Manufacturers get 48 % of forex – Vanguard

By Emma Ujah, Abuja

Bureau Chief The access to foreign exchange by the manufacturing sector, as a priority has been established with the sector receiving 48 per cent of the forex allocation this month.

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwing Emefiele had announced that the real sectors of the economy must be given a priority place in the access to forex which has become very scarce owing to dwindling oil fortunes.

CBN gave access to requests for foreign exchange valued at N1,003,373,891.75 through the inter-bank window to enable respective industries procure industrial raw materials and machine spare-parts, among other users.

The forex utilization figures published for this month by the bank reveals that the industrial raw material group got the highest share of N483,075,669.82, approximating to 48.1 per cent. Figures from the CBN report for the month December also showed that the petroleum and the aviation sectors received N372,116,111.79 and N123,666,001.06 or 37.1% and 12.2% respectively, while agriculture received N24,516,109.09 or 2.1%.

Commenting on the development, the Acting Director, Corporate Communications Department, Mr. Isaac Okorafor, reiterated the commitment and resolve of the Bank to continue to ease the foreign exchange pressure of these critical sectors through forward sales under the new Flexible Exchange regime.

The CBN in the months of September and October 2016, supported these critical sectors with $660million and $867million, respectively, to enable industrialists source industrial raw materials and spare-parts through the interbank Forex market.

Read more at: Vanguard

Forex pushing up drug prices – Daily Trust

By Judd-Leonard Okafor 

Halima Adamu has always bought a paracetamol sachet for N20. The last time she bought it, she paid double.

“I don’t know whats going on. Everything is rising in cost,” she complains. She isn’t alone. Prices of drugs-and everything else-are jumping sky high. And it is all connected to the dollar.

Rising drugs prices are only coming into public notice, but they began way back in February and March this year.

It isn’t just rising drug prices, but pharmaceutical companies are feeling the brunt like no other time, cutting productions, scaling down operations, laying off staff and closing shop.

“It is seriously outrageous,” says Dr Pius Ukpabi, a community pharmacist based in Lagos.

“Some multinationals could not cope again with the exchange rate and decided to wind down.”

One of them is Switzerland-based firm Boehringer. It is among the highest-paying pharmaceutical companies operating in Nigeria. It paid for staff training and travels to South Africa and Kenya, says Ukpabi, whose brother works there.

“It was using more money to buy dollars,” he explains. The nature of a consumer economy like Nigeria means nearly everything is imported, and importation means paying for import on the international market in dollars. It isn’t just about paying the equivalent of dollars in naira but using naira to buy dollars to pay. The naira has been in free fall against the dollar and the bite has only gotten worse.

One of Boehringer signal product jumped in price, from N4,000 to N8,000 just between June and July.

“By August, they [Boehringer] could not cope. They decided to wind down [in Nigeria]. They are still in Kenya, they are still in South Africa, but in Nigeria they washed their hands and left. Many companies have already wound up, some left in February and March.”

The N8,000 drug is only available through parallel importation-that’s when a drug legally made abroad is imported without Boehringers permission.

Parallel importation is controversial. Trademark holders could lose benefits, original packaging of the drug could change and importers stand to gain.

Parallel importers buy original drugs from one market, say Kenya where Boehringer still is, at a lower price and then sell them in Nigeria for a higher price, and the final consumer bears the cost.

Orphan drugs are seriously affected. Those are drugs, including immunosuppressants and cancer drugs, that are not manufactured in Nigeria and not available for purchase any how else. Now they are simply not there, says community pharmacist Uzoma Nwaigudu, and secretary of the Pharmaceutical Society of Nigeria (PSN).

He sourced a prescription drug for a patient and got only half dose. Three months later, he is still searching for the drug but isn’t finding it.

Novartis, the company that owns the drug, is yet to bring in some. “When it eventually comes, the price will quadruple from what it used to be,” he predicts.

“There are adverse effects in terms of availability. Many companies are unable to access foreign exchange for importing raw materials. Orphan drugs have become scarce, and prices of drugs on the shelf have skyrocketed,” Nwaigudu says.

