Is forex restriction on importation of agricultural products viable?
In real terms, the agricultural sector comprising of crop production, livestock, forestry and fishing has been experiencing positive growth since Q2 2018.
According to the Nigerian GDP report of the first quarter of 2019 (Q1 2019) released by the National Bureau of Statistics (NBS), “In real terms, the agricultural sector grew by 3.17 percent year-on year inQ1 2019.” This was an increase from the growth rate in real terms recorded by the sector in Q4 2018 and also an increase in value against Q1 2018.
The growth rate of the agricultural sector is to continue above the 3 percent mark in Q2 2019 and maintain a level of stability in the second half of 2019 (H2) according to a report titled Nigeria Outlook for H2-19, a Treasure in the Mire? by analysts and researchers at United Capital Plc.
Observing how the agricultural sector has maintained positive growth since Q2 2018, it is wise and beneficial for government to develop and maintain this growth. The forex restriction on food importation is expected to help do just this.
The restriction prohibits the Central Bank of Nigeria (CBN) from providing foreign exchange for the importation of certain agricultural products. These products include rice, milk, tomatoes, meat and processed meat products, etc. The reason for this restriction is to prevent the use of foreign currency on items that can be locally produced. Also, this restriction is meant to allow us to develop our agricultural sector to the point where exportation of crude oil is not our primary source of foreign exchange.
As of now the Nigerian economy is heavily dependent on crude oil. Exportation of crude oil accounts for about 90 percent of the country’s foreign exchange, which is not healthy for the economy. If we can grow our agricultural sector to the point of it being a substantial foreign exchange earner, then we become less dependent on crude oil and any sharp decline in the price of oil will not affect the economy severely.
Truth be told, the forex restriction is for our best interest because it will help us explore or patronise local substitutes of the restricted products. It will also provide the opportunity for us to save up our foreign currency, which can be used to purchase machineries to further develop the agricultural sector and other sectors of the economy.
According to the data from the NBS, import of agricultural products was valued at N236.33 billion and export of agricultural products was valued at N86.1 billion in Q1 2019. Spending N236.33 billion on importation of agricultural products is excessive. We are impoverishing ourselves while enriching other countries. This doesn’t make sense. We have to start investing in local farming businesses and the agricultural sector as a whole.
In order for this forex restriction to be effective, we have to make the business environment conducive for potential investors. Also, we need to address some of the issues small scale farmers face. They fall prey to herds of cattle feeding on their crops and eventually reducing their crop yield and the supply of the product to consumers. They also lack the appropriate machinery and equipment to allow them supply large quantities of a product. They lack adequate means of storage and preservation as well, which leads to wastage of crops harvested and therefore a decrease in the supply to consumers.
Another issue faced by small scale farmers is limited supply of electricity. Big commercial farms generate their own electricity through the use of power generators, which is expensive because of the price of diesel. They cannot afford to do such a thing. So, they end up relying on the limited electricity supply from the local electrical company, which could limit preservation and lead to wastage of crops. These issues contribute to why production of some agricultural products grow at a slower rate than consumption of these products.
Addressing these issues alongside the government policies and subsidy programs already in existence will help increase production. An example of a government policy is the Anchor Borrower’s Programme by CBN, which links small holder farmers and an anchor (reputable large-scale processors) together.
The small holder farmers receive a loan from an eligible participating financial institution in order to increase production and also enter into an agreement with the anchor to supply his/her harvest to them for an agreed price. A subsidy program like the E-wallet program under the Agricultural Transformation Agenda also exists. This provides electronic vouchers to farmers for purchasing inputs from agro-dealers.
Since the country doesn’t produce enough agricultural products to meet the demand available, there is a high probability of food shortage (where demand of food outweighs supply) in the short run. This is worrisome. However, if government is able to address issues faced by small scale farmers, continue to come up with more beneficial policies and create a business environment that attracts more investment in the agricultural sector, we can make this forex restriction work to our advantage in the long run. I understand why President Buhari went with such a plan that seems excessive.
But right now, we need something like this to motivate us to develop our agricultural sector rapidly. After the recession of 2016 due to our primary dependency on oil, it is imperative for the country to start to reduce its dependency on oil. The only way to do so is to develop our other sectors and increase their contribution to the country’s foreign exchange earnings and government revenue.