MAN to CBN: Reverse new policy of destination payment for all Form ‘M’ Letters of Credit

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Story from Kenneth AFOR, Lagos

The Manufacturers Association of Nigeria (MAN) has urged the Central Bank of Nigeria (CBN) to reverse its new policy of destination payment for all Form ‘M’ and Letters of Credit and other forms of credit.

The association says the policy if implemented would hamper the productivity of manufacturers in the country who depend heavily on importation of raw materials and equipment into the country.

This was conveyed in a press release dated Wednesday, August 25, 2020, obtained by Neptune Prime.

MAN stated that it appreciates the apex bank’s efforts in ensuring prudent use of forex resources which will eliminate incidences of over-invoicing, transfer pricing as well as double handling charges which in a way prevents cost on manufacturers.

In as much as the CBN is preventing authorized dealers from opening forms M whose payment is routed through a buying company or any other third parties, it, however, states that it acknowledges the good intentions of the bank adding that the impact of the 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.”

The association cited that most manufacturers especially Small and Medium Enterprises (SMEs) deal with accredited agents for their supplies as many Original Equipment Manufacturers(OEMs) abroad do not sell directly to individual buyers.

It further stated that due to 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, adding that the policy may force manufacturers who have a contractual agreement with suppliers to face expensive lawsuits across jurisdictions, bring disruptions to the production process and further undermine the resilience of the Manufacturing sector.

It, therefore, warned that the policy may have a multiplier effect on the economy which could lead to a reduction in productivity; loss in business revenues; supply chain disruption, and ultimately and loss of employment.

It, however, recommended that CBN feels 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 to 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,” it stated.

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