21 April 2017

Nigeria: Mixed Reactions Trail CBN's New Forex Allocation to SMEs

Small and Medium Enterprises (SMEs) operators are cheering and at the same time, fretting over the foreign exchange window created for them by the Central Bank of Nigeria, CBN, to import critical raw materials and machinery.

Statistics from CBN, showed that about 90 per cent of manufacturing companies in Nigeria belong to the SME category. CBN had in a circular last week, stated that in its continued effort to accommodate all stakeholders in the foreign exchange market, has opened forex window for SMEs to the tune of $20,000 per customer per quarter, to import raw materials and machinery.

Speaking to Vanguard, Manufacturers Association of Nigeria, MAN, and Lagos Chamber of Commerce and Industry, LCCI, said the new CBN guideline on special FX allocation to SMEs is commendable as it would trigger productivity, employment and wealth creation in the country.

Employment and wealth creation

Dr. Frank Jacobs, MAN President, said, "Interestingly, MAN in its one month (March 2017) concise situation report on the impact of the new CBN policy on the manufacturing sector, had earlier identified the need for government to provide a special window for SMEs to access FX. This was based on some of our observations that the commencement of the flexible exchange rate regime and the new CBN FX policy were aggressively crowding-out the SMEs from the FX market as they are unable to source FX like the large and multinational companies. In fact, companies within the SMEs category lacked the financial wherewithal to participate in the FX forward segment and even those with unconfirmed LCs (Letter of Credit) could not access FX.

"It is a step in the right direction that will reasonably address the FX challenges of the SMEs and spur productivity, employment and wealth for the nation. It is, therefore, imperative that the CBN effectively monitor and evaluate the implementation of this special FX allocation with a view to developing a more realistic framework that will accommodate commensurate increase in amount of FX dollars that closely reflects the realities of the needs of SMEs."

He, however, said that MAN has called for a significant upward review of the forex allocation by CBN to the SMEs, adding, "You can now conspicuously see that though the $20,000 per quarter FX allocation will fairly support production on their shop floor, the amount is too small to catalyze substantial additional activities that will spur more employment.

"In addition, the $20,000 per quarter FX allocation to one SME company is worth only about N6million going by the prevailing official exchange rate. This is a meagre 1.2 per cent of the asset-capital that the company will deploy for its operation in that quarter. In consideration of all of the above, especially the latter, one can safely deduce that the $20,000 quarterly special FX allocation to SMEs may not be sufficient to effectively meet their raw-materials and machinery needs."

Corroborating this position, Mr. John Kachikwu, Chairman of LCCI SMEs Group, said "it is a good policy; it will increase the capacity of SMEs to create more employment for the masses, but it is subjective, in the sense that, 'will it be well implemented?' that is the question. It is a step in the right direction.

"Our grouse is implementation; government is good at making policies but implementing them is the issue. If the policy is well implemented, and if banks would not turn it round and make money out of it. So, monitoring policy is very paramount each time government or CBN makes good policy like the SMEs access to forex. How do they monitor the policy; we have said it time without number that they should carry private sector along, but they don't."

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