How the dollar spending limit on naira cards is affecting manufacturers

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The new limit imposed on bank customers’ dollar spending via their naira-denominated cards is taking a toll on manufacturers in Nigeria, BusinessDay has learned.

Some banks recently announced reductions in the monthly spending limit on Naira debit cards from $100 to $20, while some temporarily suspended the cards from being used for international transactions.

Manufacturers who need dollars to import raw materials patronize the unofficial foreign exchange market or the black market at high cost.

“I believe this development is based on CBN’s policy, which seems to focus on the demand side of FX management,” said Taiwo Oyedele, head of tax and corporate advisory services at PwC.

He said the restriction would force more legitimate claims onto the black market, pushing up the rate and widening the gap compared to the official rate.

“Given that even manufacturers get a significant percentage of their foreign exchange needs from the parallel market, this could further squeeze their margins while fueling inflation,” Oyedele said.

The dollar’s price is currently at N587/$ on the parallel market, while the naira remained unchanged at N417/$ on Wednesday’s official market known as the Investors and Exporters (I&E) Forex Window.

One manufacturer told BusinessDay that some manufacturers have been forced to cut production costs by reducing the quality and quantity of goods produced.

“It’s devastating. People are screaming for more dollars and you’re cutting back. We go to the black market to get dollars to import and it’s expensive. It affects the cost of our production. It’s cheaper if we get dollars from the banks. Like I said, it’s devastating. This affects our sales,” said Michael Iweka, CEO of Mackingdom Industries Co. Limited.

Also Read: From $4,000 to Zero: Banks Reduce Dollar Spending on Naira Cards

More and more banks are informing their customers about the reduction of the monthly spending limit for naira-denominated cards.

“Due to the current FX market realities, we have further reviewed the cross-border transaction limits for the Naira Mastercard, Naira Credit Card, our Virtual Card and Visa Prepaid Naira Card to $20 per month. This will come into effect on April 1, 2022,” FirstBank of Nigeria said on Thursday.

“Also, no international ATM withdrawals are currently allowed using our Naira cards. For increased transaction limits, please use your Visa Debit Multicurrency Card, Visa Prepaid (USD) Card and Visa Gold Credit Card to enjoy transaction limits of up to $10,000 and other exciting benefits,” the bank said in a note to its customers.

Other banks that have also notified their customers of a reduction in monthly spending limit or a temporary suspension of naira debit cards include Ecobank, Zenith Bank, GTBank and UBA.

With some banks suspending the use of naira-denominated debit cards for international transactions, the monthly spending limit for customers has dropped to zero from over $4,000 seven years ago.

As of April 2015, the spending limit for naira-denominated cards for international transactions was $50,000 per person per year, or $4,166.7 per month.

Lower oil production below the budgeted benchmark despite a high crude price led to limited foreign currency inflows needed to boost the country’s external reserves, FSDH Research said in a report.

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