Crusoe Osagie examines CBN’s recent policy restricting forex supply to importers and provides insight into the possible consequences for stakeholders

After the recent policy step to ban foreign exchange sales by the Central Bank of Nigeria (CBN) to certain segments of the economy was announced last week, the first statement from some experts in the real sector was "why did it take so long?" Stakeholders from other sections of the economy however thought differently.

With the pressure pilling on the Naira, is it not 'sacrilegious' for the CBN to approve millions of dollars foreign exchange sale to an individual who is buying a private jet for example?

The nation is almost down and out. Equipment such as turbines and the likes, needed for the construction of power plants, which the country so desperately needs are mostly imported and forex is needed to purchase them. Eighty per cent of the roads in Nigeria are either completely damaged or in terrible shape and need to be built or rebuilt. Therefore forex is needed to obtain the machineries needed to construct roads.

What about the rail transportation and the water ways transportation that the country desperately needs to take the pressure away from the roads? Most of the boats, boat parts and train coaches among other things are only available outside Nigeria and forex is certainly needed to obtain them.

Hospitals need to be better equipped with state of the art Magnetic Resonance Imaging (MRI) machines, Dialysis machines, surgical and suture materials to transform them from mere consulting centres to actual magical care providers and all these require huge forex.

What about forex required for the desperately needed machines to enhance the nation's capacity to process raw materials into finished goods, such as factory production lines and even petroleum refineries, which will help the country end its dangerous and expensive addiction to imported petroleum products?

When these and many more segments of the nation's economy need the scarce foreign exchange to acquire items and equipment that will result in value creation and a concomitant accelerated growth of the overall Nigerian economy, it is therefore foolhardy to allow addicts of luxury goods compete with them for forex at the CBN.


New Policy Step

Better late than never, analysts heaved a sigh of relief, when the CBN last Tuesday officially stopped the sale of dollars for a list of 40 items, in its quest to reduce the pressure on the Naira as well as preserve the country’s external reserves.

These items include rice, cement, margarine, palm kernel/palm oil products/vegetable oil, meat and processed meat products, vegetable and processed vegetable products, poultry –chicken, eggs, turkey - private airplanes/jet, Indian Incense, tinned fish in sauce - Geisha/Sardines, cold roiled steel sheet and galvanised steel sheets.

Others are roofing sheets, wheel barrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wires, rods, wire mesh, steel nails, security and razor wire, wood particles boards and panels, wood fiber board and panels, plywood boards and wooden doors.

In addition, sourcing of forex for the importation of toothpicks, glass and glassware, kitchen utensils, tables, textiles, woven fabrics, clothes, plastic and rubber products, soap and cosmetic, tomatoes/tomato paste and Eurobond/foreign currency bond/share purchase has been prohibited.

The central bank disclosed this in a circular signed by its Director, Trade and Exchange Department, Mr. Olakanmi Gbadamosi, which was posted on its website.
It explained that: “These items are not banned, thus importers desirous of importing these items shall do so using their own funds without any recourse to the Nigerian forex market.”

It advised all authorised dealers to ensure strict compliance with the directive.

“In the continuing effort to sustain the stability of the forex market and ensure the efficient utilisation of forex and the derivation of optimum benefits from goods and service imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian foreign exchange market to encourage local production.

“The implementation of the policy will help conserve forex reserves as well as facilitate the resuscitation of domestic industries and improve employment generation,” it added.

THISDAY had on Sunday disclosed move to ban some of the items. The value of Nigeria’s external reserves is currently $29 billion.

“The only thing that will reduce pressure on our currency is by producing those things we are importing today,” CBN Governor Godwin Emefiele, had said in a forum in Lagos this January.

“We will try as much as possible not to hurt your business, but we need to be able to work together,” he had told the gathering of CEOs of firms in the country.

The central bank had devalued the naira in February and had scrapped the WDAS/RDAS, all in a bid to strengthen the Naira

The regulator “will meet legitimate demand, but we will not be concerned about illegitimate demand,” Emefiele said.

“We have seen the pressure in the forex market arising mostly for the lopsided dependence on imports. Today in Nigeria, toothpick, tomato paste, furniture, rice, sugar, fish and petroleum products are all being imported into Nigeria.”