“And everything comes down to retail. Retail pharmacies are the ones in direct contact with consumers. When you go to the shelf, you find that all prices have skyrocketed. And when you go to replenish your stock, prices keep increasing every day.”

“When buyers come, they think we are the ones putting the prices on retail, not knowing it is in the dollar.”

The dollar is hitting pharmaceutical industry hard. Firms unable to sustain buying the dollar at exorbitant exchange rates are buckling. International companies are scaling back in Nigeria. And local manufacturers are being clobbered. The only firms able to withstand the buffeting are large multinationals with enterprises across the world, the Pfizers and GSKs who have amassed production might over the years.

Ukpabi was to start a business importing drugs from India. The plans were already past the drawing board, but a reality check with the dollar meant that business had to be put on hold, he says.

“Between March and now, businesses that have folded up are uncountable,” he insists. “Some of the products, you can’t see them except through parallel importation, and the prices double.”

The consequence of the dollar beating down on the naira and clobbering pharmaceutical industry is the “flight of intellectual capital, ideas, business and foreign direct investment,” says Ukpabi.

A double-digit billion-dollar loan being sourced by the federal government isn’t helping, and is not likely to do the pharmaceutical industry any good, experts predict.

“Even if you borrow $7 billion and put it in the economy, you cant see anything. It will only go to infrastructure but economic growth is investment in the system,” says Ukpabi.

“Economy is built not by infrastructure. Borrowing money to boost infrastructure doesn’t boost the economy. If you tell that to a market woman, an unenlightened person, they say, yes this government wants to work. What boosts economy is foreign direct investment,” he says.

And the dollar exchange rate is driving foreign direct investment into the ground.

With manufacturers shifting operations to countries where dollar exchange rates are bearable, drugs are drying up in Nigeria and coming in at higher prices. It is a whole different sort of inflation. Local manufacturers can’t keep up or satisfy the market, and patients will bear the brunt, experts explain.

PSN has repeated raised a save-our-souls message with the government, requesting federal government to allocate foreign exchange to the pharmaceutical industry as a “topmost priority”. The expected result is “to save the lives of Nigerians,” says Nwaigudu.

That hasn’t happened, and there is no certainty when it will be. Efforts are on to shore up the naira against the dollar, but the pharmaceutical industry is not waiting. Patients still take ill and need to buy drugs. Drug prices keep rising, for those available on the market. For those unavailable, orders take months to fill, and command higher prices.

“Foreign direct investment is folding up. It is going to be catastrophic,” says Ukpabi. “The economy determines what you eat, drink, wear, not government parastatals.”

The story of drugs and the dollar is only beginning. 
Read more at Daily Trust

Finance minister and CBN fall out on blacklisted 41 items – Businessday

It is quite embarrassing that the finance ministry and the Central Bank of Nigeria (CBN) are at loggerheads over the management of the foreign exchange market. It started when finance minister, Kemi Adeosun, in Nigeria’s fiscal roadmap for 2017, disclosed plans to ditch a 16-month old policy which prohibits importers of a list of 41 items from obtaining dollars at the official market. The dollar embargo on these 41 items which range from steel sheets, palm oil and textiles to toothpicks, was introduced by the CBN in August 2015 to curb imports and ease the pressure on dollar demand. The policy came about as the country’s stock of foreign currency thinned due to a decline in dollar inflow which was brought on by militant attacks on oil pipelines and decade-low oil prices. Petrodollars account for 95 percent of Nigeria’s foreign exchange earnings, necessitating the need for dollar-demand management to preserve scarce dollars.

Godwin Emefiele told reporters in September that the dollar embargo on the blacklisted 41 items, which sought to manage dollar demand, was helping to reduce importation and drive appetite for locally made goods. True, there has been a decline in imports this year. The naira depreciation and fuel subsidy removal must take some credit for the decline. In dollar terms, the National Bureau of Statistics (NBS) noted that imports fell 12.5 percent to $7.53 billion (N2.41 trillion) in the first nine months of 2016, from $8.61 billion (N1.68 trillion) in the same period of 2015. Imports are currently at their lowest in at least 4 years, according to CBN data.

