The Manufacturers Association of Nigeria has warned that the recent ban imposed by the Central Bank of Nigeria on third party arrangement in procuring equipment and other tools will kill many manufacturing industries.
The President of MAN, Mansur Ahmed, an engineer, gave this warning in a statement titled: ‘MAN reacts to CBN circular on destination payment for all Form ‘M’ letters of credit and other forms of payment’ issued on Wednesday in Lagos
In the statement made available to our publisher, he said the directive to ban third party companies’ arrangement in Form ‘M’ would also throw many Nigerians into already streaming fold of unemployment, as most manufacturers did not deal directly with equipment manufacturers abroad.
The CBN had on Monday August 24 released a circular signed the Director, Trade and Exchange Department, Dr. Ozoemena Nnaji, stating this directive.
It read partly, “As part of continued efforts of the CBN to ensure prudent use of our foreign exchange resources and eliminate incidences of over-invoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumers, authorised dealers are hereby directed to desist from opening Forms ‘M’ whose payment are routed through a buying company, agent or any other third parties.
“Accordingly, all authorised dealers are hereby requested to only open Forms ‘M’ for Letters of Credit, bills for collection and other forms of payment in favour of the ultimate supplier of the product or service. This directive is with immediate effect.
“Additionally, in line with best practices around the world, the CBN will be immediately introduce a product price verification mechanism to forestall over-pricing and/or mispricing of goods and services imported into the country.
“All authorised dealers shall use this mechanism to verify quoted prices before Forms ‘M’ are approved. Please ensure strict compliance.”
Obviously, the sharp drop in the price of oil, which accounts for over 90 per cent of the country’s export earnings, CBN has recorded steady decline in its foreign exchange reserves.
This development has made it difficult for the apex bank, in recent times, to meet forex demand.
However, Ahmed noted that it acknowledged the good intention of the government, it warned that the impact of such decision was inimical to the survival of many manufacturing concerns that were not involved in any unethical practices.
He lamented that the situation became more precarious, especially at a time when the nation was implementing phased ease on lockdown due to COVID-19 pandemic.
Ahmed drew the attention of the apex bank to the fact that currently most manufacturers, especially Small and Medium Enterprises deal with accredited agents for their supplies as many Original Equipment Manufacturers(OEMs) abroad do not sell directly to individual buyers.
He said this policy by the CBN was another bottleneck on the economy and would likely erode the Nigeria’s recent improved performance on the ease of doing business ranking.
In order to checkmate perceived abuse, Ahmed said the Apex bank could put in place a monitoring mechanism framework to ensure that unverifiable claims by some manufacturers were identified and dealt with accordingly.
He noted that it would counter-productive to stifle the business of genuine manufacturers whose interest and commitment was to grow the economy.
He said, “We believe that this additional hamstring on the economy is likely to erode the recent improved performance on the ease of doing business ranking.
“MAN wishes to draw the attention of the apex bank that most manufacturers, especially SMEs deal with accredited agents for their supplies as many Original Equipment Manufacturers(OEMs) abroad do not sell directly to individual buyers.
“Furthermore, it is in line with global best practice for OEMs and large International Manufacturing Companies operating in multiple countries and with sourcing needs in various jurisdictions to leverage on the economics of scale to secure lower prices through centralised procurement.
“In Nigeria, central procurement plays a critical role in the production process, an absence of same will hamper manufacturers operating in the country and may result in factory shutdowns.
“In the absence of a global procurement agency, most companies would not have access to the final suppliers, who consider the inherent country risks a disincentive for trading directly with companies in Nigeria.”
Ahmed added that the procurement agencies had provided a vital interface between the final suppliers and the manufacturers, and allowed same extended payment timelines by granting credit in periods of foreign currency scarcity.
He said many companies had gone into contractual agreements via the procurement agencies for the 2020 financial year and in some cases beyond, and default “may result in expensive lawsuits across jurisdictions, bring disruptions to the production process and further undermine the resilience of the manufacturing sector.”
He added that the multiplier effect on the economy “will be reduction in productivity; loss in business revenues; supply chain disruption and ultimately and loss of employment.”
He noted that “if the CBN is of the view that the audit of the activities of a central procurement agency in terms of price verification is impossible, a phased approach should be adopted to the elimination of their use in Nigeria.”
He said would “enable companies have sufficient time to re-organise and build the required relationships with original suppliers which they do not currently have.”