The Federal Government’s insistence on a fixed naira dollar peg is hurting local exporters who are groaning under the pressure of an unfavourable business climate.
Adeola Elliot, chairman of the Agriculture Group at the Lagos Chamber of Commerce and Industry, describes the present situation as, “a major short-change on the producers’ part,” many of whom get machinery (at parallel market rates) and have to use the official exchange rate (197) to get paid.
“If you follow the Federal Government, you will always be a loser because of this wide difference. What many are now doing, especially big agricultural companies, is to take loans from their sister companies (overseas) to buy whatever is needed outside the country in terms of machinery, and bring it here, as if those people are the ones exporting to them. If you don’t do that, you will be a serial loser. But that can only be done by big companies,” Elliot said.
Nigeria recorded a 58 percent decline in non-oil exports to $4.39 billion in 2015 from $10.53 billion in 2014, despite government’s constant emphasis on diversification of the economy.
Madu Obiora, CEO of Multilinks export house, says “the situation is very bad, (especially for) people who can’t stand it. When you bring such policies, you are driving people to non-compliance. This happened in the 80’s and what the Central Bank did was to create three windows; the official window, the export proceeds window, and the black market.
“But to think that anybody who didn’t get any incentives from the government would do his export, and then come and sell it at official rate, we must be deceiving ourselves. The implication to the economy is very huge but I am not sure that those who are in authority are seeing it yet. You cannot say you want to diversify the economy while at the same time bringing policies that are a disincentive to exports.”
Nigeria’s top five non-oil export products as at the fourth quarter of 2015 were; Cocoa products, Sesame seeds, Cigarettes containing tobacco, unwrought Aluminium alloys, and Technically specified natural rubber, in primary form or in plates, according to data from the National Bureau of Statistics (NBS).
The top five destinations for Nigerian exports were ; India, Spain, the Netherlands, France, and Brazil.
Small farm holders who represent majority of production in Nigeria’s agriculture find the competition from larger firms and multinationals with easier access to FX more difficult as they have no capacity to cushion the effects of forex restrictions.
“The policy is negative to exporters. Because it means that you are getting almost half of what you are supposed to get. It is not encouraging for business prospects in Nigeria. I think it will be better if they liberalise it and make it possible for you to get the real value for what you have exported,” says Segun Adewunmi, President of the Nigeria Cassava Growers Association.
“Those who are exporting, when they are getting their money back, the bank wants to give them naira, and it doesn’t favour them (to be paid using the official rate),” Adewunmi says.
BusinessDay, in an earlier report, noted the need to activate provisions of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 2004 or FEA. The Act will play a big role in the CBN’s move to reform the FX market, which even the apex regulator realises is not functioning optimally.
The FEA 2004 Act, by virtue of the provision of its section 9 specifically states that: “the rate at which each transaction in the market is to be executed shall be the rate mutually agreed between the applicant purchaser and the authorised dealer or authorised buyer concerned.
“We want a clear interpretation of the Foreign Exchange Act of 2004 from the CBN, because the apex bank has pegged the naira at N197-199 per dollar and forces deposit money banks to act in line, rather than in tandem with the act which states that the purchaser and the seller are to determine rates of transactions,” says Kyari Bukar, chairman of the Nigeria Economic Summit Group, in a telephone interview with BusinessDay.
Most experts have observed that the quest for diversification of Nigeria’s economy from being oil dependent, has to go beyond public pronouncements, whereas government’s position is strangling the successful operation of business.
As Madu of Multilinks export house observes “If we want to diversify the economy, I think we need to go beyond singing it as a song, and take some drastic steps.”
CALEB OJEWALE & LOLADE AKINMURELE
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