The CBN and the ban on some items
Managing Nigeria’s foreign exchange rate has expectedly been quite a challenging task for the Central Bank of Nigeria (CBN) since the devastating slide in the price of crude oil in the international market slashed the nation’s foreign exchange earnings and level of foreign reserves. The heat has been on the apex banking regulatory body even as it strives to find enduring solutions to the declining value of the local currency, Naira. In the process, the CBN has been tinkering with the policies and rules governing the foreign market in the country. A major policy the CBN came up with not too long ago, was the barring of importers of some 41 items from accessing foreign exchange through the official CBN window. Some of the affected items included rice, cement, rubber products, toothpicks, textiles, wheelbarrows and kitchen utensils. The measure was expected to, among other things, reduce the demand for foreign exchange and indeed, cause production of the 41 items domestically in order to save some foreign exchange.
Several stakeholders commended the CBN and supported the initiative. They also enjoined CBN to ensure full and strict implementation of the policy. However, some of the organised private sector operatives, such as the Manufacturers Association of Nigeria (MAN), did not buy into the policy claiming that it would adversely affect their members’ production. So, at every opportunity, MAN demanded a reversal of the policy. Unfortunately for the CBN and the country, that policy and others put in place have not been able to save the nose-diving foreign exchange rate. Instead, the situation worsened against internationally traded currencies.
Now, it is being speculated that the CBN might reverse the policy and permit or allow importers of the earlier disqualified 41 items access to the official foreign exchange market. The report also stated that the 41 items might, however, become subject to imposition of higher import tariffs. That, of course, is outside the CBN’s mandate.
If the CBN succumbs to the various lobbies for the re-admittance of the 41 items into the official foreign exchange market, then suggestions that the independence of the CBN is only on paper will, no doubt, receive credibility. It will also confirm that prevalent policy somersaults by the government and most of its agencies have caught up with the CBN too. These will be very unfortunate and unsavory for the nation as it will exacerbate lack of confidence by local and international investors and other market players in the Nigerian economy.
If the CBN is, indeed, considering this move, the questions to ask are many. For instance, has the reasons for caging the items been fully addressed? In whose interest will the policy reversal be? What will happen to individuals and corporate organisations that had relied on the subsisting policy to start local production of any or a combination of the items? What happens to companies that might have commenced some form of backward integration to meet their needs and market demands? How will the goods of such domestic producers compete with those of importers especially, given the obvious high cost of doing business in the country? If the local producers are forced out of the market and they close their production, what will become of the young men and ladies in their employment?
It is good to remember that at the time the 41 items were screened out of the official foreign exchange window, the justifications for doing so were very cogent and no reasonable and rational Nigerian could fault them. Till today and most certainly for many years to come, those rationales will remain fault-free. Thus, it will amount to constraining the capacity of this country to become a value-adding productive one if that policy is suddenly truncated for any reasons.
Given CBN’s recent review of parts of the foreign exchange policy which among other things, eliminates preferential treatment of manufacturers and many others in the allocation of foreign exchange, there are reasons to believe that the CBN might, indeed, change tack on the 41 items. But let it be stated clearly that re-enlisting the items for official foreign exchange will do no good to this nation and its people. If Nigeria, blessed in many respects including human capacity, cannot at its present stage of development produce all the 41 items domestically, then the future is very bleak. The worries today about exchange rate will become a child’s play in a few years from now, if the country fails to pursue policies that will facilitate domestic production.
If progress would be made in the area of foreign exchange earnings to enhance Nigeria’s foreign reserves and rate, a key step is to produce, not just for domestic consumption but also for export. Therefore, Nigeria must stay away from imports, such as the CBN’s 41 items, that the nation has the capacity to produce locally. Consequently, apart from the 41 items, the CBN should identify others that can be produced locally and disqualify them as well. That will be a catalyst for domestic production to stem unbridled importations. Of course beyond this, government should provide enough incentives, including assurance of policy stability and sustainability, to attract economic agents in and outside the country to venture into such areas of production that have essential multiplier beneficial effects for the country.