Forex Scarcity impacts negatively on Nigerian Economy says Yusuf

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    The Impact of Forex Scarcity has been effecting Nigerian economy negatively as manufacturers go through rigour to access forex in their day to day importation of raw materials.

    This portends danger for the nation’s economy as manufacturing indicators points to a downward trend over the years, despite numerous policies and measures articulated by successive governments.
    Currently, the nation’s manufacturing sector contributes abysmal 10 percent on average to the Gross Domestic Products, implying that the real sector has remained largely import- dependent, which has made it vulnerable to external shocks.

    The Chief Executive Officer, Centre for the Promotion of Private Enterprise and the former Director General, Lagos Chamber of Commerce and Industry, LCCI, Muda Yusuf stated this while dissecting the impacts of non-accessibility of foreign exchange on the nation’s manufacturing sector said, all these factors weaken the impacts of the sector on the nation’s economy, as well as development process
    Speaking further on negative effects on some manufacturing firms during CICAN’s Annual Workshop and Award Ceremony titled, “Impacts of Forex Crisis on Real and SME Sectors” held in Lagos, advised the CBN to have a robust engagement with stakeholders to review the list.

    “This is in addition to weak competitiveness of the sector, hence the manufacturing firms have low value addition, weak backward and forward integrations, as well as low job creation potential.
    Beyond its weak competitiveness, the Central Bank of Nigeria, CBN, had also excluded over 40 items from access to foreign exchange in official window, as some items on the list are intermediate products for some manufacturing firms”, he said.

    The apex regulatory bank had noted that the reason to ban some of those products came on the heels of serious pressures on foreign reserves.

    “The impacts are three dimensional, namely- sharp depreciation of the currency in the last one year: the liquidity crisis in the foreign exchange market, which manifests in the acute shortage of foreign exchange in the official window and the volatility of the exchange rate, which creates considerable uncertainty and unpredictability for investors”, he added.
    The CEO listed the depreciation impacts on the real sector, as well as Small and Medium Enterprises, SMEs, which included high cost of production because of high import dependence of manufacturing sector for imported raw materials.
    Others are low sales and turnover because of increase in price and effects on demands; erosion of profit margins as not all additional costs can be passed on to consumers and increases on business continuity risk for some segments of manufacturing firms.

    Yusuf maintained that the impacts of foreign exchange liquidity have been the greatest challenges, caused by non-availability of forex, which has become a serious problem to investors, including the real sector investors, thus making planning difficult due to uncertainty
    “Nigeria’s manufacturing sector has been practically on a progressive decline since the early eighties. For the first decade, after independence, the sector grew on the back of resource- based industrialization, where industrialization was shaped by raw materials available in the country”. “There was a transition to an import substitution strategy of industrialization, following the oil boom. There was enormous foreign exchange to import raw materials in abundance.
    But with collapse of oil prices in the early eighties, the manufacturing sector suffered considerable setback as there was no sufficient foreign exchange to support the import dependence of the sector”, he noted.
    Currently, there appears to be no solution in sight, as the sector is still grappling with the challenges till date. The performance of the various sub-sectors was largely dependent on the extent to which they could source their raw materials locally.

    The Former LCCI Dg said, the sharp depreciation of the naira exchange rate in the parallel market remains a cause for concern. It is a trend that should not be allowed to continue and all necessary steps need to be taken and urgently too, to stem the slide and volatility. All these developments, according to him, should not be ignored. It is as much of an issue to consumers as it is to producers and other stakeholders that create value in the economy.
    “It calls for an urgent review of the current foreign exchange policy. My proposition is that we should adopt a flexible exchange rate policy regime. Let me clarify that this is not devaluation proposition. Rather is it is a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market.
    “It is a model that is sustainable, predictable and transparent. It is a policy regime that would reduce uncertainty and inspire the confidence of investors. It is a policy framework that would minimize discretion and arbitrage in the foreign exchange allocation mechanism”, he added.
    He however noted with optimism that Nigerian economy has the capacity to weather the current turmoil if the policy contexts are right, saying, “we have the market, the people and natural resources. The opportunities that the present situation offers would only be realized, if policy obstructions to resource flows are removed”.

     

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