NIGERIAN manufacturers are struggling to access foreign exchange (FX) despite rising oil price, which is currently above $60 per barrel, The ICIR findings have revealed.
Nigeria is facing a foreign exchange crunch on the back of dwindling oil revenue. Many manufacturers and real sector operatives are queuing up to get dollars needed to import raw and packaging materials, but they still cannot get enough. Manufacturers say they can only get five to 10 percent of their dollar needs from the FX market, complaining that it is hurting their capacities and output.
” I can only get three to five percent of what I need,” a textile manufacturer, who did not want his name in print for fear of victimisation by the Central Bank of Nigeria (CBN), said.
Several manufacturers who spoke in anonymity blamed the CBN for running a multiple exchange rate regime, which had failed to produce results for the economy.
However, Director-General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf said in a telephone interview with The ICIR that there was a lot of FX backlogs which needed to be cleared.
Nigeria depends on oil for 75 per cent of revenue and 90 per cent of FX needs, according to various official reports. The manufacturing sector contributes almost 10 percent to the Nigerian economy, but many of its inputs are imported. In 2016, up to 50 manufacturers shut down due to oil price lows, said the then President of the Manufacturers Association of Nigeria (MAN) Frank Jacobs. Up to 272 firms, including small businesses, shut down in one year between 2015 and 2016, MAN said.
“There are lots of factors affecting our foreign exchange earnings and access by real sector operatives who need it. You would notice that there seems to be lots of those queuing up to wait for the FX. Another concern could also be the payment of subsidy in various forms, whether in electricity or the petroleum sector, which gulps also lots of foreign exchange,” President of the the Major Oil Marketers of Nigeria Adetunji Oyebanji told The ICIR.
Adetunji argued that subsidy payment concerns were more about eating the future and not ploughing back into infrastructural development, which had been the bane of the country’s infrastructural development. He said the consequence was borrowing to fund infrastructure.
Brent crude, which is expected to push Nigeria’s oil revenue, is estimated at $40 per barrel in the 2021 budget. Oil price drop has dragged the Nigerian economy into recession.
The present administration has blamed the economic distress suffered in its early years on the inability of the previous administration to save for the rainy day.
However, informed energy analysts say the government must do away with unsustainable subsidy following the rallying oil price in order to shore up its foreign reserve and provide foreign exchange for real sector operatives.
“The money we made from oil, we are ploughing back into subsidy of petrol. If we have no subsidy, we could save more, currently. However, there are also factors of cost of oil production and OPEC, which affect what we earn. But the fact remains that the unsustainable subsidy is also taking its toll on FX reserves,” Oil sector governance expert Henry Ademola Adigun told The ICIR.
The World Bank, last December, warned Nigeria of the risk of getting into a prolonged recession, emphasising the need for the country to embrace unpopular reforms. The bank warned that the coronavirus pandemic would inevitably create millions of new poor in middle income countries.
Most analysts say Nigeria is vulnerable because of its precarious economic situation in which unemployment and inflation are on the rise.
“The problem with the FX regime is a problem of availability and management. It is still the challenge of the demand and supply. Currently, lack of supply is influencing the racketeering we are currently witnessing. In that case, we must concentrate on exports of agricultural products – which are where we have our strength more,” Former Director-General of Abuja Chamber of Commerce and Industry Chijioke Ekechukwu said.
He stressesd the need to address knowledge gap in the agricultural sector to enable the country shore up its foreign reserve through commodity exports.