Analysts see CBN policy slowing import-dependent industries

Nigerians will soon begin to witness higher inflation levels, lower cargo volumes and slower growth of import-dependent industries, following the Central Bank of Nigeria’s (CBN) directive which excludes importers of certain items from accessing foreign exchange at the Nigerian forex market, analysts say.

The reations are coming just as the CBN yesterday defended its action, saying the denial of foreign exchange access to importers of 41 goods and services  was to encourage local production, create jobs and cut down the undue pressure on the country’s almost depleted foreign reserves.

Godwin Emefiele, CBN governor at the briefing in Abuja on Wednesday, warned that the apex bank would be vigilant around this policy and keep reviewing the list of items till it becomes comfortable that items that can be produced locally if the country applies itself sufficiently enough are no longer imported. He added that an estimated $1.3 trillion is spent annually importing rice, fish, sugar and wheat to the country.

“The fact is not about how much we save in foreign exchange but we are saying that it shameful that we have to import items like took pick, even if it is one dollar that we spend importing it,” Emefiele said.

But some analysts say while the policy would assist in conserving forex, there are other attendanrt issues yet to be resolved with the attendant dire implications on Nigeria’s economy which is reeling under lower revenue levels  triggered by low crude oil prices.

Olakanmi Gbadamosi, director, trade and exchange of the CBN, had on Tuesday, listed some of the items restricted from the forex market to include rice, cement, margarine, palm kernel/palm oil products/vegetable oils, toothpicks, glass and glassware, meat and processed meat products, turkey, private airplanes/jets, Indian incense, tinned fish in sauce, sardines and cold rolled steel sheets, among others.

“The capability of the new restrictions to stimulate domestic production of the excluded items, as suggested by the CBN, depends to a large extent on too many variables outside the CBN’s purview. Structural weaknesses and inadequate public utility/infrastructures which contributes to the difficult business climate continues to subsist. In addition, the rigorous discipline and tight border control required to implement a plan to substitute import are vulnerabilities yet to be addressed.

These factors will continue to dissuade long-term capital investments until conscious effort are directed towards addressing the weaknesses,” says Ayodeji Ebo, head Head, Investment Research, Afrinvest Securities Limited.

Uju Ogubunka, president, Bank Customers Association of Nigeria (BCAN), said the move would control foreign exchange and generate investment in these sectors of the economy, thereby increasing the Gross Domestic Product (GDP). But Ogbunka said it was a good policy, as long as  the country could have enough to fill the gap and not create scarcity.

Tajudeen Ibrahim, analyst at Chapel Hill Denham, said the exclusion should reduce the demand pressure on the US dollars at the interbank market and preserve the FX reserves.

“The downside risk is however an upward pressure on inflation, as the prices of the goods will rise as their importers seek USD from the parallel market. The exclusion is however positive for the local producers of such goods, as it should make their goods more competitive from a pricing standpoint.” said Ibrahim, in a telephone interview.

Importers say volumes of cargo coming into the country through the nation’s seaports would significantly reduce, as importers would find it difficult to buy foreign exchange to pay their suppliers.

“And if Nigeria does not have the cargo, the revenue that is supposed to accrue into the Federal Government coffers through duty collection would also dwindle,” Jonathan Nicol, president, Shippers Association of Lagos State, told BusinessDay.

Nicol said that the new policy would raise the amount of naira an importer needs to load 20 and 40 foot containers, which cost about 7,000 and 14,000 pounds respectively.

“When importers spend so much money to import goods into the country, they would sell the goods at exotic prices to the detriment of the poor masses and this will cause inflation. “There will also be scarcity of essential goods in the market because the local industries may not be able to meet the demands of Nigerians,” he said, while suggesting liberalisation of the international trade to aid imports.

Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, said the directive would create pressure on the parallel market, stressing that this could create a big exchange rate differential and cause round-tripping.

“This could also increase the cost of production for companies which source their raw materials from abroad. But it could also be advantageous for companies that source their raw materials locally,” Yusuf said.

Ede Dafinone, CEO, Sapele Integrated Industries Limited, said this could be compared with the situation of the 1990s where the black market rate was significantly higher than the official rate.

According to Dafinone, the move was not good for the economy as Nigeria is still an import-dependent. He observed that it could create a secondary or false economy which government could find difficult to bring under control.

“It could lead to import-led inflation that will have dire effects on consumer prices,” he said.

ODINAKA ANUDU,  HOPE MOSES-ASHIKE, AMAKA ANAGOR-EWUZIE &  Onyinye Nwachukwu