The Manufacturers Association of Nigeria (MAN) has called on the Central Bank of Nigeria (CBN) to reverse its policy, banning third party arrangement in Form-M.
MAN said the reversal of the policy will be in the overall interest of the Nigeria manufacturing sector and the economy in general.
According to the CBN, the policy is targeted at ensuring the 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 through directing authorized dealers to desist from opening of forms M whose payment are routed through a buying company or any other third parties.
Reacting to CBN’s circular on destination payment for all Form M letters of credit and other forms of payment, President of MAN, Engr Mansur Ahmed in a statement said the Association refers to the circular released by the apex bank on its resolve to ensure the 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 through directing authorized dealers to desist from opening of forms M whose payment are routed through a buying company or any other third parties.
According to him, MAN acknowledges the good intention of the Bank, saying that the impact of such decision is 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.
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“MAN wishes to draw the attention of the apex bank that most manufacturers especially Small and Medium scale Enterprises (SMEs) deal with accredited agents for their supplies as many Original Equipment Manufacturers(OEMs) abroad do not sell directly to individual buyers. Furthermore, 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.
“It is 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,” he said.
In its recommendations, MAN said 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, the association said will enable companies have sufficient time to re-organize and build the required relationships with original suppliers which they do not currently have.
Also, MAN said, “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.”
