CBN: What is next after forex restrictions?

The recent restrictions the Central Bank of Nigeria (CBN) placed on the importers of items such as rice, cement, margarine, palm kernel, palm oil and private air planes/jets and others did not come to many industry analysts as a surprise. This is because many of them have advocated for urgent actions that will reduce the huge arbitrage opportunity currently in the foreign exchange market. Apart from that, we have to take the bull by the horn if we must revive some of our firms that are comatose.

Since the crude oil prices plummeted at the international market, the margin between the official exchange rate which the CBN pegged at about N197/$ and the parallel market has been around N20 in view of the fact that the naira has been exchanged within this period for between N217/$ to N220/$.

For the purpose of clarity, there is the need to mention most of the items on the list for which importers will not be able to access the foreign exchange windows going forward. Apart from the ones earlier mentioned, the others are meat and processed meat products, vegetables and processed vegetable products, poultry-chicken, eggs and turkey.

On the prohibition list are tanned fish in sauce(Geisha/sardines), cold rolled sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drum, steel pipes, wire rods(deformed and non-deformed), iron rods and reinforcing bars, wire mesh, steel nails, security and razor wire, wood particle boards and panels, wood fire boards and panels, plywood boards and panels and wooden doors.

Are you asking why these items? We need to ask you, why not these items? In 2013 when the BusinessDay Research and Intelligence Unit (BRIU) was commissioned by the Gombe State Government to produce an investment handbook christened as “Business Case for Investing in Gombe State”, the BRIU team in which I was a very active member conducted a number of interviews for almost all the commissioners and the Executive Governor, His Excellency, Ibrahim Hassan Dankwambo.

It was made known to us that some investors from Middle East/Asia had indicated interest to invest in animal husbandry business in the state. Why? Their preliminary study showed that the quality of meat in Gombe State was far better than the one in their country. From Gombe to Adamawa and to Sokoto State, the country is blessed with quality animal breeds that can provide the required protein needs for the nation and even be exported to other countries. Therefore, why should we be importing meat products when other nations have indicated interest to come here?

Available data from the National Bureau of Statistics (NBS) show that in 2013, Nigeria imported N260bn worth of live animals and animal products. The figure rose to N337bn in 2014 and N75.8 billion in Q1 2015. Apart from that, vegetable products worth N308 bn were imported in 2013; and the value of the same items rose to N456bn in 2014 and N105bn in Q1 2015. For animal and vegetable fats, oil and other products, a total of N42bn was spent importing them in 2013; N90bn in 2014 while N16bn was spent in Q1 2015.

In Q4 2014, semi-milled or wholly milled rice cost the nation N49 bn; while N37 bn, N26bn, and N13 bn was spent importing raw sugar cane, frozen mackerel and crude palm oil respectively.

From the layman’s point of view, the various amounts expended on importation are the same amounts smallholder farmers, investors in agro-allied sector in the Nigerian economy ought to have earned as incomes from which some portion of these incomes will go to their workers as wages and salaries. All these are lost to some farmers, investors and workers elsewhere.

While the CBN action was long overdue, the regulatory institution must enhance its decision with activities that will make the full realisation of the intended benefits possible. To start with, to what extent will this decision affect the targeted industry? How will the reactions in the targeted sectors affect other critical sectors that they complement? This is because most sectors are interlinked due to forward and backward linkage effects.

Urgently answering these questions will avail the CBN the opportunity to know the exact impact of its decisions and will be able to appraise the quality of its models and to see where the models deviate.

BRIU can help provide some of the inputs by conducting surveys on behalf of the Central Bank of Nigeria (CBN).

Teliat  Sule