The Manufacturers Association of Nigeria (MAN), has kicked against the resolve of the Central Bank of Nigeria, CBN, directing authorized dealers to desist from opening of forms ‘M’ whose payment are routed through a buying company or any other third parties.
The CBN, via a circular explained that the move was to ensure prudent use of foreign exchange resources and eliminate incidences of over invoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumer.
While MAN acknowledged the good intention of the Bank, it however observed that the impact of such decision would be inimical to the survival of many manufacturing concerns that are not involved in any unethical practices especially at a time when the nation is implementing phased gradual ease on lockdown due to Covid-19 pandemic.
“We believe that this additional hamstring on the economy is likely to erode the recent improved performance on the ease of doing business ranking.” it said in a statement as it drew the attention of the apex bank that most manufacturers especially SMEs deal with accredited agents for their supplies as many Original Equipment Manufacturers(OEMs) abroad do not sell directly to individual buyers.
Furthermore, MAN, argued that it is in line with global best practice for OEMs and large International Manufacturing Companies operating in multiple countries and with sourcing needs in various jurisdictions to leverage on the economics of scale to secure lower prices through centralized procurement.
In Nigeria, central procurement plays a critical role in the production process, an absence of same will hamper manufacturers operating in the country and may result in Factory shutdowns.
In the absence of a global procurement agency, most companies would not have access to the final suppliers, who consider the inherent country risks a disincentive for trading directly with companies in Nigeria.
The procurement agencies have provided a vital interface between the final suppliers and the manufacturers, and allows same extended payment timelines by granting credit in periods of foreign currency scarcity, MAN, stated.
The Associated said it is therefore pertinent to point out that many companies have gone into contractual agreements via the procurement agencies for the 2020 financial year and in some cases beyond.
“Default on these contractual obligations may result in expensive lawsuits across jurisdictions, bring disruptions to the production process and further undermine the resilience of the Manufacturing sector.
Consequently, the multiplier effect on the economy will be reduction in productivity; loss in business revenues; supply chain disruption and ultimately and loss of employment.” it stressed.
To avoid these ugly incidents, MAN, recommended that if the CBN) is of the view that the audit of the activities of a central procurement agency in terms of price verification is impossible, a phased approach should be adopted to the elimination of their use in Nigeria.
This will enable companies have sufficient time to re-organize and build the required relationships with original suppliers which they do not currently have.
Similarly, to checkmate abuse, the Apex bank can put in place a monitoring mechanism framework to ensure that unverifiable claims by some manufacturers are identified and dealt with accordingly rather than stifle the business of genuine manufacturers whose interest and commitment is to grow the economy.
Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail on the coffin of many of our ailing members.
The MAN therefore urged the CBN to reverse this policy in the overall interest of the Nigeria manufacturing sector and the economy in general.