CBN Forex Restrictions: Relevance, Implications

The June 23 circular of the Central Bank of Nigeria (CBN) restricting 41 items from access to foreign exchange through the CBN or commercial banks have generated heated comments from stakeholders in recent times. In this Special Report, first of five parts, Andrew Airahuobhor, Bamidele Ogunwusi, Sola Alabadan, Oyeniran Apata, Ikechi Nzeako, Nkasiobi Uluikpe examines the policy in more detail.



Exclusion of 41 items from forex

As part of efforts to reduce the pressure on the Naira while preserving the nation’s external reserves, on June 23, the Central Bank of Nigeria (CBN) issued circular excluding importers of 41 selected goods and services from accessing foreign exchange at the Nigerian foreign exchange markets.

According to the new directive from the apex bank, certain categories of items which had already been classified as ‘not valid for forex’ cannot be funded at the interbank from proceeds of exports and Bureau de change sources. The CBN said authorised dealers are enjoined to ensure that these items are funded from sources outside all the segments of the Nigerian foreign exchange markets.

In specific terms, the items affected by the CBN’s policy include rice, cement, margarine, palm kernel/palm oil products, vegetable oils, meat and processed meat products, vegetables and processed vegetable products, poultry-chicken, eggs, turkey, private airplanes/jets, Indian Incense, Tinned fish in sauce (Geisha)/Sardines, cold rolled sheets, galvanised sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers.

The list also include enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), iron rods and reinforcing bars, wire mesh, steel nails, security and razor wire, wood particle boards and panels, wood fiber boards and panels, plywood boards and panel and wooden doors.

Other items affected are toothpicks, glass and glassware, kitchen utensils, tableware, tiles-vitrified and ceramic, textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules, cellophane wrappers, soap and cosmetics, tomatoes/tomato pastes, euro bond/foreign currency bond/share purchases.

The circular signed by Director, Banking Supervision, Olakanmi Gbadamosi reads in part: “In the continuing efforts to sustain the stability of the forex market and ensure efficient utilisation of forex and the derivation of optimum benefits from goods and services imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian forex markets in order to encourage local production of these items.

“The implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.

“For the avoidance of doubt, please note that the importation of these items are not banned, thus importers desirous of importing these items shall do so using their funds without any recourse to the Nigerian foreign exchange market.”

The implication of this CBN policy is that all importers who want to continue bringing in these goods or services into the country will have to source their foreign exchange from private sources.


CBN Defends New Policy On Forex

As may be expected, the new policy excluding the importers of those 41 items from foreign exchange market has been generating reactions from different quarters. This has also prompted the CBN to clarify its decision less than 24 hours after the circular was issued.

The Governor of Central Bank, Godwin Emefiele, defended the decision of the apex bank to tighten foreign exchange controls by excluding 41 items from the interbank forex market.

Emefiele said the country spends an estimated N1.3 trillion on items that could be manufactured locally, adding that Nigerians need to have a soul-searching conversation on the impact the import regime has on the economy in the areas of industrialisation and job creation.

He explained that it was necessary to shed more light on the rationale behind the policy, “in view of the announcement we made yesterday to exclude more items from accessing foreign exchange at the interbank market”.

According to him, “Sometimes, policy changes are forced on policymakers as a result of exogenous shocks beyond their control. While most people do not like to be forced to do something, one of the hallmarks of effective policymaking is to be nimble and responsive when such situations arise.

“In the case of yesterday’s announcement, I am happy to inform and underscore that this policy change is in line with my long-held belief that Nigeria cannot attain its true potential by simply importing everything.

“At some point, we have to all decide what we really want for our country, and I believe that the time is now right for that deep and honest conversation.”

In retrospect, he referred to his maiden address as governor of the CBN, saying he had argued that central banks in developing countries like Nigeria could not sit idly by and concentrate only on price and monetary stability.

“I argued that additional measures would be required towards identifying productive sectors of the economy and channelling credit towards these sectors, while imposing proper monitoring and performance measures in order to ensure that the goals of increased employment and poverty reduction are attained.

“I also noted that despite Nigeria’s relatively impressive GDP growth rates over the past seven years, there seem to be an absence of a corresponding reduction in unemployment or poverty.

“My personal as well as the Bank’s institutional analyses of the situation compelled us to believe that we needed to aggressively begin the process of feeding ourselves by ourselves and producing much of what we need in this country.

“And in order to begin this process, the CBN took measures to increase credit allocations to pivotal productive sectors of the economy with a view to stimulating increased output in these sectors, creating jobs on a mass scale and significantly reducing our import bills,” he explained.

The CBN boss maintained that the huge amounts of money that Nigeria spends on importing things that could be produced locally have become a significant drag on our foreign exchange reserves.

“Most of you are aware of the often-quoted number of N1.3 trillion, which is what we spend on the average importing rice, fish, sugar and wheat every year.

“Each time I ponder these issues; many vexing questions trouble my mind. Let me take the case of rice for illustration. Why should we keep importing rice into Nigeria when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are being wasted and ignored?

“What will it take for these importers to stop the importation and instead go into processing these locally produced rice? Why are these importers not utilising the vast expanses of arable land for rice cultivation instead of taking the easy route of importing rice?

