The Manufacturers Association of Nigeria (MAN) has expressed deep concern over the Central Bank of Nigeria’s (CBN) failure to settle outstanding foreign exchange (forex) forward contracts worth billions of dollars.
This breach of contract has exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.
Forex forward contracts are financial instruments used globally to hedge against exchange rate fluctuations. The CBN typically issues these contracts, promising to deliver foreign currency at a specified future date in exchange for upfront naira payment.
However, the CBN has announced its inability to honor $2.4 billion worth of forward contracts, citing an ongoing investigation by the Economic and Financial Crimes Commission.
MAN highlighted that many businesses borrowed money from banks to utilize the allocated forward contracts, which have remained unredeemed.
This situation has triggered a severe crisis for the manufacturing sector and the Nigerian economy, with commercial banks charging dollar accounts and high interest rates on facilities.
The association emphasized that the non-fulfillment of forward contract obligations has led to a cascade of negative consequences, including:
1. Massive foreign exchange losses exceeding N300 billion in the second half of 2023.
2. Continuous depreciation of the naira, which has depreciated by over 72% in the past year.
3. Disrupted manufacturing supply chains, hindered productivity, and jeopardized job security.
4. Businesses struggling to meet loan repayments, leading to rescheduling and restructuring of loan terms.
5. Erosion of trust among foreign suppliers and financial institutions.
MAN implores the CBN to prioritize the interests of businesses that have acted in good faith, explore avenues to resolve outstanding obligations, and maintain the sanctity of contracts.
The association urges collaboration between the CBN, the Federal Ministry of Finance, and the private sector to develop a sustainable framework for resolving outstanding forward contracts and improving foreign exchange inflows.
The continued non-redemption of the $2.4 billion forward contracts poses a significant threat to the survival of Nigerian manufacturing companies and jeopardizes the livelihoods of thousands of workers.
MAN urges the CBN to take immediate action to address this crisis and prevent further damage to the manufacturing sector and the Nigerian economy.
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