CBN to Sell $500m FX Forwards to Meet Manufacturers’ Pent-up Demand

By Crusoe Osagie and Obinna Chima

Desirous of ensuring that manufacturers get the required foreign exchange (FX) for the importation of critical raw materials as well as meeting the pent-up demand for the greenback, the Central Bank of Nigeria (CBN) will tomorrow sell $500 million through FX forwards to banks, for onward sales to their customers.

The move, which is also aimed at boosting economic activities in the country, would cater to some of the FX demand of manufacturers that want to import plants and machinery, raw materials and agriculture equipment.

A top official of the CBN, who disclosed this to THISDAY yesterday, said banks were notified last week and given till noon today to send the list of FX requests from their customers in the manufacturing sector.

“The FX forwards are specifically targeted at the manufacturing sector,” the source said in a telephone chat with THISDAY.

In fulfillment of its pledge to continue to support critical sectors of the economy, the CBN about a fortnight ago allocated $314 million to banks to sell to their customers in the manufacturing, aviation and some other critical sectors of the economy through Special Secondary Market Intervention Retail Sales (SMIS).

The central bank also last week settled $270.6 million in notional value of the matured October 26, 2016 futures instrument.

In line with the trend since the introduction of the OTC FX futures, the central bank issued a new 12-month tenor instrument (October 25, 2017) worth $1 billion at N258.50/US$1.00 to replace the maturing instrument.

Commenting on the availability of FX to manufacturers yesterday, the Chairman of Sosaco Nigeria Limited, the makers of the popular Gino tomato paste brand, Mr. Francis Ogboro told THISDAY that there was a significant improvement in dollar supply in the country, pointing at the recent policies by the CBN.

Ogboro, who noted that although the FX situation was still far from what manufacturers in the country would want, he admitted that the situation had improved considerably from what obtained a few months ago.

“We are encouraged by the recent improvement in FX supply. It has improved from the stagnant situation that used to be the case in the past. One of my companies just succeeded in procuring FX from the 90-day auction and that took a lot of pressure off our operation and has helped us to keep our machines running and our people employed.

“The CBN policy, which mandates the allocation of 60 per cent of available FX to manufacturers, I believe, has helped to improve the situation.

“While we ask for more efforts to be made by the CBN and the federal government, we want to state that we are happy with the improvement we have noticed so far,” he said.

Also, the Group Managing Director of Flour Mills of Nigeria Plc, Mr. Paul Gbadebo, while stating that the intervention by the CBN on its directive to banks to give 60 per cent of FX allocations to manufacturers had not really come to fruition, he added: “However, in the last one week, the CBN has been making interventions which although have been helpful, have not covered much. It has not even taken care of our backlog of Letters of Credit (LCs).

“We are however just hopeful. CBN has done two interventions in the last one week which has helped but if it can continue, then we may begin to climb out of the huge deficit and try to make a head way.”

On its part, the Manufacturers Association of Nigeria (MAN) yesterday blamed the commercial banks for the poor allocation of FX to its members.

The President of MAN, Dr. Jacobs Udemba, said that banks were not cooperating with the CBN to ensure that it achieves its objective.

The CBN, last August, directed commercial banks and other authorised dealers in the FX market to ensure that they channelled 60 per cent of the total FX purchases from all sources (interbank inclusive) to end users strictly for the importation of raw materials, plants and machinery.

The central bank had said it took the decision following its review of returns on the disbursement of FX and observed that a negligible proportion of FX sales were being channelled towards the importation of raw materials for the manufacturing sector.

But the MAN president said that banks had not been adhering to the directive, adding that as a result of this, some of its members have remained frustrated.

“The fact is that FX is scarce and there is not enough to go round. The central bank has shown commendable commitment to ensuring manufacturers get FX for their business activities and the recent policy of the Bank which mandates that 60 per cent of the total FX should be allocated to the manufacturers is clear evidence of the commitment of the CBN to local manufacturers.

“But the money deposit banks don’t seem to be cooperating to make the policy achieve its goal.

“The CBN came up with this well-intentioned policy that mandates that 60 per cent of available foreign exchange be given to manufacturers but the banks are not cooperating. They are not implementing this policy.

“The CBN also recently set aside $300 million for the agriculture, manufacturing and the aviation sectors. This also goes to show the commitment of the central bank.

“But for all these to work and lead to the attainment of intended objective, the money banks must cooperate,” Udemba maintained.