Manufacturers, Economy Risk Major Crisis Over $2.4bn Unsettled FX Forwards — MAN

The Manufacturers Association of Nigeria (MAN) has issued a warning, saying that the Central Bank of Nigeria’s (CBN) failure to redeem $2.4 billion in FX forward was posing a grave threat to the survival of Nigerian manufacturing companies and jeopardising the livelihoods of thousands of workers.

The Director General of MAN, Mr. Segun Ajayi-Kadir, emphasised the critical nature of the situation in a report published on Thursday titled, “The Implications of the Continued Unsettled Forex Forward by the CBN and Its Impact on the Manufacturing Sector,” asserting that the non-payment of FX forwards has severely crippled affected companies, pushing many towards bankruptcy.

In 2022 and 2023, Nigerian businesses, including SMEs, entered into agreements with the CBN to exchange foreign currency at predetermined rates on future dates. These agreements, known as Foreign Exchange (FX) Forwards, are designed to manage foreign exchange reserves and stabilize exchange rates. However, CBN has yet to fulfill these contracts despite their maturity.

MAN outlined in the statement that the non-settlement of the FX Forward obligations by CBN has caused over N1.5 trillion in forex-related transactions losses in the manufacturing sector that recorded 108.7 per cent increase in job losses in 2023 and forced many Small and Medium Enterprises (SMEs) to close operations to the detriment of the Nigerian economy.

He said: “Quite frankly, the CBN’s non-fulfilment of its forward contract obligations has led to a cascade of negative consequences. Manufacturing concerns have been worse hit. For instance, within the last six months, companies have incurred over N1.5 trillion in forex-related transactions losses, contributing to the poor and worsening performance of many businesses. In addition, the resulting exchange rate differentials and the burden of interest on loans to meet Naira deposit requirements have been entirely transferred to manufacturers, increasing production costs and impacting product prices.’’

He further noted that affected companies could face losses amounting to approximately N2.4 trillion, which would significantly affect Company Income Tax (CIT) revenues and, in turn, threaten federal government income over the next few years.

In March, the CBN had announced that all valid FX backlogs owed to various sectors had been settled, fulfilling a pledge by CBN Governor Mr. Olayemi Cardoso to address an inherited backlog of $7 billion in outstanding liabilities.
However, the Governor also indicated that about $2.4 billion of the claimed $7 billion were not deemed valid for settlement. According to Cardoso, the CBN had settled verified FX requests totaling $2.3 billion, leaving a remaining outstanding balance of $2.2 billion. The CBN’s audit, conducted by Deloitte Management Consultant, identified discrepancies that led to the exclusion of some claims. Additionally, the bank has engaged the Economic and Financial Crimes Commission (EFCC) to investigate suspicious transactions.
Despite these assurances, MAN argues that many of its members, despite their compliance and good faith, are suffering due to the unresolved FX forward contracts.

The association contends that the financial strain on manufacturers has been exacerbated by the increased burden of interest rates and the impact on production costs.

Ajayi-Kadir added: “This crisis has disrupted manufacturing supply chains, hindered productivity, and jeopardised job security. Consequently, businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms. Due to numerous challenges, such as high production costs and low consumer demand currently confronting manufacturers, there is little hope of meeting financial obligations as scheduled. As a result, these rescheduled loans often come with higher interest rates.”

To prevent further damage, MAN calls for an urgent and comprehensive resolution to the unsettled FX forward contracts. The association urges the CBN to honor its contractual obligations and work collaboratively with the Federal Ministry of Finance and the private sector to develop a sustainable framework for resolving outstanding issues and improving foreign exchange inflows.

“By prioritizing the survival of the manufacturing sector, the government can mitigate the negative impacts of this crisis and foster economic recovery,” Ajayi-Kadir added.