“Do we, as a people, realise how many jobs we are creating for other countries by ignoring local production and simply concentrating on imports?

“How can we keep complaining about the depreciation of the naira when all we do as a people is to import everything from ordinary Geisha (canned fish) and toothpicks, to even eggs?” he asked.

He stressed that these were some of the fundamental reasons behind the central bank’s recent announcement, stressing: “Let me emphasise that the CBN does not have the power to out rightly ban the importation of the items we listed in our circular yesterday.

“Of course, anyone listening to me now would know what I could have done if I had that power. But what we have done is to simply say that the Central Bank of Nigeria cannot continue to support the imports of these items using Nigeria’s hard-earned foreign exchange.

“Importers who may want to continue bringing in these goods or services into the country will have to source their foreign exchange from private sources.

“Let me reiterate that the Central Bank of Nigeria will continue to be vigilant around this policy and will keep reviewing the list of these items as we become comfortable that items can be produced locally if we apply ourselves sufficiently enough.

“I believe that the current situation we find ourselves affords us a unique opportunity to embrace self-sufficiency in Nigeria, reduce our appetite for everything and anything foreign, conserve the country’s scarce foreign exchange, and create jobs here at home for our people.

“With the full complement of the top management of the Bank, I assure you that we will continue to look out for areas in which the Bank can play a catalytic financial role to helping us achieve these goals in the near future.”


Trafficking Of Foreign Currencies Across Borders

In what appears to be an attempt to derail the policy, the CBN has alerted Nigerians that those offended by its recent policy of restricting foreign currency to importers of 41 items have resorted to exporting hard currency across the nation’s borders with neigbhouring countries. The CBN said large quantum of cash is now being transported through the borders following its foreign exchange denial to importers of restricted products.

However, the apex bank said that it was collaborating with relevant agencies to ensure that the culprits are apprehended.

“The apex bank has noted the unwholesome practice of movements of huge foreign currency cash across Nigerian borders by individuals and corporate bodies without compliance to extant law of declaration to the appropriate authorities. The bank is already collaborating with other relevant agencies of government to ensure compliance to the provisions of the law” the CBN stated.

The CBN also reminded the Bureau de Change operators that they are not allowed to sell more than $5000.00 to any individual customers for Business Travel/Personal Travel Allowance, monthly mortgage payment, School fees abroad, credit card payment, Utility bills, Life insurance premium payment.

“The bank, however, stated that the BDCs are only authorised to deal in foreign currency cash and to sell not more than US$5000.00 to an individual customer and strictly for the following transactions: (i)Business Travel/Personal Travel Allowance; (ii) Monthly mortgage payment; (iii) School fees abroad; (iv) Credit card payment; (v) Utility bills vi) Life insurance premium payment” it noted, insisting that the BDCs are not authorised to fund import transactions in any form whatsoever.

“For the avoidance of doubt, the Central of Nigeria has directed that BDCs are not authorised to fund import transactions in any form whatsoever, either by cash or wire transfer. Accordingly, authorized dealers are hereby barred from effecting wire transfers from the account of their BDCs’ customers henceforth,” the CBN said.


Mixed Reactions Trail Exclusion Of Items From Forex

In spite of the clarifications by the CBN, mixed reactions have trailed the central bank’s decision to tighten forex controls, with some people applauding the CBN for taking the bold step while others are calling on the apex bank to reconsider its action.


Argument In Support Of CBN Policy

While some people have faulted the CBN policy excluding the 41 items from forex and called for a massive devaluation of the naira instead of foreign exchange restrictions on certain items such as rice and toothpicks by the CBN, President of Dangote Group, Aliko Dangote, has thrown his weight behind the CBN, describing the ban on 41 items from forex market as “excellent and one of the best decisions taken so far by the CBN Governor, Mr. Godwin Emefiele.”

The foremost businessman described the CBN’s intervention as appropriate for the Nigerian economy saying, “We cannot be importing poverty and exporting jobs.”

Dangote believes that this should be seen as a clarion call for all hands to be on deck in the development of the nation’s economy disclosing that the foreign exchange restrictions on the 41 items also affected the Dangote Group, especially the Dangote Rice. He, however, believes that the measure would encourage his firm “to look inward and massively produce locally to create jobs for our growing young population.”

He pointed out that without such ban by the administration  of former President Olusegun Obasanjo, he wouldn’t have got the opportunity to grow his cement business as it is today such that he is now exporting cement when only 10 years ago Nigeria was importing cement massively.

“When Obasanjo introduced the policy, he was massively criticized by multinationals and the same foreign media. But today, we are self-sufficient in cement production,” he stated.

Dangote maintained that those criticising Emefiele for the decision on foreign exchange restrictions do not have the interest of Nigerians at heart.

He therefore called on people in the South-south region of the country to focus on the development of palm plantations instead of importing palm oil. In the same vein, he enjoined the people of Nigeria to see this as an opportunity to invest in fish farming across Nigeria from the North to the Atlantic Ocean, rather than importing fish, saying Nigeria can borrow a leaf from Senegal. “Although fish is a major staple food in Senegal, the country does not import fish….. why should we be importing fish in Nigeria with all our God given ocean resources,” he asked.

He lauded Emefiele for his bold and courageous decision to place certain items that could be produced locally on forex restrictions.

Source : Independent

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