The recent decision by the Central Bank of Nigeria (CBN) to lift the restriction placed on the ability of importers of some 43 items from having access to foreign exchange from the official window, has been described as a bad and Ill thought out policy.
Stakeholders who spoke in separate interviews condemned the decision which they say will have negative consequences on the economy.
On October 12, 2023, the Central Bank of Nigeria (CBN) announced that it is readmitting importers of 43 items banned by the past administration into the official forex market.
The decision is believed was to stop the 40 percent decline experienced in the naira this year and close the gap between the official rate and the parallel market rate.
Part of CBN’s explanation for the policy reversal reads: “In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.
“Importers of these products rely on the parallel market to source FX for importing these goods. This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market. Removing these restrictions eliminates the need for importers of these products to go to the parallel market, reducing the pressure on the naira.”
On the surface, this looks like a step in the right direction as the new CBN management team led by Yemi Cardoso makes efforts to find a solution to the bleeding Naira in the foreign exchange market.
However, on closer examination according to stakeholders, it is another case of putting the cart before the horse.
They say it is clear that Naira’s major challenge is not because of the banned items but because of forex supply iliquidity.
When demand outweighs supply, items become more expensive. Nigeria is primarily an import-dependent country, and allowing, for example, importers of toothpicks back into the official market will add more pressure.
The Investors and Exporters (I&E) window already has an average of $100 million in daily turnover. With the entrants of fresh customers seeking from the limited pool, demands are expected to go even higher. It remains a mystery how the CBN hopes to provide enough forex to meet the demand on the official window.
Also, there are backlogs of trapped funds, which, according to the International Air Transport Association (IATA), amount to $783 million for foreign airlines. Fitch Ratings believes CBN has over $12 billion pending payments. Furthermore, the $3 billion crude oil swap loan from Afreximbank, which was greeted with fanfare, is currently experiencing delays.
The impact of fuel subsidy removal with no working refineries is currently hitting Nigerian households hard. Fuel price increased a staggering 224 percent, while salaries remained stagnant. Also, the National Bureau of Statistics (NBS) revealed annual food inflation increased from 24.82 percent in May 2023, when the subsidy removal was announced, to 30.64 percent in September 2023.
National President, Oil Palm Producers and Marketers Association of Nigeria, Comrade Alphonsus Inyang, said the CBN does not have the capacity to fund the demand that will come from all those items. “You can see how the dollar rate is rising. What it means is that all those who used to go to the parallel market for dollars are now going to the government to demand for it,” he said.
“They wanted to close the gap between the official and the black-market in order to discourage round-tripping, but do you have the capacity to fund the dollar demand? They don’t have it. So it is a cheap and lazy way of managing the monetary policy of the country so that people will say the government is working.”
He said that local oil palm producers would be forced out of the market because of this policy of the CBN.
In his words, “Before now, palm oil will leave Indonesia, spend two to three months on the sea and still arrive cheaper than the locally produced ones, that is when they were buying FX from the parallel market. Now that they can bid for FX and get it at the official rate, it means that palm oil will arrive here much cheaper. The implication is that big players will now find it more attractive to import palm oil and its other derivatives than patronising local producers. That will push local farmers out of the market.”
He said the policy will not help the manufacturing sector, it will not help agriculture meaning that it will not help the real sector.
Also speaking, National President, All Farmers Association of Nigeria (AFAN), Arc. Kabir Ibrahim, said the business proposition by the CBN is not valid.
According to him, “Does the CBN even have the dollars to give people? In any case, the cheapest rice from around the globe is from India and the landing cost in Lagos is $580 per bag, that means it just cannot compete in the Nigerian market.
“But the truth of the matter is that the business proposition is not valid, the CBN did not think about the matter very well by talking to stakeholders. This policy will make Nigeria lose all the gains that we may have made as a result of the ban. What Buhari did was limited protectionism to help local industries grow by making it look inwards to produce what it needs but cannot import, that happened in Russia and China during the era of iron curtain. For a very long time they shut their borders and depended on what they could produce. Today China is the biggest producer of wheat in the world, the combined production of Russia and Ukraine cannot match that of China.”
He however said if not because of corruption, Nigeria would have gone very far in rice production. “We had the highest investment in rice than any other country in Africa but corruption took over and we have nothing to show for all the monies spent. This policy is trial and error because there is no logical argument to support it,” he said.
On his part, Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere said the lifting of the ban raises to the front burner the need for the harmonisation of monetary and fiscal policy.
According to him, “Ideally, trade regulation should be a function of fiscal and trade policy. But the absence of sound fiscal policy allowed the Emefiele CBN to fill a void since nature abhors a vacuum.
“Lifting this ban without a response from fiscal policy, not by increasing tariff on these items, but by deploying non tariff measures such as levies, may expose the local manufacturers of these products to undue competition from foreign producers whose governments provide various production subsidies.
“This may lead to factory closures, retrenchment of workers, loss of government revenue in personal income tax (PIT) and company income tax (CIT) if not properly managed.
“If accessing forex from the official window will lead to imports far cheaper than local products, levies need to be used to shore up the competitive edge of locally produced goods.”