The Impact of Forex Shortage on Nigerian Manufacturers and the Cost of Audits for Banks

Feranmi Olaseinde

Hatched by Feranmi Olaseinde

Sep 05, 2023

3 min read

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The Impact of Forex Shortage on Nigerian Manufacturers and the Cost of Audits for Banks

In a struggling economy like Nigeria, the shortage of foreign exchange has far-reaching consequences on various sectors, particularly manufacturing and banking. These two industries play a crucial role in the country's economic growth and development. However, the scarcity of forex has led to significant challenges for manufacturers as they struggle to import essential raw materials. On the other hand, banks are burdened with high audit fees paid to auditing firms. This article explores the common challenges faced by these sectors and highlights potential solutions for mitigating the effects of forex shortage and reducing audit costs.

Manufacturers in Nigeria have been severely impacted by the forex shortage, with raw material imports reaching a staggering N8 trillion. The reliance on imported inputs such as cane sugar, milk preparations, odiferous substances, and lubricating oils has driven up the cost of production. As a result, manufacturers face the difficult task of balancing profitability and competitiveness. The shortage of forex not only leads to high import costs but also hampers export opportunities, as the country struggles to meet its OPEC export quota.

One possible solution to this problem lies in the promotion of local raw material production. If Nigeria can increase its capacity to produce and export raw materials, it can offset the forex spent on imports. Encouraging local industries to focus on producing essential raw materials can create a more self-sustaining economy and reduce dependency on foreign suppliers. Additionally, the government should prioritize the allocation of forex to manufacturers, ensuring the availability of necessary inputs at affordable rates. By addressing the forex shortage, the cost of production can be reduced, making Nigerian products more competitive in both domestic and international markets.

However, the challenges posed by forex shortage extend beyond manufacturing. Nigerian banks are burdened with exorbitant audit fees, as revealed by the N1.39 billion paid to auditing firms in the first quarter of 2023. The fees charged by audit firms depend on several factors, including the size of the company, industry, corporate risk, profitability, and duration of the audit. Access Holding Company, a tier-one bank, paid N606 million to PricewaterhouseCoopers (PwC), highlighting the substantial costs associated with audits.

To reduce audit costs, banks can explore various strategies. Firstly, they can improve internal control systems and processes, ensuring that financial records are accurate, reliable, and transparent. By maintaining robust internal controls, banks can streamline the audit process, reducing the time and effort required by auditors. This, in turn, can lead to lower audit fees. Secondly, banks can consider engaging local audit firms that offer competitive pricing without compromising on quality. This approach can help banks reduce their reliance on international audit firms, which often charge higher fees due to their global reputation. Lastly, fostering a culture of accountability and compliance within the banking industry can lead to improved financial reporting standards, reducing the need for extensive auditing.

In conclusion, the forex shortage in Nigeria has had a significant impact on both manufacturers and banks. The high cost of imported raw materials has strained manufacturers' profitability and competitiveness, while banks grapple with exorbitant audit fees. However, there are actionable steps that can be taken to mitigate these challenges. Promoting local raw material production, prioritizing forex allocation to manufacturers, improving internal control systems in banks, exploring local audit firms, and fostering a culture of accountability and compliance are all strategies that can help alleviate the effects of forex shortage and reduce audit costs. By implementing these measures, Nigeria can create a more sustainable and resilient economy, driving growth and development for the benefit of all.

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