June 23, 2015, the Central Bank of Nigeria under the leadership of Godwin Emefiele released a circular on which 41 products were listed as items banned from accessing forex from the official market. Two more items were later included to increase the forex-restricted items to 43. What was the meaning of this move?
That the items were banned from accessing the official forex market does not mean they have become contrabands.
The listed items could still be imported but the importers were told not to come to the official forex market to ask for funds. The importers were to look elsewhere to get their own forex whenever they wanted to bring such restricted items into the country. The goal of the policy, according to CBN was to sustain the stability of the naira and ensure efficient utilisation of forex and to encourage local production.
Eight years after and before embarking on the policy somersault that was announced October 14, 2023, other than the insinuation that the forex restriction contributed to the volatility of the forex market and widening the gap between the official and the parallel market rates, the CBN has not come forward to explain whether the policy actually achieved set objective of boosting local production, significantly or partially; and whether the importers were at all dissuaded from importation and are now devoted local producers and manufacturers that are generating employment, creating jobs; and are now turning Nigeria from consumption-oriented to production-oriented economy.
According to the African Development Bank in its published Nigeria Economic Outlook, Nigeria’s real “GDP growth fell to 3.3% in 2022 from 3.6% in 2021”. This was precipitated mainly by a decline in oil production; leading to “5% shrinkage in overall industry, which was offset by expansion in services (7%) and agriculture (2%). On the demand side, the decline in GDP growth was driven by contraction in public consumption (2.5%) and net exports (80%). Growth in income per capita declined to 0.8% from 1.2% in 2021. The fiscal deficit narrowed to 4.9% of GDP in 2022 from 5.2% in 2021 and was financed by borrowing, bringing public debt to $103.1 billion (about 22% of GDP) from $92.6 billion in 2021”. The simple message here is that in Nigeria local production is so low with increasing inflation, high costs of goods and services, unrealised potentials, capacity underutilisation, very glaring negative international trade, balance of payment deficits, increasing unemployment, and financing of government funding with borrowings.
While removing the forex restrictions on the 43 items, the CBN explained that the policy reversal will eliminate the need for importers of these products to go to the parallel market. But besides reducing patronage of the parallel market, will the gesture at all reduce the pressure on the naira? With the tardiness in the official market whereby banks take up to sixty days to conclude forex applications, is there enough incentive and motivation or incentives for traders to prefer the official forex market or they will rather continue with where they will have their needs met very timely, notwithstanding the price differentials?
The CBN has said that its latest move will enable local production benefits in accessing “cheaper imported inputs and consumers will benefit from cheaper retail products”. While going about this monetary policy tools to attain the unified, well-functioning market for forex “where pricing is based on a willing-buyer and willing-seller system”, and besides the dangling of the ‘cheaper inputs’ carrot, the CBN needs to explain how it will protect and boost local production, effectively discourage importation of finished products and ensuring Nigeria doesn’t remain the dumping ground for foreign products.
It is important we remind Nigeria’s policy markers that policy adjustment or outright reversal should not be seen to destroy or put a stop to production efforts; otherwise it sends wrong signals to industry players and discourages investments. According to the European Journal of Political Economy, “investment and economic growth respond very slowly to economic reform due to uncertainty about the permanence of reform”. Businesses need policy consistency for sustainability of projects; therefore, it is only a sound and reliable macroeconomic policy that can encourage economic growth by providing and guaranteeing a more safe and sound environment for private sector investment decisions and actions.
. Emmanuel is a business planning consultant and founder of Leacent Incorporated Trustees, a network of entrepreneurs and group of cooperatives. He works with a team of international consultants to conceptualise and plan agribusiness and housing projects. As a certified trainer authorised to use the International Labour Organisation’s enterprise development modules, he trains entrepreneurs and organises workshops and seminars for potential and practising entrepreneurs as well as business managers and cooperatives. He also speaks and facilitates at leadership and management workshops on invitation. His book, Business Planning Made Easy: Step by Step Guide On How To Turn Your Idea To Profitable Business’ is the latest of the books authored by him. Tel.: +234(0)9068602954 (call and sms), +234(0)8023257707 (whatsApp only).