Food, fuel, others gulp $14.5bn amid dollar scarcity
Amid lingering dollar scarcity, the amount of foreign exchange used by Nigeria for food, fuel and other imports jumped by 45 percent in the first half of this year compared to the same period last year.
The country spent $14.5 billion on imports in the six-month period, up from $10.04 billion in H1 2021, according to the Central Bank of Nigeria‘s (CBN) data on sectoral utilisation for transactions valid for forex.
The industrial sector accounted for the lion’s share of the forex supplied for imports, followed by manufactured products, food products, oil sector (petroleum products), and education services.
The external reserves of Africa’s biggest economy fell from $40.52 billion at the end of last year to $38.92 billion on August 9, 2022, CBN data show.
The country depends heavily on imports for almost everything, and this has continued to put pressure on the naira exchange rate as importers need forex, especially the United States dollar, to bring goods into the country.
The forex utilised for fuel imports increased by 35.14 percent to $679.47 million in H1 2022 compared to a year earlier, according to the central bank.
Nigeria relies wholly on imports to meet its fuel needs as its loss-making refineries have been shut down since 2020 for rehabilitation.
The apex bank has adopted some capital controls in recent years to stabilise the naira and conserve the country’s foreign reserves.
In June 2015, the CBN excluded importers of 41 goods and services, including some food products, from accessing forex in a bid to conserve the external reserves as well as encourage local production of those items.
In December 2018, the bank included fertiliser on the list of 41 items classified as ‘not valid for foreign exchange in the Nigerian forex market’.
The other items include rice, meat and processed meat products, chickens, eggs, tomatoes and tomato paste, and vegetables and processed vegetable products.
The central bank said in July 2019 that it would restrict the sale of forex for the importation of milk from the Nigerian forex market.
In September 2020, President Muhammadu Buhari gave a directive to the CBN to stop issuing forex for food and fertiliser imports, saying that firms that were bent on importing food should source their forex elsewhere.
“Nobody importing food should be given money,” he was quoted in a statement from the Presidency as saying at a meeting of the National Food Security Council at the Presidential Villa, Abuja.
But stakeholders in the country’s agricultural sector faulted the president’s statement, saying the country does not currently grow enough food for its 200 million people.
The forex used for food products imports rose to $1.20 billion in H1 2022 from N1.04 billion in the same period last year, according to the central bank.
“We still do not grow enough to feed our fast-rising population; so we still need to import to augment the shortfall,” said Victor Olowe, a professor and agronomist at the Institute of Food Security, Environmental Resources and Agricultural Research.
“We need to address issues of insecurity in the country to produce more of the crops we have a comparative advantage, so our food trade balance can be surplus and not the deficit we have currently,” Olowe said.
Despite having a comparative advantage in the production of cocoa, cashew, ginger, and other exportable agricultural commodities, Nigeria still earns little from their exports as the bulk of the crops are exported raw.
“Value addition must be critical in our agricultural revolution if we must reduce food importation,” Kola Adebayo, a professor at the Federal University of Agriculture, Abeokuta, said.
“We must also address lingering infrastructural challenges that have continued to hinder us from developing the agriculture that can drive exports and create jobs. This is what the likes of Brazil did to become top commodity exporters,” Adebayo said.
The federal government has in the last seven years spent billions on various agricultural programmes to spur local food production, but the demand for most staple foods in the country still outpaces local supply.
Nigeria recorded a N2.29 trillion food trade deficit in 2021, compared to N1.42 trillion in 2020, indicating a 61 percent increase. In 2019, the agricultural sector recorded a trade deficit of N1.3 trillion and N1.02 trillion in 2018, according to a recent report by Flour Mills of Nigeria.
Boye Olusanya, group managing director and chief executive officer at Flour Mills of Nigeria Plc, at a recent Lagos Business School breakfast meeting, said despite several efforts towards import substitution, the country still relied heavily on food imports.
“Notwithstanding perennial efforts at import substitution, Nigeria’s food imports bill continues to grow. Food imports are growing much faster than food exports, leading to a steady widening of food trade deficit,” he said.