CBN’s forex policy may push more companies into distress

The Central Bank of Nigeria’s hard stance on the defence of the Naira may push more local companies into distress as the apex bank now targets importers and exporters with tougher regulations.

The apex bank had during the week ordered banks to report exporters that fail to repatriate income earned abroad. The directive came only a day after the regulator banned importers from using external agents to pay for goods, a bid to tighten oversight of payments made outside the nation’s borders.

The CBN’s clamp down on third-party importers could cause local companies to default on previously agreed obligations, which will spill over into supply chain and output disruptions, causing productivity, revenue and employment losses, the Manufacturers’ Association of Nigeria said in an emailed statement.

Reacting to the directive, lead consultant at 3T Impex Trade Academy in Lagos, Bamidele Ayemibo, said the threat of punishment for non-compliance, including banning exporters from accessing dollars, won’t work.

He said exports are secured at the parallel-market rate, while the CBN wants to force firms to repatriate foreign currency at the much stronger official rate for the naira.

“If they sanction them, then they would just kill exports completely,” he said. “The central bank should do what it needs to do to encourage exporters to repatriate — first by allowing market forces to determine the price at which they sell — and then sanctioning those who don’t repatriate after.”

Importers are also likely to balk. Multinationals and large local manufacturers have big foreign-exchange needs and use agents in Europe or Asia to purchase raw material, machinery and equipment on their behalf. The central bank is also introducing a process to verify prices of items being imported, which could cause delays.

In the absence of exceptions for key importers, the naira will probably weaken further in the parallel market, fueling “never-ending speculative attacks on the local unit,” United Capital Plc said in a note.

A spokesman for the central bank didn’t immediately answer a text message to his mobile phone.

“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail in the coffin of many of our ailing members,” the association said.