The Manufacturers Association of Nigeria (MAN) has disclosed that foreign exchange (FX) volatility is causing many local manufacturers to rush to the parallel markets to source for forex at higher rates for manufacturing.
The association warned that this situation portends more danger to Nigeria’s quest to seeing reduction in inflation rate level, saying the repercussion was that Nigerians should expect more increase in prices of goods items in the country. MAN Director-General, Mr. Segun Ajayi-Kadir, made this known to Sunday Telegraph in Lagos.
He said that manufacturers sourcing for FX at the parallel markets were also counterproductive to Nigeria’s industrialization bid and growth of the economy at this period of post COVID- 19. Ajayi-Kadir explained that the onus was on the hand of the country’s economic management to step in to boost the supply side of forex availability, specifically to the real sector of the economy if there is going to be any improvement in the country’s economy, specifically inflation rate reduction.
According to him, MAN has always been a staunch supporter of the Central Bank of Nigeria (CBN)’s NAFEX regime, but pointed out that no improvement in FX supply to the real sector will bring economic consequences in the country’s economy at both short and long terms because the real sector is the live wire of any country’s GDP.
Ajayi-Kadir alluded to the fact that no businessman will like to incur losses in the course of its business and every kobo that is spent on raw materials in the course of production is added to the goods being produced, adding that stifling FX brings in exponential price increase in goods items being paid by consumers.
He urged the CBN to regularly monitor forex distribution in the country to ensure that those who need it were the ones getting it promptly and using it in the interest of promoting the country’s economic development. The MAN DG pointed out that the Apex Bank has consistently tried to boost supply of forex to make the market liquid.
“But what is happening in the country’s forex market is a case where the supply of forex does not meet the demand and this has put persistent pressures on the Naira leading to its weak position against major currencies.” He, however, stated that local manufacturers were groaning over the impending situation on manufacturing, especially in terms of goods exports as the FX volatility is making Nigeria’s goods not being competitive in other African countries.
To him, when there is prompt forex availability to the real sector, Nigeria’s economy will attract more foreign exchange earnings from exports market to boost GDP and price reduction of goods items locally. He said: “We need to boost the supply side of the forex market through more inflows from exports, Diaspora remittances and crude revenues to catapult our fragile economy.”
While corroborating the MAN’s stance on negative impact of forex scarcity on businesses, the President of the Lagos Chamber of Commerce and industry (LCCI), Mrs. Toki Mabogunje, explained that lingering liquidity concerns in the foreign exchange market was undauntedly contributing negatively to rise in the country’s inflation rate.
. In addition, the LCCI also said pass-through effect of exchange rate on imported raw materials and finished items was also a factor fuelling headline inflation rate in the country.
She stated that the chamber noted the successive deceleration in headline inflation from 18.17 per cent in March this year to 17.01 per cent in August. Mabogunje, however, pointed out that the August’s headline reading declined by 37bps (when compared with the previous month) to 17.01 per cent year-on-year.
To her, food inflation recorded a decline (of 73bps), adding that “The highest increases were recorded in bread, cereals, milk, cheese, eggs, oils and fats, potatoes, yam and other tubers, meat, coffee, tea, and cocoa.
“The highest increases in core inflation were recorded in prices of footwear, household textile, vehicles, garments, major household appliances, hospital services, catering services, personal care products, among others.”