The unintended consequence of the anti-smuggling war in Nigeria is an increase in the prices of food; rice in particular. The idea was to wage war against “economic saboteurs”, enemies obstructing Nigeria from attaining food security.
Closing our borders with Benin Republic, Niger Republic and Chad was expected to boost local production capacity and manage scarce dollars.
Contrabands like rice, frozen chicken and turkey imported from across the borders of neighbouring countries account for a little over three quarters of the $4.2 billion in informal imports.
In October, the month the World Food Day is marked around the world, a 5kg bag of rice has more than doubled to 14,000 (in July it cost 6,500 naira). Rice, one of the most popular staple foods in Nigeria, is increasingly out of reach for many. Millions of Nigerians are at risk of a food crisis. A large part of the little people earn, if they do at all, is spent on food, especially rice. At this rate, a bleak Christmas without the much beloved jollof rice is inevitable.
The central bank may argue this rise in the price of rice will attract more investments in rice farms and mills. Such investments take time. What’s more the scale required to meet Nigeria’s demand for rice is so immense. Farming in Nigeria depends on rain, mostly subsistence and not industrialised.
To catch up Nigeria needs to produce rice faster than the rate at which the general prices are rising. Food makes up half of the consumer price index which is used to track inflation. For the first time in four months, the price of food increased. Inflation in September rose to 11.24 percent from 11.02 in August, reversing the gains the CBN has made to lower it.
At the heart of the matter is the way the central bank has decided to manage foreign exchange. It prefers capital controls rather than devaluation or floating the naira.
Limiting who gets foreign exchange and for what usually works when it is complemented with other fiscal policies and an open mind to economic realities. Income from oil, the major source of revenue for government and foreign exchange for the economy, is declining. Gone are the days when OPEC could determine the price of a barrel of oil; it now needs the cooperation of Russia to keep the price from falling below $60.
Taxes, as well as the capacity and responsibility that comes with collecting it at home and at our borders, have been neglected since Nigeria discovered oil 63 years ago. In other words, the government can’t at the stroke of a pen waive or increase taxes to stimulate investments in the production of local rice or discourage consumption of imported rice.
Consequently, the central bank is saddled with a mixed bag of responsibilities. Other than monetary policy it has attempted pseudo-fiscal policies through issuing circulars and has expanded its development finance mandate in order to make up for the inability of the federal government to stimulate the economy.
This way of managing the economy is an old script from a movie made in 1984 when the government closed borders as devaluation of the naira and expansion of money supply pushed inflation to 41.2 percent. Nigeria has been down this road before and those with a sense of history know where it ends: a recession.
