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Private sector grumbles as CBN defends its policies...

                                                                                                                                                           

Of all the policies churned out by the Central Bank of Nigeria (CBN) recently, none has affected the manufacturing sector as the FOREX policy, which has banned the importation of some 41 items. There was also the directive to commercial banks to publish their debtors’ lists in at least three national newspapers. The Organised Private Sector (OPS) has been unrelenting in its criticism of the apex banks’ policies, which its members argue, are antithetical to the growth of the economy. But the CBN insists its policies are  meant to stregthen the economy, writes OKWY IROEGBU-CHIKEZIE. 

Tumbling oil prices and the biting effects on the local economy have forced a chain of reactions from the Central Bank of Nigeria (CBN). The  apex bank argues that crashing crude oil prices at the global market has made it  imperative  for it to continuously adjust its fiscal  and monetary policies.

One of such policies is the publication of the names of delinquent debtors by Deposit Money Banks (DMB) in at least three national newspapers. Before the publication began on August 1, the apex bank had given the ‘bad debtors’ a three-month grace to repay their loans.

The public embarrassment caused by the publication of the companies’ names and the disclosure of their directors will not be a one-off thing, according to the CBN directive. It will henceforth be quarterly.

Besides, the erring companies and their owners are to be barred from participating in the Foreign Exchange (FOREX) market.

According to the CBN, the adverse consequences of non-performing loans for the stability of the financial system, the risk to depositors’ funds and the sustainability of the banks, informed the drastic actions.

Toxic loans stand at N400 billion.

But, the CBN intervention has elicited mixed reactions from members of the Organised Private Sector (OPS) and manufacturers, who have expressed concern on the possible fallout of the plethora of the policies, if implemented to the letter.

The OPS fear

The Lagos Chamber of Commerce & Industry (LCCI) urged the CBN to avoid sweeping generalisation without putting the loan defaulters into perspectives. The chamber said several factors must be considered before appropriating sanctions against defaulters.

LCCI Director-General Muda Yusuf said: “The LCCI recognises two broad categories of debtors. There are defaults that have arisen as a result of genuine business failure, some of which are irreversible and this has affected the capacity to repay. There are also defaults that have arisen as a consequence of deliberate intent not to repay.

“The latter bothers on the character and quality of the debtors. The Know Your Customer (KYC) policy of the DMB is meant to address this.  It is important to distinguish between these two categories of debtors in order to guide the choice of debt recovery strategy to be applied.”

According to the LCCI chief, the shocks and dislocations triggered by the depreciation of the naira against the dollar have not helped matters for local businesses.

“Those who import raw materials are the worst hit because of their exposure to high exchange rate”, he said.

He also noted that investors in the upstream oil and gas sector have been victims of the collapse of oil prices.

Yusuf said investors in the power sector had been grappling with gas availability, energy theft, billing issues, quality of assets and legacy debts.

He said the indiscriminate import duty waivers granted by government also put many local businesses at competitive disadvantage, thus making it difficult for those who borrowed money to meet their repayment schedules.

Yusuf described as a miscarriage of justice the listing of those whose products have been affected by smuggling, counterfeiting and importation of fake and substandard goods as delinquent debtors.

According to him, the agency saddled with the responsibilities of preventing illegal importation into the local market should be appropriately sanctioned.

The LCCI chief also cited fiscal policy “somersaults”, especially in the area of import tariffs, import prohibitions, import duty waivers, policy reversals on incentives as some of the reasons the OPS kicked against the sweeping generalisation.

Yusuf, who put the indebtedness of the three tiers of government to contractors at aover N1 trillion, argued that the huge debt portfolio of companies may have been caused failure of government to pay contractors, thereby limiting their capacity to repay borrowed funds.

He listed prohibitive interest rates and charges by banks; security issues in some parts of the country that forced many businesses and investments to close shops and the collapse of the stock market, leading to huge loss by investors in the capital market as some of the causes that made it difficult for borrowers to service their loans.

Banks also culpable

However, Yusuf admitted that  some of the debtors were deliberate in the plan to default.

His words: “This class of debtors took loans and from the very beginning, had no intention to repay. This, of course, is the disturbing scenario as it bothers on criminality and impunity.

“In some of these instances, it may be difficult to exonerate the banks as the credit appraisal processes may have been compromised. The degree of banks’ culpability should be ascertained and this should attract appropriate sanctions.

“There are bad borrowers and there are bad lenders! The CBN should deal with both sides of the divide and be seen to have truly done justice. Corporate governance issues in the financial system should be entrenched.  There is need for a better use of credit bureau to reduce the incidence of serial debtors.”

Couselling the CBN to apply global best practices in debt recovery, Yusuf noted that the publication of debtor companies’ list and their directors in national newspapers was unorthodox and unprofessional.

He said: “Entrepreneurship is about risk taking. Sometimes, profits are made and at other times, losses are incurred.  It will be unfair to portray business failure as an act of criminality, which is what the publication of names connotes.

“The damage to the reputation of such businesses is also very high.  In any event, loans are supposed to be backed with collateral and a foreclosure invoked in the event that such loans are not redeemed. This is the best practice approach to debt recovery.”

The Director-General, Nigeria Chamber of Commerce, Mines, Industry and Agriculture (NACCIMA), Mr. Cobham Emmanuel, said whoever borrowed money for whatever reason should pay for it.

He said that despite operating under strenuous conditions including high production cost and dearth of infrastructure, the loans taken from banks and other financial institutions  should be repaid.

