Source - Bloomsberg

Nigeria’s plan to spend less on food by restricting access to dollars for importers could have the opposite effect by threatening food supplies and pushing up prices.

President Muhammadu Buhari ordered the central bank on Aug. 13 to stop dollar supply for food imports, saying food security has been achieved and agricultural production has increased. That came after Governor Godwin Emefiele said in July the central bank plans to cut off dairy importers’ access to foreign exchange in a bid to bolster domestic milk output.


The food price index in Africa’s largest oil producer has risen almost 80% since the start of 2015, pushing inflation above the central bank’s target and putting pressure on households’ finances in a country where about 60% of consumption spending goes to food.


“Many of us are agitated by this food import ban,” said Abosede Ogungbemi, who sells imported rice, wheat and other food items in Nigeria’s capital, Abuja. “Food will become scarce and very expensive.”

Nigerian food prices have been a key driver of inflation
The central bank already restricts access to dollars for the import of 40 kinds of items from cement to soap. In June, the Lagos-based Punch newspaper reported that Buhari instructed the central bank to blacklist companies or individuals caught illegally importing palm oil or other prohibited goods, such as poultry.

Nigeria spent about $1 billion importing food and live animals in the three months to March, according to the statistics agency. Domestic food-supply chains have been disrupted by a decade-long Islamist insurgency in the northeast region. Clashes between herdsmen and farmers have also decimated communities, destroyed crops, killed cattle and forced producers to flee to protective camps in Nigeria’s northern and central regions.

“Many families have abandoned their farms and the crops on them have either been stolen, destroyed by war or abandoned,” said Henry Kam Kah, a senior history lecturer at the University of Beau in the Southwest region of Cameroon.

Food Smuggling
Still, Buhari and Emefiele insist Nigeria can produce all the food it needs, and the dollar ban will help with that. That’s even as large quantities of rice and other goods are being smuggled into the country, according to the president.


The restriction is “certainly counterproductive,” said Nonso Obikili, director of the Abuja-based Turgot Centre for Economic Policy Research. “Nigeria currently does not grow many of the key food products we consume and such a restriction will likely have the dual effect of higher food prices and increased smuggling.”

The United Nations’ Food and Agriculture Organization last year said Nigeria is one of 37 countries in need of external food assistance.

“We can’t produce enough food,” said Suleiman Adulaziz, a wheat grower in Born state in the northern region. “Banning food imports without supporting farmers and creating an enabling environment to produce food on a large scale is condemning Nigerians to hunger.”

—More Problems




Nigeria’s President Muhammadu Buhari warned that the country could struggle to fund its expenses unless it’s able to raise the tax take after querying the revenue chief over poor collections. That could complicate Buhari’s efforts to turn around the economy, a mandate on which he was re-elected in February.


Zainab Ahmed, who was reappointed finance minister, echoed these concerns when she was sworn in last week.

Fiscal revenues in Africa’s most-populous nation undershot targets by at least 45% a year since 2015, according to the budget office. Expenditure has doubled to more than 7 trillion naira ($19 billion). The government’s income shortfall was 51.9% in May due to lower oil and non-oil inflows, according to the central bank.

Revenue Challenges

There has been an urgent need for accelerated fiscal reform in Nigeria for some time and the fact that it is gaining attention from the country’s leadership is positive, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc.

Spending has been largely supported by borrowing both from the domestic and international markets. Total debt was at $81.2 billion at the end of March, from about $65 billion in 2015. Debt owed to non-Nigerian lenders was $25.2 billion.

Total borrowing as a proportion of gross domestic product is about 21%, compared with almost 60% for South Africa, which vies with Nigeria as the continent’s biggest economy. Debt service costs consume more than half of actual revenues, leaving little to build badly needed infrastructure and grow the economy. Nigeria spent 2.2 trillion naira on servicing outstanding loans in 2018 compared to 1.68 trillion naira on infrastructure, according to the central bank.

Without major revenue reforms, debt could rise to almost 36% of GDP by 2024 and interest payments could make up 74.6% of revenue, according to the International Monetary Fund.

Debt-Service Concern

At about 7% of GDP, Nigeria has one of the lowest tax collection ratios in the world. Efforts to boost tax revenues in recent years have not yielded the desired results. An oil price crash, a 2016 contraction and subsequent slow economic growth have reduced tax earnings, Babatunde Fowler, chief executive of the country’s revenue agency, said in response to a query from the presidency.

The country’s low tax revenues hamper its ability to invest in infrastructure, social welfare and human capital development, all necessary for robust growth, Amaka Anku, Eurasia Group’s Africa head, said by email.

“Nigeria’s government expenditure is roughly the same as Kenya’s, despite a population that is nearly three times as big,” she said.

Ahmed has plans to increase consumption tax to 7.5% from 5% to boost revenues. Buhari has increased her powers by bringing budget and economic planning under her control. This means that she can aim to raise revenues while controlling spending. A 5% consumption tax on online transactions will also come into effect from January, which would earn the government $3.6 billion every quarter.

The most viable option is for the government to increase taxes, Oluwasegun Akinwale, a banking analyst at Lagos-based Asset & Resource Management, said by phone.

“If they can do that in the next few months, that can add some income,” he said. “They also have to diversify the revenue base from oil and add manufacturing. There are no short-term solutions.”

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