Forex restriction: Food businesses count losses
The new policy regime placing restrictions on forex for food import has remained hotly debated with concerned stakeholders arguing very strongly that the policy should be reversed considering the unintended, albeit dire consequences its implementation may bring about. Ibrahim Apekhade Yusuf, Charles Okonji and Medinat Kanabe in this report examine the issues
To say the federal government is no longer at ease with food import is clearly stating the obvious. As to be expected President Muhammadu Buhari had last week in clear terms expressly instructed the country’s central bank to stop providing foreign currency for food imports.
Justifying the move, presidential spokesman Garba Shehu said it was aimed at improving Nigeria’s agricultural production and attaining more food security.
“The president … said the foreign reserve will be conserved and utilised strictly for diversification of the economy, and not for encouraging more dependence on foreign food imports bills,” reads the statement.
Shehu also quoted President Buhari as saying, “Don’t give a cent to anybody to import food into the country.”
The restriction on foreign exchange means businessman and businesswoman in Nigeria who depended on the banks for foreign currency to import food items into the country would have to source from alternative dealers which tends to be more expensive.
Groundswell of support for forex policy
At the last meeting of its monetary policy committee, Godwin Emefiele, the CBN governor, announced the bank’s plans to restrict forex for milk importation.
“We believe that milk is one of those products that can be produced in Nigeria. Milk importation has been going on in Nigeria for over 60 years. If you Google West African Milk or Friesland Campina today, they say that they have been importing milk and that they have been in Nigeria for over 60 years,” he said.
“Today, the import of milk annually stands at $1.2-$1.5 billion. That is a very high import product into the country. Given that it is a product that we are convinced that it is a product that can be produced in Nigeria.”
Lending his voice to the argument in an interview with The Nation, the CBN’s Director of Corporate Affairs, Mr. Isaac Okoroafor said the government took that drastic measure in the interest of the national economic growth and development.
“The implementation started since 2015. We started by excluding 41 items; subsequently we included others, now we have eliminated all sorts of food import which we know that can easily be produced in Nigeria. The country cannot be food sufficient if we continue like this,” he recalled, adding, “There will never be an amendment because the issue is this, why should we be exporting jobs to other countries? Today we are complaining that there is a high rate of unemployment, leading to some extent of insecurity in the country, why should we allow people to import food that can be produced in the country?”
Pressed further, the CBN’s spokesman said, “We need to improve wealth in our rural communities and I am saying we will not change course, we will even be more aggressive on this programme. The move is an attempt to stop the importation of items that Nigeria has the capacity to produce, stressing that the country’s foreign reserves should not be wasted on importing food items.
“If you recall, we started with about 41 items (food and non-food items), because we believe that those items can be produced in the country. As we stand today, there are about 43 items on that list and I will say substantially most of them are food items.”
“The president said some states like Kebbi, Ogun, Lagos, Jigawa, Ebonyi and Kano had already taken advantage of the federal government’s policy on agriculture with huge returns in rice farming, urging more states to plug into the ongoing revolution to feed the nation. We have achieved food security, and for physical security, we are not doing badly.
“Buhari said he was delighted that young Nigerians, including graduates, have started exploring agriculture-business and entrepreneurship, with many posting testimonies of good returns on their investments. But the order has attracted several reactions from farmers, industrialists, economists and financial pundits.”
Chain reactions over new policy regime on food import
As to be expected, since the presidential directive, the announcement has sparked controversy from different quarters with majority of the stakeholders crying blue murder, over a policy they described as anti-people, noting that Nigeria’s food sufficiency, as touted by Buhari, is wildly exaggerated.
Critics also said the president has no constitutional right to direct the policies of the CBN, an independent institution.
Firing the first salvo, the Director General of Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadiri warned that such policy may be counterproductive if implemented by fiat, without ensuring necessary alignment with the fiscal policy and other economic policy initiatives of the administration.
In his reaction, he said, “Clearly the objective of Mr. President is noble. The directive, we understand, is aimed at consolidating the progress made towards food sufficiency, conserving our foreign exchange and encouraging consumption of locally produced food. The implication of this is that importers of food items will not get forex with which to import from the official foreign exchange. They will have to buy from the parallel market.”
Ajayi-Kadiri however stated the organised private sector need to know what type of food, finished/ready to eat or as input for further processing, “In the case of the latter (in particular) you need to know the local capacity available to meet national demand and if not adequate, creditably determine what time and resources are needed to ramp up capacity and production. There is need to pre-determine these as part of the implementation strategy. This is so that the local producers that are being incentivized are not overwhelmed by smuggling and we are able to sustain the self-sufficiency.”
However, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf complained that the current forex policy conceptualisation and management is adversely impacting investment.
“If policy and regulatory risks continue to escalate as we are currently experiencing, the chances of stimulating investment, whether domestic or foreign, would remain dim. Over the last couple of years, food inflation had been a source of worry. It has consistently been ahead of core inflation. This is reflection of the productivity challenges in the agricultural sector which has lately been complicated by security challenges across the country and attacks on farming communities,” Yusuf said.
According to him, the sector is still largely dependent on smallholder farmers, and with little mechanisation and application of technology, the sector would be enhanced.
