Home Business Nigeria’s Manufacturers’ Association Lament Over CBN’s Unsettled $2.4 Billion Forex Forward Contracts
BusinessNews

Nigeria’s Manufacturers’ Association Lament Over CBN’s Unsettled $2.4 Billion Forex Forward Contracts

347

The Manufacturers Association of Nigeria (MAN) has called on the Central Bank of Nigeria (CBN) to take urgent action regarding outstanding obligations related to $2.4 billion in foreign exchange forward contracts.

Segun Ajayi-Kadir, the Director-General of MAN, made this appeal in a statement issued on Thursday in Lagos. He stated that resolving these outstanding foreign exchange obligations will minimise the negative impact on the manufacturing sector.

Foreign exchange forward contracts are financial agreements that allow businesses to lock in a future exchange rate. This helps them hedge against potential fluctuations in currency values. The CBN typically issues these contracts with promises to deliver foreign currency at a specified future date in exchange for an upfront payment in naira. However, Ajayi-Kadir pointed out that the CBN has recently announced its inability to honour $2.4 billion worth of these contracts.

The CBN cited an ongoing investigation by the Economic and Financial Crimes Commission (EFCC) into certain foreign exchange transactions as the reason for this inability. Ajayi-Kadir explained that many businesses had borrowed money from banks to secure working capital based on the forward contracts allocated by the CBN. This situation has created a severe crisis for the manufacturing sector and the broader Nigerian economy.

The $2.4 billion in unsettled contracts is part of a more extensive backlog of $7 billion. Ajayi-Kadir warned that businesses with significant foreign exchange liabilities face severe credit and liquidity risks because they cannot settle these forward contracts. He noted that commercial banks have continued to charge high interest rates on dollar accounts, along with other naira bank charges. Some companies face interest rates as high as 35 per cent on their loans, which adds to their financial burden.

The MAN Director-General expressed concern that the breach of these legally binding contracts could undermine the credibility of the CBN and harm investor confidence in Nigeria. He urged the CBN to prioritise the sanctity of contracts and to improve efforts to protect the interests of businesses that have acted in good faith.

Ajayi-Kadir also called for collaboration between the CBN, the Federal Ministry of Finance, and the private sector. He believes that developing a sustainable framework for resolving outstanding forward contracts and improving foreign exchange inflows is critical to preventing further damage to the manufacturing sector.

He emphasised that prioritising the survival of the manufacturing sector is essential for mitigating the negative impacts of this crisis and supporting economic recovery in Nigeria. Recall that some months back, Ajayi-Kadir reported that over 60 per cent of producers in the North East closed down over currency fluctuations and high insecurity levels.  The financial strain on manufacturing businesses has already led to widespread closures and job losses, which would have long-term effects on the economy.

Read:

About The Author

Related Articles

NewsWorld

Nigerian U.S. Embassy and ICIR Cancel Training on “Foreign Influence” in Nigeria After WAW’s Report, Trump’s Foreign Policy Shift

A controversial U.S.-funded media training programme in Nigeria through the International Centre...

CSS tariff
News

CSS Heads to Moscow for Strategic Consultations with Russia

The foreign ministers of the Confederation of Sahel States (CSS), comprising Burkina...

M23 Rebels
NewsSecurity

DR Congo, M23 Rebels to Hold First Direct Talks in Qatar on 9 April

The Democratic Republic of Congo (DRC) and M23 rebels will hold their...

U-17 Africa Cup
NewsSports

CAF U-17 Nations Cup: Golden Eaglets Absent as Morocco Thrash Uganda in Opener

The TotalEnergies U-17 Africa Cup of Nations is underway in Morocco, and...