Real Sector Experts Support CBN

How can Nigeria be self-sufficient in cement production, locally, churning out nearly 40 million tonnes of the essential building material annually and yet release millions of dollars daily to traders to import the same product into the market that is already saturated.

Vice-President of the Nigerian Association of Chambers of Industry Mines and Agriculture (NACCIMA), Mr. Dele Oye, said the CBN made the right decision, stating that considering the crisis which the nation's economy currently faces not only the government but also the private citizens in the country must significantly adjust their consumption patterns.

"It is time for segments of our society to make sacrifices. a fixation on a luxurious consumption pattern will not do the country any good. The fact is that the revenue is just not there. Oil prices have been down by over 50 per cent continuously for almost one year and from the prevailing global projection, it is not likely to improve any time soon. So, there is serious need for structural adjustment of the consumption habit of the government and people of the country.

As for the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, the CBN decision is for the greater good.

He noted that the decision will help to consolidate on the nation's advancement in local rice, poultry, vegetable oil, sugar, tomato and textile production among others.

"Although some of the big traders will be affected by the policy, it will actually do more good to the nation’s economy by helping to reduce the pressure on the Naira, and also provide a good price advantage for locally made goods in the market helping locally produced rice, cement and vegetable oil for example to compete better from imported ones," he said.


Mixed Feeling from Finance Experts

Head of Research at Sterling Capital, Sewa Wusu, said while the move may douse some of the demand pressure in the short run, noting that there is a lot of expectation that the CBN will devalue. “Market is still expecting a lot from the CBN in terms of foreign exchange policy. The apprehension that the CBN will devalue again has been going on. We cannot rule out the fact because now the reserve is under pressure and there is need to just do something. Although the circular states that importers should use their own funds, but my take is that most of these importers have been using their funds before now”

Sewa noted. “We see this policy move as confirmation that forex supply remains extremely tight. But more worrying is the fact that it suggests that the central bank remains reluctant to devalue the Naira,” said Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.

For the head of economic research at Ecobank, Angus Downie, “this sudden change in policy emphasises the difficulties the central bank is facing in managing forex reserves, which points to possibly greater exchange rate policy changes to come.”


Bank Customers' Reaction

Bank customers are however divided on the necessity and impact of the policy on the economy. While some criticised the reduction, saying it would hurt their businesses, others commended the step, saying it would help curb wastage of foreign exchange and corruption.

Criticising the new limit, Mr. Chiedu Igwe, an importer said, “The idea of reducing the debit card limit to $50,000 per person per annum is discomforting. I travel out often to get items for my trade and that aside; I spend money on vacations using a Naira debit card. So with this new limit on debit card, how am I going to keep up with my business and personal foreign exchange needs while I am overseas? I wish the implementation of the policy could be re-adjusted if possible to help businessmen like me.

Another businessman, “Mr. Lekan of LakeSide Clothing said, “I am not comfortable with the reduction, because I travel overseas to purchase most of what I sell in my stores. I make use of my debit card for shopping whenever I travel abroad, and I travel more than once in a year. So this new limit will disrupt my business plans.”

Corroborating these views, Mr. Umaru Hassan, a customer of Diamond Bank, Apapa, said that the reduction in limit is not good for business people, as most of them always travel abroad to purchase goods and conduct other business related activities that involves the use of money. “The idea of reducing the limit to $50,000 per person, per annum is an indirect way of reducing their ability to do business”, he said, adding that the CBN should reverse the policy.

On the contrary, veteran producer, director and actor, Prince Jide Kosoko commended the reduction, saying it would help curb the outrageous spending of many Nigerians. He said, “CBN has brought up the policy to redeem the value of the Naira. I know this will not go well with some Nigerians but the CBN has the power to do it. Many Nigerians travel abroad and spend their annual savings within one month in the name of holidays”.

Similarly, actress Ronke Ojo, commended the reduction saying it is another means of eradicating corruption. “It is obvious that electronic banking has generated some hiccups in the economy. However, the policy is a means to curb our excesses and eradicate corruption in the country,” she said.

According to Chief Executive Officer, H.J Trust Bureau De Change, Mr. Harrison Owoh: “The reduction in limit would minimise the various abuses associated with the use of Naira debit card overseas, like round tripping. He noted that some people use the card to withdraw dollars abroad at cheaper exchange rate, and then import the dollars and exchange them at higher exchange rate.