CBN settles manufacturers’ $330m demand as production declines – Guardian

CBN

By Femi Adekoya and Chijioke Nelson

• Reserves rise by $60m in two weeks
• Nigeria gets $600m as budget support

The Central Bank of Nigeria (CBN) yesterday reduced manufacturing sector’s backlog of foreign exchange demand by $330.09 million (about N105.6 billion) as real sector records persistent decline.

For the 10th time this year, production and employment levels, new orders and raw material inventories in the nation’s manufacturing sector have maintained a steady decline, according to a report by the CBN.

The report shows that the Purchasing Managers’ Index (PMI) report stood at 44.1 index points in October 2016, compared to 42.5 in the preceding month, indicating a slowing decline during the October review period.

Indeed, the apex bank’s statistics indicate that 14 of the 16 sub-sectors surveyed recorded declines in the review month in the following order: electrical equipment; primary metal; fabricated metal products; petroleum and coal products; transportation equipment; computer and electronic products.

Others are: printing and related support activities; non-metallic mineral products; plastics and rubber products; furniture and related products; paper products; textile, apparel, leather and footwear; cement and chemical; as well as pharmaceutical products.

Reacting to the report, President of the Manufacturers Association of Nigeria (MAN), Frank Jacobs, noted that capacity utilisation in the real sector had dropped drastically due to the foreign exchange challenges and recession which had further reduced consumer purchasing power.

The supply of $330.09 million by the CBN is expected to reduce the pressure from the manufacturing sector in the short term. It was executed at the foreign exchange forwards segment contracted two and three months ago.

According to the apex bank, it was in settlement of the balance of the valid applications of 60-day forwards funding deals in favour of agricultural, machinery and raw materials sectors.

Sources at CBN who corroborated the development, noted that the forwards deals totaling $330.09 million represent requests from the various sectors in the secondary interbank market, thereby providing a boost to the manufacturing sector.

The forwards deals comprised $177.32 million under the 60-day forward sales and $152.77 under the 90-day category.
The CBN had, on October 17, 2016, also intervened in the inter-bank forex market to meet the payment of matured obligations for the importation of agricultural and industrial raw materials, machinery and equipment, as well as spare parts and ticket sales remittances for airlines.

Consequently, to ensure that the sectors continue to enjoy the support of the banking sector in sourcing raw materials and machinery, Chief Executive Officers of banks have signed undertakings to open equivalents of Letters of Credit to the amount of forwards received for each sector.

Meanwhile, the nation’s reserves have risen by $60 million in the last two weeks, after oscillating from a low of $23.89 billion to $23.95.

In the weeks between October 4 and 18, 2016, the reserves had lost $460 million, as the apex bank sustains support for the local currency and participation at the interbank market.

A comparison of month-on-month decline in the reserves showed that there was a moderated pressure in October as $470 was depleted during the period, against $860 million recorded in September.
In the same vein, Nigeria’s 2016 budget has received support from the African Development Bank (AfDB) as the institution yesterday approved the disbursement of $600 million out of the $1 billion it pledged.

The last tranche of $400 million of AfDB’s budget support facility will be approved in 2017 based on the implementation of reforms agreed.

The loan, under Nigeria’s Economic Governance, Diversification and Competitiveness Support Program (EGDCSP) scheme, is part of a two-fiscal-year “programmatic counter-cyclical” support.

It is basically agreed based on the terms that the Federal Government is implementing reforms to achieve efficiency in its business, combat corruption and promote diversification and competitiveness of the economy.