Forex restriction: Conserving foreign exchange through import ban

Nigeria continues to spend so much on importation due to its moribund manufacturing sector. However, in a bid to address the dwindling revenue authorities have taken to forex restriction for importers of certain products; BENJAMIN UMUTEME reports.

Nigeria with a growing population and rapidly expanding urbanisation has seen rising demand for food. However, with a manufacturing sector that is comatose further fuelled by failing infrastructure, the country has resorted to importation on a large scale.

The result is that billions of dollars are spent to import essentials and non- essential items and thus depleting the nation’s foreign reserves which continue to record a decline due in part to falling crude oil prices and OPEc production cuts on one hand and the ravaging  impact of coronavirus pandemic that left global economies on their knees.

With the level it is going, especially with oil market volatility, it is only a matter of time that before Nigeria runs into a financial cul-de-sac. In 2019 alone, Nigeria spent about $1.3 billion on cereals importation alone, according to World’s Top Export. It is without doubt that something needs to be done to check the slide.

Enter the CBN

In 2015, when the Central Bank of Nigeria (CBN) introduced the policy of restricting foreign exchange to importers of 41 items, many felt it would not stand the test of time, but five years down the line, it is now clear that the apex bank made the right call.

The 41 items on the released by the Apex Bank include: Fertilisers, rice, cement, margarine, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables and processed meat products, poultry chicken, eggs, and turkey.

Also, on the lists are: Private airplanes/jets, Indian incense, tinned fish in sauce (geisha)/(sardines), cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), Iron rods and reinforcing bars.

Others are: Wire mesh, steel nails, security and razor wine, wood particle boards and panels, wood fiber boards and panels, plywood boards and panels, wooden doors, furniture, toothpicks, glass and glassware, kitchen utensils, tableware, tiles-vitrified and ceramic.

In addition, textiles, woven fabrics, cloths, plastic and rubber products, polypropylene granules, cellophane wrappers, soap and cosmetics, tomatoes/tomato pastes, and Euro bond/foreign currency bond/share purchases.

Explaining its reason for introducing the policy, CBN governor Godwin Emefiele said the decision is borne out of the desire to put a halt to Nigeria’s depleting foreign reserve, revival of the manufacturing sector as well as spur job creation. He added that it also helped the country exit recession faster.

“In today’s world, countries have used trade protection repeatedly as a policy to resolve negative perceptions and shocks in their respective countries.

“In other words, should Nigeria, with an insatiable taste for foreign goods to the detriment of the domestic economic realities, throw its borders open to the indiscriminate importation of goods and services?

“This was the prevailing condition in Nigeria before the introduction of restriction of official foreign exchange for the importation of 41 items.

“The implementation of the (restriction of forex for the importation) 41 items, in addition to the other complementary macroeconomic policies, no doubt, was effective in lifting the Nigerian economy out of recession.”

Barite, maize join the list

Not done, the apex bank was quick to add other items to the list. Items such as milk, maize and recently, the Minister of Mines and Steel Development, Mr. Olamilekan Adegbite, announced that Nigeria will ban the importation of barite to help the country conserve foreign exchange for other purposes.

According to him, Nigeria could no longer spend $300 million annually on barite importation from Morocco. Barium sulphate is mainly used in the oil and gas industry for as a weighting agent for drilling fluids in the upstream sector. 

Experts speak

There have been reactions from Nigerians following the action of Nigeria’s monetary authority, CBN. For a former president, Trade Union Congress (TUC), Peter Esele, the CBN action is in order.

The restriction of forex on various items is in order as it would enable Nigerian manufacturers seek alternatives. Esele opined that there is nothing wrong if the country can produce such goods locally.

He said, “The truth is that the benefit of such restriction may not come automatically. But the decision will definitely ensure that our local industries grow. With the devaluation of the naira, manufacturers can go on to earn more money. One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally.

“By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products. That is why (Aliko) Dangote is going into the building of refineries and this will create employment for Nigerians.”

In the same vein, a lecturer of Agricultural Economics, University of Uyo, Prof. Nyaudoh Ndaeyo, noted that implementation of the government’s decision will be what determines the success or otherwise of that policy.

“It is a good thing because we cannot be a nation which is import dependent; we must learn how to produce. When you produce, it is then you can count yourself as truly independent,” he said.

The director-general, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, holds a different view. He said the decision of the CBN to restrict forex to importers have done the manufacturing sector more harm than good. He said that with some items on the list serving as raw material to some products, it will make some good too expensive or not available in the market.

“It has had more negative impacts than positive impacts because if forex is not locally available or not in the right quantity, the impacts are detrimental. Just imagine, you have workers and machines and you do not have money to procure raw materials, it will be inimical to that organisation,” he said.

In his view, Chuku Wachuku, the national president, Association of Agricultural and Industrial Entrepreneurs of Nigeria, said restriction of foreign exchange by the CBN to importers of certain items will throw up more challenges for local manufacturers.

According to him, the decision would be of immense benefit to Nigeria in the short term if “we are a producing country.”

He said, “If you are going to restrict foreign exchange to these items, you have to consider the fact that people will continue to demand them. So if there are no substitutes, the spiral effect will be inflation and that means that the Federal Government is only creating inflation artificially.”

On his part, the programme director, Lagos Business School Agribusiness Programme, Ikechukwu Kelikume, said the policy could further compound the woes of poultry farmers given that maize, which constitutes over 50 per cent of poultry feed content, is currently very scarce, and where available, is very expensive, even as the price keeps rising.

While admitting that CBN’s earlier policies of agric, small and medium enterprise scheme and the Anchor Borrowers Programme have been largely successful, Kelikume warned that the current decision to discontinue the processing of Form M for Maize importation could reverse earlier gains.

“The situation spells doom for poultry farmers across the country who are beginning to cut down on production because of the high cost of feed and imported medication for the birds. A negative spillover effect of the high cost of feed is the scarcity of eggs and a consequent rise in its price across the country. The implications of the current challenges in the maize value chain are that the gains of employing more people in the agricultural sector will be rolled back in the coming months.

“As it stands, there is no alternative for the poultry farmers, as the poultry sector will face a catastrophic shortage of feeds, a critical input in their business. This situation will render tens of thousands of them unemployed and undo all the gains made by this sector in the past five years. Thousands of poultry businesses will shut down in the face of high operating costs, leaving business owners and their employees without a means of livelihood.”

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