“The banks have a lot of backlogs of Letter of Credit , LCs which has made international exporters and investors to no longer take them from Nigerian banks and importers. What the banks now tell us to do is to pay cash into the accounts of the exporters,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.
He said local importers are forced to settle for the parallel market to get funds at a very high cost which makes them increase the cost of their products and services.
A Lagos-based banker who asked not to be named said many manufacturers have not fulfilled their financial obligations.
“We are dealing with a lot of backlogs because the Central Bank of Nigeria (CBN) is not giving us funds. There are a lot of commitments to banks or suppliers abroad that we have not met up with. So, based on that, a lot of them are not comfortable with our LCs,” he said.
A recent report by PwC Nigeria noted that the rejection of LCs may lead to less imports of the much-needed inputs and goods for manufacturing and retail/wholesale trade.
“This may heighten inflationary pressures and negatively impact Gross Domestic Product growth,” the report added.
Nigeria has been grappling with a severe dollar shortage for years, which worsened following the fallout of the Russia-Ukraine war that started in February 2022.
In June this year, the CBN collapsed all segments of the FX market into the Investors & Exporters window and devalued the naira.
The naira depreciated from 416.52/$1 as of February 28, 2022 to 848.12/$1 on Tuesday at the official market. At the parallel market, popularly called black market, it weakened to 1,050/$1 from 575/$1.
The high cost of sourcing FX was one of the major factors that pushed the country’s inflation rate to an 18-year high of 26.72 percent in September from 25.80 percent in July, according to the National Bureau Statistics.
“Government has to address the root cause of this problem by giving priority to manufacturers. Manufacturing is the bedrock of any economy. And if you are failing in that space, you will trigger inflation and unemployment which could result in a decline in revenues,” he said.
The CBN last week restored the 43 items prohibited from accessing forex in the official market after eight years in a bid to boost dollar inflows.
