
In August last year, a few weeks after the floating of the exchange rate, the CBN had moved to ensure that the critical sectors towards setting the ailing Nigerian economy back on track have access to foreign exchange so that they do not have to close shop and bring more hardship on Nigerians.
The CBN had directed commercial banks and other authorised dealers in the foreign exchange market to ensure that they channel 60 per cent of total forex purchases from all sources (interbank inclusive) to end users strictly for the purpose of importation of raw materials, plant and machinery.
The central bank said it took the decision following its review of returns on the disbursement of forex and observed that a negligible proportion of forex sales were being channelled towards the importation of raw materials for the manufacturing sector.
The circular had noted that a review of returns on the disbursement of foreign exchange to end users showed “that a negligible proportion of foreign exchange sales are being channelled towards the importation of raw materials for the manufacturing sector.
“Against this background and in order to address the observed imbalance, authorised dealers are hereby directed to henceforth dedicate 60 per cent of total foreign exchange purchases from all sources (interbank inclusive) to end users strictly for the purpose of importation of raw materials, plant and machinery. The balance of 40 per cent should be used to meet other trade obligations, visible and invisible transactions.”
One market observer while commenting on the 60 per cent directive lauded the CBN for the directive, saying “the CBN with this directive has prioritised the real sector so that industries can bring in their raw materials, machines and equipment without having to wait for the banks for weeks and months on end to smile their way.
“This means that the banks and authorised dealers will be required to seek out and prioritise their customers who need to bring in raw materials, plant and machinery for production and not the other way round. This is bound to have a positive impact on productivity in the manufacturing sector and hopefully will lead to a drop in the prices of goods that they produce.”