The recent directive by the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, that the apex bank will not support the importation of items that can be produced in the country with foreign exchange (forex), is commendable. If the directive is followed through, it will boost the local production of goods and services. It is indeed one of the best ways to ensure food security and the diversification of the economy.
We recall that the CBN began the forex restriction measures in 2018 when it placed restriction on the sale of forex on over 40 items, including textile materials. The order has reportedly saved Nigeria billions of dollars annually. The latest order is in furtherance of that objective to conserve external reserves and diversify the economy. The CBN is aware of the implications of supporting the importation of goods that can be produced locally. According to Emefiele, the bank will not spend its scarce foreign exchange reserves on what would not boost the economy and create jobs for Nigerians. No doubt, the CBN’s strategic thinking is in line with the Federal Government’s desire to make manufacturing and agricultural sectors the mainstay of the economy. The ‘no forex for goods with local substitutes’ policy has become even more expedient now that the coronavirus pandemic has adversely affected the nation’s economy.
Though Nigeria’s current foreign reserves of about $37billion looks somewhat robust to support the economy, according to CBN’s projections, the low oil price challenge presents an opportunity to rejig the economy. Therefore, we urge the industrial conglomerates in the country to key into the Buhari administration’s drive to diversify the economy by taking advantage of large population to market their products, which can be produced locally and exported to foreign markets. It is also heartening that in spite of the forex restriction, the CBN has pledged to provide FX to companies that require such for raw materials and machines that could not be obtained in the country.
It is expected that with the economy in the process of reopening and the much-awaited African Continental Free Trade Agreement (AfCFA) billed to commence in January 2021, the Federal Government should provide local companies the necessary tools and conducive environment, including Ease of Doing Business and other regulatory frameworks to produce their products and make returns on investment. There is no doubt that the Nigerian market is huge enough to support businesses and goods for exports that will yield revenues to the government.
It also needs to be stressed that if this forex restriction policy will be successful as planned, the Nigerian market needs to be prioritised, with the industries and commercial banks working together with the relevant government agencies to help check smuggling of imported goods into the Nigerian market. We, therefore, welcome the assurance of the CBN to the CEOs of banks to collaborate with the fiscal authorities to improve the Ease of Doing Business, which last year recorded a significant improvement in the World Bank’s report, moving 15 places up in the ranking. But there is still need for more improvement in critical sectors of the economy.
With the challenge of food security becoming dire as a result of pervading insecurity and the current pandemic, restriction of forex on items that can be produced locally is crucial. Data from the Agricultural Promotion Policy and other global agencies show that Nigeria has a deficit across every 13 major crops as well as 60 million poultry birds’ deficit. According to the National Bureau of Statistics (NBS), the trade in agricultural goods stood at N322.4 billion, or 3.9 per cent of the value of total trade in the first quarter of 2019. It is projected to reach all-time low this year because of the pandemic and herders/farmers clashes in some states.
In addition, Nigeria is short on essential items, such as rice, maize, sugar and wheat, though the CBN Anchor Borrowers Programme is breaching the deficit. Data from the World Market and Trade validate the fact that more incentives should be given to local manufacturing companies. Currently, Nigeria needs to invest more in local production value chain to cater for the growing population to contain hunger and poverty. Therefore, the CBN directive comes at an auspicious time. But it must strictly enforce it to ensure that it produces the intended results. No economy survives by spending more foreign exchange on importation of goods and services that have local substitutes.