Following scarcity of foreign exchange (forex) occasioned by the COVID -19 pandemic, local manufacturers’ letter of credit (LC) requests to their foreign partners for raw materials importation submitted in the banks are now being rejected by financial institutions.
The Manufacturers Association of Nigeria (MAN) disclosed that local manufacturers are now battling to meet up with payment to their foreign business partners’ request via the Letters of Credit already with the banks following difficulties in forex availability, with banks insisting that such requests can’t be granted for now until there is a considerable improvement in forex inflow inflow from the Central Bank of Nigeria (CBN). Faced with this challenges, MAN explained that the situation poses a huge risk to the country’s manufacturing sector in terms of producing at optimum capacity.
Despite Federal Government’s duty waiver granted for importation of medical facilities and personal protective equipment (PPE), pharmaceutical manufacturers/ importers are finding it difficult to ship in their orders from abroad since their LC requests were not treated for payment to their foreign business partners due to forex scarcity.
MAN noted that the banks are insisting that anyone seeking to pay business partners abroad with naira debit cards under the Deposit Money Banks (DMBs) should do so in the currency of the beneficiary’s country, as against the previous practice where lenders debited the naira accounts of customers at the prevailing exchange rate and remitted dollar equivalent to the offshore beneficiary’s account.
It was gathered that the old practice was depleting the nation’s foreign reserves and putting pressure on the naira – dollar exchange rate now that Nigeria’s dollar earnings are on the decline due to low oil prices caused by the pandemic. Besides, many banks are not only insisting that customers pay in the currency of the recipient’s country, but also that it must be through inflows from abroad in line with CBN’s domiciliary account policy, which directed that only electronic fund transfers into domiciliary accounts can be transferred from such accounts to third parties, while cash deposits into such accounts can only be withdrawn in cash. In addition, the manufacturers noted that rejections and slowdowns are trailing LC requests from local manufacturers in the banks currently for purchase of raw and other input materials for production from abroad (foreign partners) over fears of devaluation of Naira because of the negative impacts of oil price fall and COVID -19 on the economy, especially on foreign exchange inflow.