The OPS kicked against the CBN’s FOREX policy which has shut out some of its members from particiapting the exchange market. It asked for an immediate reversal.

On June 23, the apex bank said that it was imperative to exclude importers of some goods from accessing FOREX, arguing that the directive was aimed at encouraging local production of the items.

 But, the LCCI slammed the CBN for what it called the bank‘s “limited understanding of the manufacturing process of many of the sectors affected by the policy.”

 The LCCI said the policy would not only serve as a disincentive to the indigenous manufacturing sector but to the economy.

It said: “The policy means that manufacturers who require any of the 41 restricted items as inputs and raw materials for their plats may have to simply wind up their businesses once they run out of stock.

“The LCCI understands the CBN’s constraints and circumstances as it drew up this policy but it appears as if the formulation of the policy has suffered from the CBN’s limited understanding of the manufacturing process in affected sectors.”

To the LCCI, the policy was ambiguous as the restricted items were not well-defined and specific, noting that the ambiguity had plunged both manufacturers and banks into confusion regarding the intent of the CBN.

 It, therefore, urged the apex bank to amend the policy with full definition and specification of the restricted items, including their HS Codes.

Besides, the chamber asked the CBN to de-list every non-substitutable industrial raw material from the prohibited items.

Manufacturers Association of Nigeria (MAN) President Frank Udemba Jacobs backed the CBN policy on the publication of chronic debtors’ list.

Dr. Jacobs said businesses should be done with integrity and in good faith. Promising his association’s preparedness to protect its members, Jacobs insisted that MAN will not support borrowing from banks and other financial institutions without honouring the commitment to repay.

He, however faulted the prohibition of some items. He told The Nation that manufacturers were experiencing difficulties in importing raw materials. Jacobs warned that factories using any of the banned imported items as raw materials face closure, a development that will further populate the unemployment market as being reflected in the performance of key macroeconomic indicators of the Bureau of Statistics, CBN and the Organisation of Petroleum Exporting Countries (OPEC).

 Commending the CBN for the inclusion of some materials on the banned items’ list, he said: “MAN has analysed the items into 680 items based on their sectoral and sub-sectoral groups and submitted a comprehensive list of 105 raw materials which are products of rigorous consultations with all sub-sectors of the manufacturing sector with their respective HS Codes.

 “The association further listed 93 finished products that are produced locally with sufficient capacity which should be added to the 41 items.”

 He described as illogical the refusal of CBN Governor Godwin Emefiele to remove what the association identified as essential raw materials that cannot be sourced locally from the list after agreeing to include the 93 items classified as finish products.

 According to him, Emefiele cited declining foreign reserves, continuous fall in oil prices and banks’ inability to meetthe FOREX demands of manufacturers who import raw materials as justification for the apex bank’s FOREX policy.

 Both the OPS and MAN asked for a policy statement that will assure them of policy consistency. They said such policy must be backed with appropriate gazette and phased implementation to safeguard the huge capital involved in manufacturing.

Manufacturers’ response

In their reactions, some members of the OPS said the CBN’s action has only succeeded in making investors and manufacturers to pay for government’s inefficiency in  the management of resources.

The Managing Director of Coleman Wires and Cables, George Onafowokan, called for a review in the policy, noting that some of the products on the prohibited list have not been given a second thought.

He lamented that the improper dcategorisation was already affecting production capacity of many industrial concerns.

With a loss of $800 million due to what he described as technical devaluation by the CBN, Onafowokan noted that his company, having staked about N11 billion on expansion within the last two years, was already facing a huge challenge that may affect its productivity and workforce profile.

 He said: “The CBN’s policy should have excluded raw materials through proper definition and identification of HS codes of some restricted items. We have staked at least N11 billion on expansion in the last two years.

“The loans we have taken within that period had to be restructured to cater for devaluation and changing interest rates. With this forex restriction, it seems the CBN is asking local firms like ours to shut down.

“Exporting is a very difficult task due to a lot of factors and circumstantial policies. The manufacturing sector needs an intervention from the CBN to address the gaps created by the policy.

“Ambiguous definition of macroeconomic policies is prone to disaster. You are trying to create jobs but you are losing jobs,” Onafawokan said at a dialogue organised by the LCCI on the CBN policy in Lagos.

 Also speaking, the Managing Director, Nosak Group, Goddie Isibor, alleged that the CBN policy was seeking the closure of the industries using the banned items as raw materials.

“The CBN should go back and remove raw materials so that we don’t kill industries with the hope that we are encouraging local production”, he said.

 The Chief Executive of Financial Derivatives Limited, Bismarck Rewane observed that the CBN decision has confirmed the cash flow problem, adding that the trend could affect capital inflow and outflow.

President, Rice Millers, Importers and Distributors Association of Nigeria (RIMIDAN), Tunji Owoeye, noted that the decision would have an impact on government’s backward integration policy in the rice sector.

According to him, many investors have shored up their stakes in local rice production, following the incentives being dangled by the government.

 He said: “We urge government to modify the policy by giving preference to stakeholders involved in rice backward integration the essence of which is to encourage investors to invest in the rice value-chain. There is a gap in the production and consumption of the commodity in the country.

“It is the people in the value-chain that are filling that gap through some guided measures to manage the imports.

“If a government initiates a move and consequently backs out, it is taking carrot form one side and giving it out at another end. I believe government means well in addressing dumping but I believe that the move should be guided, while identified companies that have invested in backward integration should be given an opportunity to access government’s FOREX window.”