There is a widely-held view that the Central Bank of Nigeria (CBN) banned a list of 43 items from being imported into the country. This is a misconception. The reality is that access to forex for the importation of these 43 items was restricted. In other words, importers of these products were compelled to source their foreign exchange from the parallel market instead of the official window. The restriction pushed importers into the parallel market (which in itself is an unorthodox way of managing the currency) contributing to surplus demand for forex.
According to the immediate past CBN management,
the restriction was imposed as part of its policies to increase the value of
the currency. Given that there was no enough liquidity in the official window,
the restriction was also aimed at reducing the foreign exchange demand for
products that could be locally produced, ultimately improving employment
generation and conserving foreign reserves.
Trade experts believe that 67.3% of all
imports today coming into the country as far as consumables are concerned come
from the Asian Tigers. They are of the opinion that 59.1% of the 67.3% comes
directly from China. Mention was made of having currency swap in this regard
which would help conserve foreign reserve, reduce forex demand and increase
employment by boosting local production. But the idea seems to have been
dropped.
The CBN had in 2015 in a circular, released
a list of 43 products whose importers would be restricted from the official
foreign exchange market with regard to purchase of forex. The products included
rice, cement, margarine, palm kernel, palm oil, vegetable oils, meat, processed
meat products, vegetables, poultry and processed products, tinned fish,
wheelbarrows and head pans.
It is true that economy is a science of
alternatives but the unorthodox means of managing price stability and the
financial system shouldn’t be the case. This method must give way to rational
thinking that brings to the fore the CBN’s core mandate of managing inflation,
exchange rate and the banking system.
With the coming on board of the new CBN management
and in line with the vision to achieve a single exchange rate regime, the CBN
removed the restriction order that prevented importers of the listed items from
accessing forex at the official window. The apex bank saw the need to promote
orderliness and professional conduct by all foreign exchange market
participants in the country to ensure market forces determine exchange rate on
the willing-buyer, willing-seller principle.
This latest measure announced by the CBN
could be seen as another market-friendly step to unify the exchange rate and
ease pressure on the naira in the parallel market.
While the lifting on the restriction of
the 43 items has been achieved, what is yet to be seen is the impact it will
have on stabilizing the naira to the dollar. Besides, there is the belief that the
new policy will encourage massive importation against the clamour to consume
locally made products and goods.
Whatever affects imports and exports is
essentially a trade policy issue. Trade policy matters sit under the purview of
the fiscal authorities, and not the monetary authorities. It is therefore not
the responsibility of the CBN to be compiling a list of items to be imported or
not.
The past management of the CBN engaged
in a number of interventions such as the anchor borrowers scheme; the apex body
was also involved interventions in agriculture, textile, aviation, among
others. Some analysts believe it was wrong for CBN to get involved directly in
lending, as it didn’t have the capacity to do so. They argue that the Bank should
have extended such credit using development banks - Bank of Agriculture, Bank of Industry,
Infrastructure Bank, among others.
It is heartwarming to know that the new
CBN management has announced that the Bank would relieve itself of such interventions
and development programmes which made the CBN carry out retail banking
responsibilities. Jobs cannot be created in exponential proportions in trade unlike
in production and allied activities where the numbers are much higher.
In the 2023 fiscal policy measures, for
instance, some of the items on the list are already under the import
prohibition list. Some of the items currently under prohibition include tomato
paste and tomato, refined vegetable oil, spaghetti and noodles, fruit juice,
tomato ketchup, brewery products, bagged cement, paractamol, soaps and
detergents, carpets and rugs, footwears, and vehicles over 12 years old. Some
of these items are also on the list of items that were denied forex at the
official window.
This appears to be creating some
confusion especially given the fact that there are existing fiscal measures to
protect local industries. There are already tariff measures imposed on some of
the items to protect local industries. Official statistics reveal the Tariffs
on some of the products. Rice is 50%, flour 70%, crude palm oil 35%, sugar 70%,
salt 70%, fabrics 45%, tiles and ceramics 40-55%, many of the steel products
about 45%, and gas cylinder 60%.
It is a contradiction to have these
fiscal instruments on one hand and have the CBN compiling another list on the
other hand.
A close observation of the restriction
order and its lifting seems to suggest absence of policy coordination. The
naira has not become stronger; it is getting weaker. It appears the policy was
not well thought out. But three years after the forex restriction, the CBN came
up with a monetary and evaluation report that stated that the restriction created
employment opportunities, local industries, among others. The same CBN announced
that the forex lifting would give opportunity to create employment and nurture
local industries.
There seems not to have been an elite
consensus on how best to run the economy. The CBN should have done a much
better analysis in coming out with its decisions instead of contradicting itself.
Lifting the forex restriction ban on the 43 items should have been a selective
and gradual process. Lifting restrictions on the entire 43 items could in
itself exacerbate demand in the foreign exchange market which could further
lead to devaluation of the naira.
When the restriction order was announced
in 2015, some manufacturers saw backward integration as the way to go, just to
ensure that they continued production and increased domestic productivity.
During the administration President Olusegun
Obasanjo, importers of bagged cement were not given licences to import cement
unless and until they had backward integration mechanisms. Before the end of
his administration in 2007, the country became a net exporter of cement.
Similarly, President Ibrahim Babangida
enacted a policy that banned importation of palm oil and vegetable oil. As a
result, several palm oil processing plants sprang up in Imo, Lagos, and some
other states. Unfortunately, there was a sudden policy summersault and the ban
on import was lifted; licences were issued and some of the local companies
closed down because they could no longer compete.
Lifting of forex restrictions seems to have
been hasty because some local investors invested enormous amounts of resources
to produce some of these items for which forex was restricted. Now, the country
is allowing anything to be imported via the CBN market, therefore doing a great
disservice to those who have put in so much resources to produce these items
locally.
It appears easier for those in the
financial services sector to advance credit to importers than to local investors
whose payback time is much longer. The importers can complete their transactions
within a very short time.
The implication for lifting restrictions
on forex against the investments that have taken place in the past 8 years with
respect to meeting local capacity by producing the items that were placed on
forex restriction, is huge.
There is a need to balance profit-making
and social responsibility. That is what ‘moral capitalism’ entails. Importers
should be nationalistic and patriotic while going about their business so that the
country will have a robust economy.
Moses Amadi
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