Author Topic: Nigeria Manufacturers are battling with the foreign exchange crunch  (Read 293 times)

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Offline mfoniso

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These are not the best of times for Nigerian manufacturers as they battle with the foreign exchange crunch, rising costs of inputs and declining demand.

“Every morning when I resume, the first thing I do is call my bankers” said a top manufacturer, while showing BusinessDay a list of ten bank contacts on sheet a paper on his desk.

“I call them all day asking if they have dollars for me. I need about $16 million every month to run my operations. Some months, I am lucky I get $10 million, other months I get just $2 million”

Leventis Foods, a subsidiary of car and real estate dealer, AG Leventis, produced 1.5 million loaves of bread every week by June 2015, but the foods company only churns out 400,000 loaves weekly at the moment.

The 900,000 cut in bread production is attributed to dollar scarcity, which makes importation of inputs difficult.  It is also caused by high cost and scarcity of flour, caused by shortage of dollars needed by millers to import high-quality wheat.  AG Leventis recorded a loss of N177 million by end of 2015, while profit before tax fell by 38 per cent to N329 million, from N524 million in 2014.

“I can tell you that throughout August, the dollars we got were only two percent of our needs. It will take a magic wand to say what will happen by the end of the financial year,” said Joseph Babatunde Oke, chairman, A.G Leventis, to BusinessDay.

Haffar Industrial Company Limited, producer of sewing and embroidery thread used by other manufacturers, requested $300,000 in October to import textile inputs but got only $42,000 through the inter-bank market. Haffar cannot meet about 50 percent of demand and has had production depleted by 25 percent, Tarek Harfer, director, Haffar Industrial Company Limited, told BusinessDay.

“The biggest challenge is that we can not bring in raw materials and we can not import machines we need here. What usually happens in this situation is job losses,” Harfer said.

Yaw Nsarkoh, Unilever Nigeria’s managing director, had earlier said that the foreign exchange shortage was impacting the company’s supply lines, as it spent more time to secure the foreign exchange for raw materials and equipment.

Noah Babatunde, the public relations manager of Nicapaco Limited, a producer of corrugated packaging materials says demand has dropped for the company’s products because of increased prices.

“The problem is raw materials. The local inputs are not of the expected quality, so we import. But dollar exchange rate is high, so when we import inputs, prices are higher and our manufacturers are unable to buy,” Babatunde said.

But manufacturers are also faced with other challenges. Manufacturers say the cost of gas has gone up by 33% in the last few months. This has raised their cost of production.

There has also been a sharp increase in the price of sugar by more than 200% in the last one year, putting further pressure on the cost of operations for companies that need sugar. Other inputs, especially agriculture based raw materials, have increased significantly, as many companies seek to source their inputs locally, leading to a sharp increase in demand without increase in production.


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Offline mfoniso

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Re: Nigeria Manufacturers are battling with the foreign exchange crunch
« Reply #1 on: November 21, 2016, 04:58:50 PM »
“Look at the predicament of the average manufacturer in Nigeria today, we cannot increase prices because the consumer on the street is crying; yet all your inputs have gone up. Every single input cost has gone up by at least 80 percent to 250 percent. Interest rates, which for us were between 15 to 16 percent, have gone up to 21 percent to 27 percent. Where do the manufacturers go from here?

“Most businesses are very close to the tipping point. I do not have visibility about my raw materials. We used to have inventory levels of nine months, now they are down to two months. We are hoping that they do not fall further or we may have to start closing some of our plants across the country,” one of Nigeria’s top manufacturers told BuisnessDay.

In an exclusive interview with BusinessDay, John Groffen, the Ambassador of the Kingdom of Netherlands told BuisnessDay that Dutch firms operating in Nigeria are also feeling the pains of manufacturers.

“From directors of Dutch firms whom I had a meeting with about the ease of doing business in Nigeria, their biggest issue is the problem with foreign exchange. It is a situation which is hitting them really hard. For companies that do huge business and that earn in Nigeria, it is very difficult to repatriate their profits.

“ If you are sitting on a pile of billions of naira and you suddenly have devaluation, immediately in one-go it is gone. We suggested to the authorities that we think that this foreign exchange policy is not working the way they have intended it to work, but it still continues.
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Offline mfoniso

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Re: Nigeria Manufacturers are battling with the foreign exchange crunch
« Reply #2 on: November 21, 2016, 05:00:08 PM »

“I will say that at the moment, it is the major challenge. Then there are the average challenges that you encounter when you want to do business in Nigeria. But you know that is part of your business plan. If you know you want to produce, you will list electricity as an issue and find out how to go about it – what kind of generators do we get? How do we get the diesel?”

Some manufacturers also told BusinessDay that the stock levels of their major suppliers are down.

“Stock levels of our suppliers in general are low, so we are close to stopping production on some of our products but not close to a full close down yet. But if we continue to struggle with access to foreign exchange, we would have to scale down drastically and would be unable to produce certain of our products and eventually close our business fully because we would not be able to get any spare parts anymore, which will force us to stops using our machines after a while.”

Some of the manufacturers say that while they could source some of their raw materials locally, they cannot source their machinery locally.

“There is always some part of the production chain that needs to be imported and if you cannot import that item, it could mean you would not be able to complete the whole production process”

Bismarck Rewane, managing director and chief executive officer of Financial Derivatives Company,  speaking by phone, agrees that lack of access to dollars could cripple the manufacturing process.

‘’If we do not have dollars we will have shortage of raw materials and this will lead to a reduction in capacity utilisation and many of them will have to downsize.”

In a bid to reduce the pressure on manufacturers, the Central Bank of Nigeria (CBN) in August, directed that 60 percent of dollars be allotted to manufacturers. But manufacturers say it is hard to determine what 60 percent means, as they are only given whatever the banks deem fit.

This has led the CBN to hold special dollar auctions specifically targeted at manufacturers.  The CBN on November 9 held a special dollar auction for manufacturers, through which it sold $660 million to 1,342 companies. This is after another special auction that was held in October, where manufacturers got another $313 million, bringing total special sales to manufacturers in the last two months to almost US$1 billion.

Source: Businessday
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Re: Nigeria Manufacturers are battling with the foreign exchange crunch
« Reply #2 on: November 21, 2016, 05:00:08 PM »

 

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