The Lagos Chamber of Commerce and Industry Nigeria has raised the alarm over the recent ban imposed by the Central Bank of Nigeria on third party arrangement in procuring equipment and other tools, saying it will lead to collapse of many small and medium enterprises.
The Director-General, LCCI, Dr Muda Yusuf, raised the alarm in a statement titled, ‘LCCI comments on the CBN circular on payment for Form ‘M’, letters of credit and other forms of payment’ made available to our publisher on Sunday.
In the statement, Yusuf said the directive to ban third party companies’ arrangement in Form ‘M’ would make the Small and Medium Enterprises the most vulnerable and would be the first set of casualties of this policy.
The CBN had on Monday August 24 released a circular signed by 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.
Yusuf noted that this policy negated the current laudable efforts by the government, and even the Central Bank of Nigeria itself to ensure business continuity, sustainability, and recovery.
He said, “It is also in conflict with the letters and spirit of the Economic Sustainability Plan of the Federal Government.
“The Small and Medium Enterprises are the most vulnerable and would be the first set of casualties of this policy.
“They do not have the capacity to place huge orders that the main producers or manufacturers would require.
“Many of them currently enjoy suppliers’ credit from the agents from whom they buy, a privilege they would not get from the original product manufacturers. Some enjoy up to six months bills for collection on raw materials imports.”
While he said LCCI appreciated the efforts of the CBN in curbing abuses in the foreign exchange market, he noted that this policy measure would create more problems than it would solve.
He said already most foreign exchange transactions had been frozen on account of this circular, which meant that the supply chain of over 80 per cent of the business community had once again been disrupted and dislocated.
He said, “This is like substituting the global supply chain problem with a domestic supply chain disruption.
“It is impractical to expect all importers of raw materials, equipment, and other inputs to buy directly from the ultimate producer, manufacturer, or supplier, especially in an economy driven by SMEs.
“Even in the domestic economy, distributors and dealers form the bridge that connects the major manufacturers to the retailers and consumers.
Middlemen play a critical role in the supply and distribution chain in any economy, domestically and globally. They bring a great deal of value to the process.”
He urged the CBN to review this new policy on payments for imports to save the already ailing and distressed Nigerian economy from complete collapse.
He said, “Many businesses are yet to recover from the devastating shocks of the Covid 19. Some have in fact collapsed, while others are struggling to regain momentum.”