The Organised Private Sector (OPS) has revealed that Nigerian companies have incurred a staggering loss of N1.5 trillion over the past six months due to the Central Bank of Nigeria’s (CBN) delay in honouring $2.4 billion in foreign exchange (FX) forward contracts.
These contracts were initially designed to protect businesses from currency fluctuations, but the CBN’s failure to fulfill its obligations has left many companies in a financial crisis, according to a formal submission made by the OPS to Lateef Fagbemi, the Attorney General of the Federation and Minister of Justice.
The delay in settling these contracts has had a significant impact on manufacturers and other businesses, with numerous companies reporting substantial financial losses. A representative from the OPS, which includes major business groups like the Manufacturers Association of Nigeria (MAN) and the Nigerian Economic Summit Group (NESG), expressed their frustration. “We have followed all due processes in securing these forward contracts, and yet we are left in limbo,” the OPS stated, highlighting their disappointment with the CBN’s inaction.
This prolonged crisis has already driven more than 10 multinational corporations to exit the Nigerian market in the last 15 months. These companies, including household names like PZ Cussons, have cited the country’s volatile foreign exchange market and harsh business environment as the primary reasons for their exit.
PZ Cussons recently announced that it was exploring the sale of its African subsidiaries due to the sharp fluctuations in FX rates and a 70 percent devaluation of the naira, which severely impacted its financial performance.
The OPS warned that the ongoing delay in FX settlements could further erode investor confidence in Nigeria’s ability to meet its foreign exchange obligations, thereby exacerbating liquidity challenges in the country.
“The impact of the $2.4 billion FX forwards on businesses, especially manufacturers, is far-reaching. It has a way of spooking investors who may be cautious about tying up their money in a market whose sole regulator may not fulfill its obligation,” said a source familiar with the situation.
The CBN has so far been unresponsive to inquiries from the media, with its corporate communications department failing to respond to calls or messages. However, earlier this year, Olayemi Cardoso, the newly appointed Governor of the CBN, acknowledged that the central bank had inherited a $7 billion FX backlog from the previous administration. Cardoso explained that the CBN had already settled $2.3 billion of this backlog but maintained that the remaining $2.4 billion consisted of invalid claims, which the bank was unwilling to pay.
FX forward contracts are typically used by investors to hedge against currency risk by locking in an exchange rate for a future transaction. The CBN had previously committed to providing the necessary dollars to settle these contracts, but persistent delays have left many businesses in a precarious financial position.
The CBN has cited ongoing investigations by the Economic and Financial Crimes Commission (EFCC) into foreign exchange transactions as a reason for the delays, but the OPS maintains that no corporate entity has been implicated in any wrongdoing. “No corporate entity has been informed of any allegations or infractions regarding their involvement in the FX forward contracts,” the OPS said. They further added that all transactions had been approved by the CBN and were backed by valid documentation.
Experts have weighed in on the issue, warning of dire consequences if the CBN continues to delay payment. Samuel Sule, Chief Executive Officer of Renaissance Capital Africa, emphasized that the manufacturing sector is already suffering from high inflation and other economic challenges.
He stressed that failure to honour these contracts could spell disaster for the sector. “The cost extremes faced by manufacturers are lurking away their liquidity, which could be used to support their enterprises,” Sule noted.
Muda Yusuf, the CEO of the Centre for the Promotion of Private Enterprise (CPPE), echoed these concerns. Yusuf pointed out that while the CBN claims to have settled all verified obligations related to the FX backlog, the remaining unsettled cases suggest that there may be unresolved issues. He advised that the CBN and EFCC should engage with those whose cases have not been verified, giving them the opportunity to present their claims and resolve the matter.
The gravity of the situation is underscored by alarming statistics: in the past year, 767 manufacturing companies have shut down operations in Nigeria, with job losses in the sector soaring by an unprecedented 108.7 percent.
One manufacturer, whose business is on the verge of collapse due to the ongoing FX crisis, made an urgent plea for government intervention. “We are pleading for immediate action. This is not just about FX forwards; it’s about the survival of the Nigerian economy,” the manufacturer said.
The OPS has formally requested the Attorney General to intervene by compelling the CBN to honor its contractual obligations within 60 days. They also called on the EFCC to clarify the alleged infractions that have held up the payments. According to the OPS, failing to fulfill these obligations could severely damage Nigeria’s credibility on the global stage, trigger the collapse of more businesses, and deepen the country’s economic troubles.
“Honoring these contracts is a matter of survival for many businesses,” the OPS emphasized. “Without urgent action, the negative ripple effects will continue to spread, impacting not only manufacturers but also financial institutions, external trade, and overall investor confidence in the Nigerian economy.”
As Nigeria grapples with rising inflation, fluctuating oil revenues, and mounting debt, the stakes are higher than ever. The OPS has called on the CBN to partner with the Ministry of Finance and private sector stakeholders to develop a sustainable solution that will restore stability to the FX market and prevent further damage to the nation’s economy. “We need immediate relief, or the future of manufacturing in Nigeria looks grim,” the OPS concluded.
