The acute shortage of foreign exchange in Nigeria is a major operational nightmare facing manufacturers in the country, the Manufacturers Association of Nigeria said.
The association, in its MAN CEOS Confidence Index for the fourth quarter of 2020, said manufacturers had been facing forex challenges since the second quarter of last year due to a significant decline in the inflow of forex into the country.
It said the situation worsened in the fourth quarter despite the forex injection into the market through Bureau de change operators and other interventions, “Manufacturers still find it extremely difficult to source FX for the importation of raw materials and machinery that are not locally available,” MAN said.
It said constant and large depreciation in forex made imports expensive, again leading to high inflation.
“Therefore, variability and large depreciation in exchange rate obstruct economic activities and manufacturing production is not in any way insulated”, it said.
According to the report, Nigeria manufacturing across sub-sectors is heavily raw materials import dependent.
MAN, however, said the case had always been that depreciation in value of the naira reduced manufacturing production, as observed in the various forex crises.
The report said, FX crisis in which naira value depreciates among convertible currencies such as the US$, strangulates and reduces the size of manufacturing in the country.
“This is because depreciation in naira value causes manufacturing raw materials and machinery imports to be more expensive. The high cost import bill for the productive inputs decreases manufacturing working capital and feeds into manufacturing commodities prices, thereby making the sector less competitive.”
It said, “The acute shortage of FX resulting in the erosion in naira parity has been a major operational nigh mare to manufacturers in the country.
“In the current survey, most manufacturers reported not being able to adequately source FX for importation of productive raw materials and machinery that are not available locally”.
The Punch, 29 January, 2021
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