“Transportation is another key impediment to food security in the country. These are fundamental issues that need to be addressed, and urgently too,” the LCCI boss stressed.
Kingsley Mogahalu, former CBN deputy governor, said the directive is against the independence of the CBN.
Writing on his twitter handle, @MoghaluKingsley, Moghalu said, “The issue here isn’t whether or not CBN should allow access to forex for food imports. It is about whether such an economic policy of a central bank should be imposed by a political authority. A major reason for our poverty, instability and weak economy is weak institutions. Our marketplace should be regulated and guided in a rational manner that creates a level playing field. Our economy will not be saved by Ad hoc political decisions like this, handed down by the very institutions that should be shielded from the whim and caprice of politicians.”
Echoing similar views, Ayo Oyoze Baje, a public affairs commentator said it is scandalous that a country that is supposed to be Africa’s largest economy still imports red palm oil, with which it once controlled 40 % of the global market in the 60s but has since drastically dropped to 1.8% in the New Millennium!
According to him, the emerging economic scenario of the ban on forex for food import, laudable as it is therefore, throws up some fundamental questions.
Raising some posers, he said, “How would this policy directive work effectively against the dark backdrop of epileptic power supply needed to enhance the capacity of food processing and preservation by the small and medium scale enterprises down to the rural areas, where the farm produce come in large amounts? How would it assist the value chain of food processing, preservation and marketing? What with over 1,000 porous borders, inadequate personnel of the customs service to check the expected upsurge in smuggling? How would the policy mitigate the scourge of poverty, pitched against waves of insurgency, banditry and the killing spree of innocent farmers by fully armed Fulani herdsmen? That such mindless killings affect largely agrarian states in the North-East, and the Middle Belt that has since snowballed to the North-West states should be worrisome indeed.”
Policies, he insisted, should emanate from the stakeholders’ input and backed by law instead of command- and- obey structure. Besides, he should be mindful of the impact of such policies on the people, take actions to ensure security and regular power supply instead of putting the cart before the horse!”
Amaka Anku, Africa director for the Eurasia Group, said that whether the policy was implemented or not it sent a troubling message for an economy suffering from high unemployment, low foreign direct investment and sluggish growth.
“Most actors, especially the central bank, should know that a total ban of food imports is not practical and I doubt that will be the policy,” she said. “But his comments will continue to drive home the sense that Buhari has no idea how to manage an economy and will raise uncertainty about what other [foreign exchange] restrictions are coming, and contribute to already low business confidence.”
Ironically, the Chairman, Lagos State Branch of Nigerian Association of Small and Medium Enterprises (NASME), Mr. Solomon Aderoju supports the federal government’s decision, expressed that the step was in the right direction as it is favourable to the association and manufacturers in the country at large.
The NASME boss stated that his members did not only applaud the pronouncement, but could not wait to hear the full implementation of outright ban on imported food items.
Unintended consequences of new policy
Speaking to a cross-section of experts, they argued matter-of-factly that the policy if implemented as it is would result in dire consequences including job losses, skyrocketing cost leading to cost inflation to mention just a few.
In the view of Lanre Alabi (not real name), the decision to restrict forex was in bad fate to say the least.
In a chat with our correspondent over the weekend, he disclosed that his firm is involved in the importation of food supplements and other allied products and was already hurting from the policy.
Specifically, he said, his company had opened some letters of credit with some banks to import some of the food supplements on behalf of some major manufacturers in the next six months and was therefore at a quandary when the federal government announced the decision to stop such gestures to importers of food items.
“The decision is completely uncalled for. The decision that has been crossing our minds since the policy directive is why on earth government should adopt such a policy with wide-reaching implication without making some allowances for businesses operating in the sector?”
According to Yusuf, it is worrisome to note that the implications of policy pronouncements for investors’ confidence and the general sentiments of investors are very dire.
“Unemployment levels in the country has reached a disturbing level of over 23%, and rising. Youth unemployment is even much more. Yet the panacea for dealing with the scourge of unemployment and poverty is investment. If policy and regulatory risks continue to escalate as we are currently experiencing, the chances of stimulating investment, whether domestic or foreign, would remain dim,” he noted.
Rather than apply knee jerk approach to issues, the LCCI’s leading light said, “Rigorous impact study should precede major policy changes, supported by empirical data. This is necessary to minimise shocks and dislocations in the investment environment. This is also imperative to stem the increasing cases of job losses.
Timeline of forex restriction
In 2015, the CBN announced that it had banned forex for the importation of 41 items saying the move would conserve scarce forex and encourage local production.
The items banned at the time were 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 aeroplanes/jets, Indian incense, tinned fish in sauce(Geisha)/sardines, cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods(deformed and not deformed), iron rods and reinforcing bard, wire mesh, steel nails, security and razor wine, wood particleboards and panels, wood , fibre boards and panels, plywood boards and panels, wooden doors, 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, Eurobond/foreign currency bond/ share purchases.
In December 2018, fertiliser was added to the list bringing the total banned items to 42. In March, the apex bank announced that commercial banks and bureaux de change operators in the country should stop the sale of forex to importers of clothing materials.
Although the apex bank has assured that the directive will be implemented in phases so that the impact on food prices and inflation can be managed, a lot of people hold the view and very strongly too that the harm has already been done.