With Special FX Window, a Lifebuoy for SMEs

While the introduction of a special foreign exchange window for SMEs fetches the CBN some plaudits, the intervention has brought to the fore other pertinent issues that need to be addressed. Olaseni Durojaiye reports

Statistics have shown that small and medium sized enterprises play a significant role in the development of any nation, given the ability of businesses that fall in that category to generate employment and create platforms wealth among other factors.  As a matter of fact, many developed economies particularly among the Asian Tigers attained their developed economy status on the back of the successes of cottage industries in their economies. This explains why many economies across the world pay premium emphasis on supporting that critical sector. The story is not entirely different in Nigeria.

Important as SMEs are to any economy, the local sector has been bedeviled with myriad challenges, particularly funding. The funding challenge became compounded at the height of the FX shortage in the nation’s economy. While many  analysts may argue that sector hardest hit by the FX shortage was the manufacturing sector, it is however noteworthy that around 70 per cent of members of the Manufacturers Association of Nigeria (MAN) fall within the sector.

It is against the background that the Central Bank of Nigeria (CBN) last Monday created a special FX window to accommodate the SMEs. A statement by the Director of Corporate Communications of the CBN, Mr. Isaac Okoroafor, had stated that the new supply window would enable SMEs import eligible finished and semi-finished items not exceeding $20,000 per enterprise per quarter. It added that the new policy became necessary because it was found out that the SMEs were being crowded out of the interbank FX market.

Part of the statement read thus: “The sum of $20,000 per SME customer per quarter can be effected through telegraphic transfer subject to completion of Form ‘M’ supported with pro forma invoice  and the importer’s Bank Verification Number, BVN,” Okoroafor explained in the circular announcing the new policy.

Stakeholders, Analysts React

Expectedly, respondents to THISDAY enquiries hailed the directive as a “welcome development” adding that it was a measure aimed at ensuring that the FX gets to the end users.

“It is a good development. It will provide relief for Small and Medium Scale Enterprises (SMEs) both in the manufacturing sector, services and other sectors. It is expected that with the new window many of the SMEs will return to business,” Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf,  told THISDAY in an interview.

In the same vein, President of the Manufacturers Association of Nigeria (MAN) Dr. Frank Jacobs, stated that, “I am highly excited about the new policy” adding that “It is a welcome development. It will actually help a lot of our members, a significant number of our members actually fall within the SMEs category and this new policy will impact their business positively. I expect that they will no longer complain about their inability to access FX.”

On his part, Director, Union Capital Market, Egie Akpata, reacted thus: ”The idea is that the CBN is trying to provide money (dollar) directly to the end users, that is the SMEs. But the question is whether it is cost-effective and efficient compared to having a common market system because the CBN is currently managing other issues.”

Interestingly, the reason for the new policy resonated with industry stakeholders, who agreed that the reason was valid. However, “Crowding out” as reason is genuine but not limited to SMEs especially at the height of the FX shortage in the system. THISDAY investigations, corroborated by industry stakeholders, found out even big companies were crowded out due to the brokerage practices and activities of currency speculators in the financial services sector.

A branch manager of a third generation bank, who craved anonymity, confirmed same to this newspaper.

“There is the crowding out effect, it is real and it is not limited to SMEs alone; some big companies are also affected because the whole framework is not transparent, even within the banking system itself.”

Continuing, he argued that, “The framework is not transparent because you can’t be sure of FX allocation on a first come, first serve basis even when you have filed all the necessary papers. You are also not sure of when you will get the allocation because there were a lot of sharp practices going on, including brokerage and speculative activities. Those were part of the challenges that our members face; but it is hoped that as the supply increases all of these will go away even as things are beginning to get better.”

Sustainability and Compliance Concerns

Stakeholders, including industrialists, economic policy analysts and SME operators may have welcomed the new policy direction, concerns over its sustainability, however, linger, accompanied by calls for a mechanism to ensure that the policy is not abused. One respondent also reiterated the call on CBN to allow for other autonomous sources of FX supplies into the economy and argued that, “The economy can’t afford to depend only on the FX supplies from the CBN.”

Another respondent asked rhetorically, “Does the CBN have the resources to manage the process?”

In raising the sustainability and compliance concerns, all the respondents to THISDAY enquiries are concerned about the ability of the apex bank to ensure that the new provision is not abused by unscrupulous elements in the system both within the banking system and outside of it, even one of them expects that as FX supplies improve, some of the concerns would become a thing of the past.

Commenting on the concerns, Akpata, asked rhetorically, “Does the CBN have the resources to manage the process? There are so many SMEs, probably running into millions, unlike the bureaux de change. The CBN may have to come up with specific mechanism that will help to identify the true SMEs; it could be through the banks that know and can identify them. The circular stated that the SMEs states that they will get the money and account for it later, many people may get the FX once and never go back for another one because they cannot account for the first one that they got. The CBN will have to come up with a mechanism to check that,” he posited.

In his own assertion,  Yusuf also stated that, “We still want a framework that is sustainable. The current practice whereby the CBN is the sole driver of the FX market is not sustainable. The economy can’t afford to depend only on the FX supplies from the CBN. We need other sources of FX supplies to compliment what the CBN is putting into the market. That is how you can have a framework that is sustainable.”

Responding to question bordering on the compliance concern, Jacobs explained that, “I have not engaged the CBN on that, it is an issue that I will raise with the CBN governor because it is important that that the money gets to the right people for it is something that some unscrupulo