CBN’s Forex Policy And The Crippling Effect on Importation: Way Forward?

That the Central Bank of Nigeria (CBN) has restricted access to foreign currency for the importation of 41 categories of items into the country, in a move to stop the slide of the Naira, is no longer news. As the days progress, what will make news is the resultant effect of the CBN’s measure on the economy and the views of experts regarding the initiative.

Now, what Nigerians and the importers are still trying to come to terms with is the crippling effect that the new CBN’s Dollar policy is having on the nation in general. Specific items on the list include cement, rice, textiles, tomato paste, poultry products, margarine, palm kernel, vegetable oil, poultry products, Indian incense, tinned fish and sauce like sardines and geisha, steel sheets, galvanized steel, roofing sheets, wheelbarrows, head pans and enamelware.

Others are steel drum, steel pipes, wire mesh, steel nails, wire rods, security wire, wood particles and board, plywood board and panel, wooden doors, toothpicks, glass and glassware, kitchen utensils, as well as tableware, tiles and wooden fabrics, plastic and rubber products, and soaps and cosmetics, among others.

The latest policy, as expected has led to a rise in price of affected items in the country, as importers now have to source their foreign exchange for international transactions at the black market.

The foreign exchange bans are part of a long-term plan by President Muhammadu Buhari to encourage local manufacturing, but observers are of the opinion that, if the timing of the policy was not right, it runs the risk of being counter-productive. Rather than good, the CBN’s policy might push the economy closer to a recession.

Today many Nigerians, not just the importers, are groaning about the growing cost of living that the CBN stance on Dollar was creating. The apex bank on its part, insists that the measure was needful in other to beef up the fast depleting external reserves and shore up funds for the country.

According to the Governor of the Central Bank, Godwin Emefiele, the implementation of the policy would help to conserve foreign reserves and facilitate the resuscitation of domestic industries as well as generate employment for the teeming population of unemployed Nigerian.

The CBN however stressed, “The importation of these items is not banned, thus importers desirous of importing them shall do so using their funds without any recourse to the Nigerian foreign exchange market.”

This is by no means an easy process for many importers, as the policy effectively ensures that the process of getting Dollars to do legitimate transactions was tough. Reports reveal that whereas it took between 24 and 46 hours to get Dollars from the FOREX, now the process could take up to 15 days. And even then, importers don’t get up to the cash amount they requested.

But Mr. Rotimi Fakeyejo, a Financial Expert, is on the same page with the Central Bank, as he said he believes that the policy would in the long run help to ensure some stability for the Naira and lead to increase in the country’s foreign reserves.

Speaking on the issue, Fakeyejo said, “to a great extent, since that policy was announced, we have seen signs of stability in the value of Naira, and I think that is a very good point for everybody to see.”

He noted that even though the CBN policy appears to be biting hard in view of the fact that prices of some affected items have doubled in instances, it would only be for a short term, with greater benefits expected in the medium to long term.

According to him, “If you look at the policy, it is definitely geared towards conservation of our foreign reserves and reducing pressures on the exchange rate.”

That may be a valid point, as months before now, the rate of Naira to the US Dollar crashed so much, it fell up to N250 to a Dollar. Today, with measures by the CBN, the rate has been steady at N219 for some time now.

Also, before the CBN’s clampdown on Dollar operations in the country, it will be noted that the Nigerian economy was steadily and systematically being ‘Dollarized’. The US Dollar became the preferred mode of transaction and acceptable means of payment in many highbrow hotels, schools, shopping malls and apartment buildings across the country. Many organizations charged their clients and customers in foreign currency.

As the saying goes, ‘desperate times called for desperate measures’, so Mr. Emefiele, the CBN Governor had to take a hard stance by placing a ban on the use of Dollars in local transactions and enforcing the repatriation of Dollar proceeds from exports and impose sanctions on importers in a bid to shore up Nigeria’s foreign exchange earnings.

The CBN asserted that forcing export and import companies to comply with existing regulations on their use of the currency market was thus sacrosanct.

According to him, “if you refuse to sell your export proceeds that you repatriated in the foreign exchange market, we will ban them from accessing foreign exchange in the Nigerian foreign exchange market.”

Meanwhile, importers have continued to lament the CBN’s enforcement of proceeds of repatriation policy. These importers say they are losing billions on Naira in revenue daily, a situation which is threatening to force many importers out of business. Nigerian companies making anything from soap to tomato paste could run out of raw materials and be forced to shut down operations.

Thus, many Nigerians are of the view that the policy on Dollar by the CBN was premature and ill-timed, as it will only do more harm than good. According to Mr. Damien Amadi, a Finance Expert, the policy of the CBN will only serve to create hardship in the country now. Amadi said the policy is “ill-timed” because there’s no structure on ground to support the introduction of such policies.

“Nigerians are resourceful and enterprising,” he said. “What the CBN should have done is to support people by making small loans available so people can go into ventures. This will get rid of poverty faster than imposing a ban on foreign exchange transactions. What structure do you have on ground? What have you built before saying you want to ban access to foreign exchange for those products?

“The importers will only resort to other means, hook or crook, to get their Dollars, and then where does that leave you? What have you achieved? There will be inflation. Price of goods will soar, exchange rate will soar. Unless there’s a viable alternative on the table, Nigerians should expect more hardship,” he said.

Another respondent, Mayo Adanu, said that, “Most of the items on the banned list are things that the average Nigerian relies on, on daily basis. Rice is a staple food. Most of the chickens we eat are imported. That is because locally, our industries are not working due to power failure, short of funds, bad roads, and so on. These are the things the government should first address, rather than going ahead to stifle importation of the items by making the access to Dollar tight for the importers.”

Adanu said the obvious effect of that would be the skyrocketing of local products both in the short and long term. “Don’t kid yourself by saying price will come down later. Which price? Please point one thing in Nigeria that went up in price but later came down? Nothing.”

As the days progress, importers and most Nigerians appear puzzled by the CBN’s Dollar regime, which for now, appears to be “crippling importation business and  stifling local production”, rather than the opposite, as producers lament shortage of funds, materials and the required infrastructure to carry out their operation.

The view by many is that Nigeria’s economy is not yet fully industrialized, and we depend largely on imported goods. Perhaps, the adequate environment should have been put in place before the introduction of the FOREX regime.