According to the Manufacturers Association of Nigeria (MAN), the ability of local manufacturers to compete on the continent is crucial for obtaining market access under the terms of the African Continental Free Trade Area (AfCFTA) agreement.

The Guided Trade Initiative (GTI) under the AfCFTA has begun with a few countries’ participation, except Nigeria, which is about to sign off for the guided trade, even though the trade deal has not yet fully taken off.

To match businesses and products for import and export between interested state parties who have complied with the minimal requirements for trade under the AfCFTA, GTI was introduced in September 2022.

Nigerian manufacturers have frequently expressed their regret over the different issues limiting the industry’s competitiveness and warned that if these issues are not resolved, their nation will suffer due to the continental trade agreement.

Mr. Segun Ajayi-Kadir, Director-General of MAN, stated that the manufacturing sector lacks the infrastructure and microeconomic support necessary for growth and competitiveness.

He stated: “The manufacturing sector is already beset with multidimensional challenges.

“We now have AfCFTA that allows us to compete around the African continent. But if we are not competitive, and we cannot grow the sector within the country, your guess is as good as mine as to the millage in terms of market access that we should be able to enjoy.

“So, I believe the manufacturing sector has good growth prospects, but it needs supportive policies that would aid its growth in all ramifications.

“What local manufacturers are yearning for are supportive policies that will aid the growth and competitive capacity of the country’s industrial sector in all ramifications,” he added.

Global credit ratings firm, Fitch, has claimed that approximately 30% of Nigeria’s external reserves is comprised of foreign exchange (FX) bank swaps.

This disclosure underscores ongoing uncertainties regarding the country’s net FX reserves, exacerbated by opaque entries amounting to nearly $32 billion in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022.

This disclosure underscores ongoing uncertainties regarding the country’s net FX reserves, exacerbated by opaque entries amounting to nearly $32 billion in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022.

The Central Bank of Nigeria’s (CBN) consolidated financial statement for 2022 lists approximately $32 billion in FX forwards, over-the-counter futures, and currency swaps as off-balance sheet commitments.

These opaque entries, combined with this disclosure, highlight the continued uncertainty surrounding the nation’s net foreign exchange reserves.

“Uncertainty continues over the net FX reserve position, with a particular lack of clarity on near USD32 billion of ‘FX forwards, OTC futures, and currency swaps’ recorded as an off-balance sheet “commitment” in CBN’s last consolidated financial statement for 2022.

“Fitch estimates around 30% of Nigeria’s reserves are made up of FX bank swaps, although we expect most of these to continue to be rolled over.”

Uncertainty in Nigeria’s FX Reserves.

In its latest credit outlook for the country, Fitch noted that the lack of clarity over the precise size and composition of Nigeria’s FX reserves remains a significant constraint on the nation’s sovereign credit profile.

Fitch believes that the majority of FX bank swaps will be rolled over in spite of these worries, which might offer some brief stability in the reserves management. Additional report insights point to a recent increase in non-resident inflows into Nigeria, which are being driven by more stringent monetary policy measures and a greater formalization of FX activities.

The report also showed that by the end of April, Nigeria’s gross foreign exchange reserves had dropped from $34.4 billion in mid-March to $32.2 billion. Fitch stated that in order to support the currency, FX sales to Bureau de Change operators and debt repayments account for a portion of the decline.

By the end of 2024, the FX reserves are expected to fall to just 4.2 months’ worth of current external payments, which is in line with the “B” median.

“Gross FX reserves fell to USD32.2 billion at end-April, from a peak of USD34.4 billion in mid-March, partly reflecting repayment of existing debt obligations, and FX sales to BDCs to support the currency.

“Fitch projects a broadly flat current account surplus, averaging 0.5% of GDP in 2024-2025, supported by a modest rise in oil production and remittances.

“We forecast FX reserves to fall to 4.2 months of current external payments at end-2024 (‘B’ median 4.2), from 4.4 months at end-2023.”