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CBN’s new forex policy boosting manufacturing, says MAN

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Oyetunji Abioye with agency report

The Central Bank of Nigeria’s creation of a market-driven foreign exchange window has given hope of revival to manufacturers faced with closure or shrinking capacity by easing their raw material imports, an industry group has said.

“The recent pronouncement of the CBN comes as a relief. If the intervention is sustained, there’s no doubt that we will have continued improvement in sourcing raw materials,” the Director-General, Manufacturers Association of Nigeria, Segun Ajayi-Kadir, told Bloomberg in an interview in Lagos.

The apex bank had on April 24 opened a new foreign exchange trading window where currencies sell at market rates. That eased access to foreign currency that’s been restricted since last year as the bank limited the supply of dollars with the country struggling to cope with lower revenue after the price of oil, the country’s main export, fell more than half from mid-2014.

The economy contracted in 2016 for the first time in 25 years as output shrank.

The regulator said late Thursday that its decision announced earlier in the day to increase dollar supply to small importers did not include 41 items, ranging from toothpicks to plastics, previously banned from accessing foreign exchange from the inter-bank market. It leaves a key demand of the manufacturers’ association unmet.

The restrictions “have created a problem for us because some of those items are raw materials that our members require to run their factories. A few companies folded, especially those in plastics and those in glass; some companies also had to downsize because they were not operating at full capacity,” Ajayi-Kadir said.

Meanwhile, the CBN raised more money from the sale of treasury bills than originally planned at an auction this week after it priced its one-year debt to yield more than inflation, in a bid to support the naira.

The CBN raised N230.60bn ($733m) at an auction on Wednesday, N80.60bn more than it originally planned to sell, data showed on Friday.

Treasury bill sales support the currency by draining some of the naira in the market, thereby making the local currency slightly stronger against the dollar, according to a report by Reuters.

The CBN has been intervening since February to prop up the naira after introducing a complex, multi-tiered exchange rate system.

It has sold more than $4bn on the spot and forward currency markets and has been attracting investors in recent months to its one-year debt with high yields.

The central bank offered the one-year debt with a yield of 18.81 per cent, higher than the March inflation rate of 17.26 per cent, to raise N178.60bn. The note was sold at 18.98 per cent previously.

It sold six-month bills at 17.26 and a three-month debt at 13.6 per cent to fetch a total of N52.57bn.

The central bank issues treasury bills twice a month to help the government fund its budget deficit and to help it control inflation.

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