The Manufacturers Association of Nigeria (MAN) has said that the Central Bank of Nigeria's (CBN's) flexible exchange rate policy has caused substantial losses for manufacturers selling on letter of credit (L/C) terms.

The value of the naira has fallen sharply over recent months, so manufacturers with US dollar denominated L/Cs approved a few months ago will receive much smaller payments than they originally anticipated.

New rates

According to the chairman of MAN's Apapa branch, Babatunde Odunayo, L/Cs approved for manufacturers before the introduction of the new flexible exchange rate were negotiated on the basis of a rate 197 naira (N197) to the US dollar.

The new flexible exchange rate was introduced on 20 June 2016, and manufacturers should now expect payments to be based on an exchange rate of around N320 to the US dollar according to Odunayo.

A similar rate will apply to manufacturers that exported goods on non-L/C terms but who prior to the introduction of the flexible exchange rate filled out Nigeria's 'Form M' mandatory documents, which monitor goods imported into the country.

Negative impacts

"Manufacturers currently face up to N500 billion in exchange [rate] difference between the approved Form M and L/C established rates and the flexible market rate of N320 to a dollar," Odunayo said.

The MAN branch chairman maintains that losses caused by the flexible exchange rate have led to factory closures and job losses while some companies are unable to complete investment programmes due to much poorer than anticipated cash flow.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.