The Nigeria Employers Consultative Association has revealed that due to the impact of the COVID-19 pandemic on Nigeria, 74.2 per cent of enterprises have either stopped operating or are at the lowest ebb.
The Director-General, NECA, Dr Timothy Olawale disclosed this in warning the Central Bank of Nigeria to reverse its directive on the recent ban imposed on ‘Form M’ which allows a third party arrangement in procuring equipment and other tools for companies, especially manufacturing industries.
It was contained in a statement signed by Olawale, a copy of which was made available to our publisher.
He said the NECA got this scary statistics through a survey it conducted.
He said the directive if implemented was capable of eroding efforts of the government to return the economy to growth, create jobs and prevent an impending economic downturn already worsened by the COVID-19 pandemic
This call came few days after the Manufacturers Association of Nigeria gave its own warning on the issue, stating that many manufacturing companies would shut down.
Olawale said, “We appreciate the need for the government to embark on various measures to mitigate the impact of COVID-19, including the restrictions across different sectors.
“A business survey conducted by NECA with a view to gauging the specific impact of the pandemic, revealed that 74.2 per cent of enterprises have either stopped operating or are their lowest ebb.”
He said if the CBN should implement the policy supply chains would be disrupted, as most of the companies relied on the centralised system created by the third party suppliers to get their equipment and other tools for production and services.
“Furthermore, 78.2 per cent of enterprises in Nigeria have had supply challenges which would be worsened by the elimination of centralized procurement from their value chain.
“In order to optimise operating costs, manufacturing companies in Nigeria with global operating companies find it essential to source for production inputs and services through a centralised procurement process.
“This structure enables the purchase of goods and services at competitive prices, leveraging the economies of scale. Without this structure in place, many of such companies in the current global recessionary times, would have run aground.
“Securing lower prices through centralised procurement has significantly contributed to the stability and resilience of their business operations in the face of global economic downturn.
“The benefit of the cost savings realised are shared by the multinationals’ operating companies, which serves to reduces pressure on Nigeria’s Forex reserve and ultimately the pricing of goods to the consumer.”
Olawale said NECA appreciated the efforts by the Federal Government to ensure prudent use of Nigeria’s foreign exchange resources and eliminate incidents of over invoicing, transfer pricing, double handling charges, and avoidable costs that are ultimately passed to the average Nigerian consumers.
He, however, added that the procurement companies enable manufacturing companies to receive goods and services from final suppliers.
This, he argued, most companies would not ordinarily be able to access, due to the wide spectrum of parameters required by these suppliers or restrictions imposed by some original equipment manufacturers.
Olawale noted further that the procurement agencies further support business continuity, by purchasing on behalf of Nigerian companies and allowing for extended payment timelines, and giving credit in periods of foreign currency scarcity.
He said, “Without these credit provisions, Nigerian companies would not be able to meet the advance payments required by final suppliers amongst other requirements.
“The exclusion of procurement companies from Form ‘M’, will cause significant business disruption for many manufacturing companies because of existing medium to long-term contractual obligations with centralized procurement agencies.
“Dismantling such arrangements and contracts would not only result in losses for these companies in Nigeria, but would also disrupt production schedules which are planned long in advance.
“Other attendant complications on manufacturing companies include a reduction in productivity, loss in business revenues, supply chain disruption, all potentially resulting in loss of employment for many Nigerian employees.”
Olawale who recommended that a system be put in place to monitor, identify and penalise abusers of our foreign exchange mechanism, appealed to the CBN to convene a stakeholder engagement with NECA and chief executives of companies.