Expert Identifies Impacts Of Forex Crisis On Economy
*Urges CBN To Engage Stakeholders To Review Forex Exclusion List
The sharp depreciation of the currency over the last one year; the liquidity crisis in the foreign exchange market, which manifests in the acute shortage of foreign exchange in the official window and Volatility of the exchange rate which creates considerable uncertainty and unpredictability for investors have been identified as three dimensional impacts of forex crisis on the economy.
This was disclosed by the Chief Executive Officer, Centre for the Promotion of Private Enterprise and former Director-General, Lagos Chambers of Commerce and Industry (LCCI), Dr Muda Yusuf while delivering the theme paper entitled “Impact Of Forex Crisis On The Real And SME Sectors,” at the 2021 edition of the Commerce and Industry Correspondents Association of Nigeria (CICAN, conference held in Lagos recently.
Dr Yusuf who called on the Central Bank of Nigeria (CBN) to have a robust engagement with the stakeholders to review the over 40 items initially excluded from access to foreign exchange in the official window, stated that some of the products on this list are intermediate products for some manufacturing firms and this had some degree of negative effects on some manufacturing firms.
Dr Yusuf said as a result of the effect the manufacturers are contending with high cost of production because of the sector’s high dependence on imported raw materials.
Other impacts, according to him, include low sales and turnover because of the increase in price and effect on demand; erosion of profit margins because not all the additional cost can be passed on consumer leading to business continuity risk for some manufacturing segments.
He said the availability of forex to investors in the economy has also been a major challenge to investors in the economy, comprising the real sector investors, making planning difficult because of the uncertainty; difficulties in profit or dividend repatriation, and creating huge backlogs; compelling investors to patronise the parallel market at a more prohibitive exchange rate leading to creation of compliance and regulatory issues for investors; impacting capacity utilization and poses a risk to business continuity.
Dr. Muda Yusuf said the exchange rate impact worsens uncertainty for investors including the SMEs; undermines investors’ confidence; makes planning difficult and heightens investment risk.
On Forex exclusion list, Dr. Yusuf said “In the bid to reduce the pressure on foreign reserves, the Central Bank of Nigeria (CBN) had excluded over 40 items from access to foreign exchange in the official window. Some of the products on this list are intermediate products for some manufacturing firms. This had some degree of negative effects on some manufacturing firms. It would be advisable for the CBN to have a robust engagement with the stakeholders to review this list.”
Speaking on the structure of the manufacturing sector and forex implications, he stated “The Nigerian Manufacturing Sector has been practically on a progressive decline since the early eighties. For the first decade after independence, the sector grew on the back of resource-based industrialization where industrialization was shaped by raw materials available in the country. There was a transition to an import substitution strategy of industrialization following the oil boom. There was enormous foreign exchange to import raw materials in abundance.
“With collapse of oil prices in the early eighties, the manufacturing sector suffered considerable setback as there was no sufficient foreign exchange to support the import dependence of the sector. The sector is still grappling with this shortcoming till date. The performance of the various sub sectors was largely dependent on the extent to which they could source their raw materials locally. This became a major factor in the competitiveness of industries.
“Despite the numerous policies and measures that have been articulated by successive governments, manufacturing contribution to gross domestic product (GDP) remains less than 10% on average over this period. The sector has remained largely import dependent which has made it very vulnerable to external shocks. This feature is also factor on the weak competitiveness of the sector. Many manufacturing firms have low local value addition, weak backward integration, inadequate forward integration, and low job creation potentials. All of these weakened the impact of the sector on the economy and the development process.”
