By Ademola Hussaini, Lagos
Piqued by the political uncertainty trailing Saturday’s general elections in the country, there are indications that local manufacturers’ letter of credit (LC) to their foreign partners for goods imports and raw materials in the banks have slowdown significantly over the effect of post-election on foreign exchange (forex), kaftanpost.com has learnt.
In an exclusive interview with this newspaper in Lagos, the Chief Financial Officer, Providus Bank, Adeoye Ojuroye said that there are slowdowns in LC orders from local manufacturers in the banks at present for purchase of raw and other input materials for production from abroad (foreign partners) over fears of devaluation of Naira at the end of election campaigns.
According to him, many local firms are wary of the multiplier effect on Naira and are keenly watching at the direction at which the election is going in order not to incur huge forex losses in their operations at the end of the day (post-election).
The bank’s CFO explained that banks are not surprised with the lull in the LC orders from manufacturing firms to their foreign partners, saying that there are no cause for alarm on that based on the various interventions the apex bank-Central Bank of Nigeria (CBN) have been carrying out in the foreign exchange window market for a while now.
He noted that businesses that involved large forex should not panic at this period of election, saying that they could take advantage of the foreign exchange market which means ‘they can do a bit of edging on their foreign currencies and still not expose to forex challenges in the course of their businesses.’
“I think that there is a bit of slowdown of LC from manufacturing firms to their foreign technical partners and the reason for this is that they really want to be sure on the direction the general election is going to take because you are going to pay back the dollar for the goods ordered. I think that there is never doubt that you will make profit in Naira but the problem is what will happen to the dollar you needed to pay back at the end of the transaction,. So therefore, people are sort of slowdown in their LC request for purchase of raw and other input materials for production from abroad.
He continued: “For businesses that is more sophisticated, they can take advantage of the FMDQ market, which means, they can do a bit of edging on their foreign currency, a situation whereby you can have an agreement that I will buy back dollar at a particular rate works for you. You are not worry about the devaluation if anything happens to the dollar. We think that the various interventions by CBN are working and keeping it (forex market) stable and we are not really thinking much from our perspectives that there will be currency devaluation in the country at post-election. “We don’t foresee devaluation because of the activities of the CBN in the foreign exchange window market.
Ojuroye explained that manufacturing firms need to be cautious in their businesses not to be exposed to forex, except they need to look at the edging solutions that are available.
“I think for businesses, first if you are exposed to forex, you need to look at the edging solutions that are available for you, which means, you will be able to meet your obligation and still be able to keep your profit in Naira. If it’s local, then you are trading in Naira. And I think that with edging businesses, you need to be cautious, cost effective so that you can then watch what you see as in post-election and put in all the efforts into the business.”
Speaking in the same vein, the Managing Director/ Chief Executive Officer, May and Baker Plc, Nnamdi Okafor, lamented that despite the CBN interventions, some manufacturing firms are still facing adverse effect of accessing forex to buy raw and other input materials in the industry.
He said that the inability of the manufacturing firms to get forex adequately from the banks to purchase raw and other input materials for production is stalling operations, insisting that some of the Letter of Credit opened were yet to be funded by the banks.
Okafor noted that the non-processing of the LC has resulted into huge exchange rate losses which are running into billions of naira for these manufacturing firms and closure of various factories.
He said that inability of manufacturers to source forex through the official window has caused discerning economic effect on their productive capacities and inflation to the economy.
Okafor explained that it was appalling that LC already applied for as consideration for accessing forex at official rate through the banks are not being given attention.
“It has been a herculean task running any business in Nigeria, especially import dependent manufacturing businesses. Access to foreign exchange to buy raw and other input materials is greatly hampered by inability of manufacturers to source forex through the official window. I can confirm to you that as a company we have not been able to access official forex allocation for a while,” Okafor noted.
