The imposition of forex restrictions on milk and dairy products by the Central Bank of Nigeria (CBN) last week has led to chain reactions with different industry stakeholders expressing fears that the new policy regime will not bode well for a sector already grappling with serious challenges, report Ibrahim Apekhade Yusuf and Charles Okonji.
The Central Bank of Nigeria (CBN) is no longer at ease with providing foreign exchange backing for those involved in the importation of milk and dairy products. That was the major decision reached at the end of the last Monetary Policy Committee (MPC) meeting last Tuesday.
CBN might have added milk and other dairy products to items on the foreign exchange restriction list with a view to boosting local production, and investment in ranches.
The CBN governor expressly told operators that milk and other dairy products would be restricted from access to foreign exchange both at the official and parallel markets if they refuse to invest in ranches, a move he said would quell the ongoing farmers-herders crisis.
Emefiele noted that the money Nigerian spends importing on milk is too high and needs to be reduced. He also said the policy would help reduce herders-farmers clashes in the country.
“By doing backward integration, it helps to limit or reduce the rate of herders and farmers conflicts in Nigeria,” Emefiele said.
Total milk worth $1.2 billion is being imported into the country yearly with yearly national dairy output and demand estimated at 700,000 metric tonnes and 1,300 metric tonnes, leaving a supply gap of about 600,000 metric tonnes.
Read also: Forex restriction threatens over 50,000 jobs in dairy sector
Wave of criticisms
In the view of Muda Yusuf, Director General, Lagos Chamber of Commerce and Industries (LCCI), while noting that the commitment of the CBN to the backward integration agenda of the Federal Government is laudable, he however, said care should be taken to avoid undue disruptions and dislocations in the investment environment.
“From all indications the dairy sector of the Nigerian economy is not ripe for the policy move being put forward by the CBN,” he noted.
Speaking in an interview with The Nation, the thought leader said, the new policy regime being currently contemplated by the CBN to exclude the importation of intermediate product in the industry from the foreign exchange market, “For all practical purposes, such a policy choice will amount to an outright ban on importation of such intermediate products for the dairy industry. The shocks on existing investment in the industry will be very profound.”
Specifically, he said, it will boost the smuggling economy since there will be a big short fall in the supply of dairy products to the Nigerian market.
Besides, he said, “There will be loss of revenue to the government as smugglers naturally move to fill the supply gaps in the market,” stressing that, “There is a major risk of closure/drastic scaling down of operations of existing investments in the dairy industry. There will be a major negative effect on the meeting of the nutritional requirement of citizens especially children and the low-income earners. There will be a high risk of loss of jobs in the dairy sector because of the adverse impact of the policy on existing investments in the dairy industry.”
On the way forward, the LCCI boss said, “Sufficient timeline be given for a sustainable transition from the current state of affairs to the desired level of backward integration. There should be robust incentive for investors that will like to key into the supply chain in the dairy industry in line with the backward integration aspiration. There should be generous support from government to facilitate the importation of the right kind of cattle breed suitable for milk production. On account of the foregoing, the CBN is advised to put on hold its proposal to exclude the dairy industry investors from the Foreign Exchange Market on hold in order to avoid likely disruption and dislocations in the dairy industry.”
Also speaking in an interview with our correspondent at the weekend one of the major players in sector asked not to be named because of the sensitivity nature of the issue, said the development could spike off smuggling.
Raising some posers, he queried, “How on earth can the CBN governor think that cows can be raised overnight to provide the kind of milk that the Nigerian dairy sector require? So, these are the threats about our sector right now?”
The source, who said his firm, had in the past nine years got involved in the local sourcing of milk, noted that it has paid off.
Another critic of the new policy is Nigeria’s former education minister Obiageli Ezekwesili who on Friday said the CBN’s foreign exchange policy on milk importation is dangerous to the poor.
“Child Poverty is even worst in a country that holds the ignoble record of being the World’s Capital of Extremely Poor People, our @NGRPresident @MBuhari should be fleeing from Policies that ESCALATE Poverty,” Ezekwesili said on Twitter on Friday.
“The @cenbank #MilkBanPolicy is DANGEROUS. Dangerous for the Poor,” she added.
Ezekwesili, however, said the policy might be borne out of the vindictiveness over the rejection of Ruga settlement by Nigerians.
“Nothing more perverse of Political Leaders and Policy Makers as Policies was borne out of Vindictiveness,” Ezekwesili said.
“It appears from what the @cenbank said on the #MilkBanPolicy that it is a case of: “You folks rejected RUGA, here is your punishment, What a BIG SHAME that would be,” Ezekwesili added.
She said if the Nigerian government persist and move ahead with the policy it will only drop more millions of Nigerians into Poverty.
Ezekwesili maintained that the people who are vulnerable to the effects of this policy are the lower class because the ban will lead to scarcity of milk products which will be out of reach of the poor
“Do you think any middle to upper-income Nigerian will be personally worried about #MilkBanPolicy? Not one bit.”
“When the milk ban policy happens, to avoid Scarcity which Prices Milk up and out of the reach of the poor, Nigeria needs to immediately TRIPLE current Production of Milk,” she added.
The Manufacturers Association of Nigeria (MAN) also kicked against the plan to add milk to the list of items banned from accessing the official foreign exchange market.
Reacting to the issue, Segun Ajayi-Kadir, Director-General of MAN, said the addition of milk to restricted items would have a negative impact on the economy that might lead to downsizing, reduce government revenues and the manufacturing sector’s contribution to GDP.
He lamented that CBN’s decision was taken unilaterally without consultation with operators in the dairy industry.
“It is a fact that to backward integrate is the way to grow an economy, but there is a need to be strategic and deliberate about the way to implement the measure.