Meanwhile, appetite for locally made goods has been rising, and a clear indication is the dramatic jump in sales for indigenous palm-oil companies, Okomu and Presco, which can thank the dollar restriction and a naira devaluation for making them more competitive against their foreign counterparts.

The CBN may be pleased with the outcome of its dollar restriction policy, but finance minister Adeosun is having none of it; and rightly so. While the dollar restriction policy has been a boon for the likes of Okomu and Presco, it has stifled growth for other indigenous manufacturing companies and has thrown the entire sector into a recession. Maybe one tree cannot make a forest after all. Frank Jacobs, chairman of the Manufacturing Association of Nigeria (MAN) said about 16 of the total items on the list are critical raw materials for intermediate goods produced in the country. Jacobs added that the dollar embargo led to the fold-up of about 272 manufacturing companies, unable to sustain production due to exorbitant dollar costs at the parallel market.

So when Adeosun noted in the 2017 fiscal road-map that administrative measures on the list of 41 items will be replaced with fiscal measures, it became all too confusing.

It became even more confusing after Adeosun told reporters on Tuesday, December 21, that the CBN will try to eliminate the spread between the official and black market exchange rate, without stating how.

The naira exchanged at N305 for one US dollar at the interbank market on Wednesday, December 21, while the parallel market recorded N490/$. Taking the spread between both markets to N185/$. Maybe the finance minister had the dollar embargo suspension in mind when she said this.

By law, the CBN ought to seek approval from Adeosun to make decisions on foreign exchange and it was because the ex-banker was not appointed till November 2015, that the dollar embargo policy of August was not subjected to her approval.

It is believed that the disparity between the official market exchange rate and that of the parallel market is fuelled by the blacklisted items, whose importers have turned to an alternative market to meet their dollar needs. It is riding the official market of dollar liquidity and undermining efforts to put Nigeria’s dollar crisis to bed, although the CBN’s price manipulation is the biggest elephant in the room.

Increasing the tariff on the importation of these 41 items has often been put forward as a fiscal measure to curtail imports, but maybe the naira depreciation should be trusted enough to discourage appetite for imported items rather than imposing any form of regulation. Beyond dollar-demand management, Nigeria must do more to boost the dollar supply side of the FX market.

Nigeria can learn from Egypt, which has allowed its currency, the Egyptian pound, to weaken, going on to attract about $5 billion within one week. The largest economy in North Africa secured $2 billion in financing from international banks, and $2.75 billion first-tranche IMF loan worth $12 billion. The Egyptian pound (EGP) went from the second most expensive currency in emerging markets to the third weakest, crashing 62.5 percent to 13/$ from 8/$ after officials floated the local currency. The float had become necessary to put a lid on an unofficial exchange rate growing in leaps and bounds, touching a record high of 18/$1 in October, and gave a life-line to Egyptian businesses hard pressed by acute dollar shortages. The black market has since disappeared as the weak pound, which traded at 19.2/$ as at Wednesday, December 21, snuffs out arbitrage opportunities.

Nigeria attracted commendations when on June 20, it allowed the naira weaken against the dollar. However, it has since rolled back on the policy. The immediate implication of a float may be dire but it has proven a better option than a hard peg in the long term like in Russia and Kazakhstan.

The economic recovery in Russia and Kazakhstan now contrasts with the continuing slump in Nigeria, suggesting both Russia and Kazakhstan were right to let their currencies move in line with the oil price back in 2014. The currency peg in Nigeria is a deterrent to foreign investors, which the former must attract to rejig its bleak economy.

An expansionary N7.2 trillion budget for 2017, which comes to a paltry 6.7 percent, is no solution to growth in Africa’s most populous nation. Our budget to GDP ratio compares poorly with South-Africa’s 20.7 percent.

The finance ministry and the CBN must sheathe their swords and agree on policies needed to take the country’s economy, headed for its first full year contraction in 25 years, out of the rot it is stuck in.