LCCI Seeks Review of CBN’s Circular on Form ‘M’

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By Dike Onwuamaeze

The Lagos Chamber of Commerce and Industry (LCCI) has called for the review of the Central Bank of Nigeria’s (CBN) circular, which directed that Form M for Letters of Credit, Bills for Collection and other forms of payment should only be opened in favour of the ultimate supplier of a product or service.

LCCI stated that “while the chamber appreciates the efforts of the CBN in curbing abuses in the foreign exchange market, this policy measure would create more problems than it would solve.”

The reaction, which was contained in a press release titled the “LCCI comments on the CBN circular on payment Form M, Letters of Credit and other Forms of Payment” and signed by the Director General of the LCCI, Dr. Muda Yusuf, said that the new policy on payment should be urgently reviewed to avoid further disruptions to businesses, adding that already most foreign exchange transactions have been frozen on account of this circular.

“What this means is that the supply chain of over 80 per cent of the business community has once again been disrupted and dislocated. This is like substituting the global supply chain problem with a domestic supply chain disruption,” Yusuf said.

The LCCI also observed that the proposal on price verification would amount to another layer of bureaucracy, especially when the Nigeria Customs Service (NCS) has a full-fledged department on valuation that is charged with the responsibility of determining the value of imports.

“It is a paradox that the NCS is busy hounding the private sector of under invoicing and under-pricing while the CBN is accusing businesses of over invoicing and overpricing. This is yet another quandary for the business community,” Yusuf noted.

He noted that it would be impractical to expect all importers of raw materials, equipment, and other inputs to buy directly from the ultimate producer, manufacturer or supplier, especially in an economy driven by Small and Medium Enterprises (SMEs) as being demanded by the CBN’s circular.

The chamber argued that the SMEs would be the first set of casualties of this policy because they lacked the capacity to place high volume of orders that the main manufacturers would respond to, adding that many of the SMEs currently enjoy suppliers’ credit from the agents from whom they buy, which they would not get from the original product manufacturers.

“Some enjoy up to six months bills for collection on raw materials imports. We urge the CBN to please review this new policy on payments for imports to save the already ailing and distressed Nigerian economy from complete collapse. Many businesses are yet to recover from the devastating shocks of the COVID-19. Some have in fact collapsed, while others are struggling to regain momentum. This policy negates the current laudable efforts by the government (and even the CBN itself) to ensure business continuity, sustainability, and recovery. It is also in conflict with the letters and spirit of the Economic Sustainability Plan of the federal government,” the LCCI explained.

The LCCI ascribed the goings on in the foreign exchange market to the symptoms of policy shortcomings in the management of Nigeria’s foreign exchange market.

It advised the CBN to evolve policy response that would address the high degree of uncertainty that has been fueling speculation in the foreign exchange market due to the arbitrage opportunities the different rates tolerated by the CBN offered and the desperation of portfolio investors to exit the Nigerian economy.

The LCCI also pointed out that subduing the market forces in the allocation of foreign exchange in a free enterprise economy would be unsustainable and create distortions, transparency problems and corruption that drive foreign exchange transactions underground.

“It also obstructs the inflow of foreign exchange, either from foreign investors or remittances that can stabilise the foreign exchange market while a market driven foreign exchange policy will incentivise the repatriation of export proceeds.

“It is unfair and unjust to compel exporters to offer their proceeds at N380 to the dollar when the open market is around N470 to the dollar. This disparity would naturally create compliance issues. It also contradicts the craving of government to promote export development. Exporters deserve an unfettered access to their export proceeds,” Yusuf said.