“MAN has always been at the forefront of resource-based industrialisation; and has always supported backward integration, that is the reason why many manufacturers are exploring local sourcing of raw materials.
“What CBN wants to achieve is almost the same but the style of approach differs and the timing,” he said.
Ajayi-Kadir warned that the policy would have negative effects from its desired purpose and would trigger more smuggling activities into the country.
Ajayi-Kadir stressed the imperative for robust collaboration between the Federal Government and the private sector to boost competitiveness and create enabling environment for businesses especially as Nigeria had signed the African Continental Free Trade Area (AfCFTA) agreement.
Ajayi-Kadir said that MAN would continue to dialogue with the CBN to revisit the policy in the interest of industrial and economic growth.
He urged government to strengthen the capacity of manufacturers by boosting their competitiveness through infrastructural development, investment in existing dairy sector and sustainable cooperatives model to build the agric sector.
In a monitored business news on cable TV, Tope Laseinde, Head of Assets and Liability at Access Bank said the policy might put pressure on the rate.
However, she would rather the domestic market is allowed enough window to g=put its acts together.
CBN’s charm offensive against smugglers of forex restricted goods
It may be recalled that the CBN in a clear offensive had last month indicated plans to go after any firm found smuggling into the country goods for which access to foreign exchange (forex) has been restricted will have its bank accounts closed.
The apex bank curbed access to dollars in 2015 for firms importing 42 items, ranging from rice and soap, to private jets and Indian incense in a bid to conserve foreign reserves and diversify the economy.
It added one item to the list last year.
“Once we discover that people are using illicit foreign exchange to import those items into Nigeria and smuggle them through the borders … we have every right to close their accounts,” the apex bank told Reuters.
President Muhammadu Buhari has made boosting the agricultural sector a key priority to cutting import bill. In April, the government announced plans to double manufacturing output to 20 per cent of Gross Domestic Product (GDP) within six years.
The President was inaugurated for second term on May 29, weeks after re-appointing CBN Godwin Emefiele for a second term.
Emefiele’s reappointment signalled policy stability and broke a trend of Nigerian central bankers serving a single term.
After introducing currency restrictions in 2015, the apex bank introduced a multiple exchange rate regime which has masked pressure on the currency and helped to keep it stable.
Emefiele said the bank had been developing home-grown policies to surmount challenges that confronted the economy lately.
He said: “As I have always emphasised, it is our collective duty to ensure that the potential and prospects of the economy are optimally realised.
“The ongoing economic recovery requires the joint efforts and wise counsel of everyone, if we must take giant strides forward. The CBN is more determined now than ever to remain at the forefront of efforts to ensure that the rebound is not overturned.”
Speaking at a meeting with bankers in Lagos on the theme: “Strengthening the economic recovery process in Nigeria”, the CBN boss said: “With regards to over-dependence in imports, the economic recession triggered mainly by the drop in crude oil prices, only strengthened the case for moving from a nation wholly dependent on consumption, to a nation that produces a large proportion of what it needs, particularly in areas where the resources needed for production are widely available across the country.
“This thought process, he said, shaped decision to impose the restriction on access to forex for 43 items that can be produced in Nigeria.
“There has been considerable discourse particularly on whether the restriction on access to foreign exchange for 43 items is driving local production, with some nay-sayers stating that it has constrained productivity and growth in the economy.
“Based on our internal research conducted at the Central Bank of Nigeria, there is strong support that the recovery of our economy from the recession may have been much weaker or even negative, without the implementation of the restriction on 43 items.
“Our research supports the conclusion that the combination of the restriction on 43 items along with other measures imposed by the fiscal and monetary authorities has helped to promote the recovery.
“Any attempt to reverse the course of this action may have untold consequences on the growth trajectory of our economy particularly in our push to diversify and restructure our economy. In fact, recommendations are being made to the CBN that the list of 43 items be expanded to include other additional items that can be locally produced.”
Emefiele said many entrepreneurs were taking advantage of this policy to venture into the domestic production of the restricted items with remarkable success and great positive impact on employment.
He said: “The dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy. Noticeable declines were steadily recorded in our monthly food import bill from $665.4 million in January 2015 to $160.4 million as at October 2018; a cumulative fall of 75.9 per cent and an implied savings of over $21 billion on food imports alone over that period.
“Most evident were the 97.3 per cent cumulative reduction in monthly rice import bills, 99.6 per cent in fish, 81.3 per cent in milk, 63.7 per cent in sugar, and 60.5 per cent in wheat.”
CBN offers clarification on planned FX restriction on dairy
While expressing unease at the way and manner the policy was being misconstrued, the CBN said some interests, who feel hurt by the planned policy aimed at promoting the local production of milk in Nigeria, mislead the general public by misrepresenting the ordinarily unassailable case for investments in local milk production and the medium to long-term benefits of the planned policy.
I a statement issued at the weekend, the apex bank said, “While we are aware that some of our policies may hurt some business interests, we are thankful to Nigerians for the buy-in and intense interest in the policies of the CBN. As a people-oriented institution, however, we shall remain focused on the overarching and ultimate welfare of the Nigerian masses.
“We therefore wish to, once again, reiterate our policy case as it relates to the planned restriction of access to the Nigerian Foreign Exchange market by importers of milk.”
Nigeria and the welfare of all Nigerians, the CBN governor noted, “come first in all our policy considerations. Being an apolitical organisation, we do not wish to be dragged into politics. Our focus remains ensuring forex savings, job creation and investments in the local production of milk.
“For the avoidance of doubt, Milk importation is not banned. Indeed, the CBN has no such power. All we will do is to restrict sale of forex for the importation of milk from the Nigerian foreign exchange market. We wish to reiterate that we remain ready and able to provide the needed finance to enable investors who genuinely want to engage in milk production.”
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