The Central Bank of Nigeria (CBN) foreign exchange restriction policy has continued to have ripple effects on businesses across different sectors as stakeholders lament looming job loss, low productivity, undercapacity utilisation among other dire consequences, reports Ibrahim Apekhade Yusuf
FOUR months after the Central Bank of Nigeria (CBN) announced its foreign exchange restriction policy, many businesses have continued to rue the adverse implication of the policy on their businesses generally.
The CBN had in a circular dated June 23, 2015, The CBN had in a circular dated June 23, 2015, stated that the policy would help to conserve foreign reserves and facilitate the resuscitation of domestic industries as well as generate employment.
A cross-section of analysts who spoke with The Nation while stating that the objective of the forex restriction was not a bad idea on its own, however lamented that the implementation of the policy has far-reaching implication in the short, medium and long term.
Firing the first salvo, President of the Lagos Chamber of Commerce and Industry (LCCI), Remi Bello, while decrying the policy, warned that most manufacturers might be forced to shut down and move their operations to neighbouring countries due to their inability to access foreign exchange for raw materials and other critical inputs.
Specifically, he said, one of the downside of the policy is that it could lead to massive job losses as an estimated 40, 000 Nigerians who in the manufacturing sector may be laid off.
The CBN recently excluded some essential raw materials from the list of items valid for forex.
The policy, the apex bank explained, was intended to sustain the stability of the foreign exchange market, “resuscitate local manufacturing” of these items and change the structure of the economy.
According to Bello, “There is pressure on manufacturers to lay off their workforce before the end of the year. Most manufacturers affected have been unable to produce lately due to lack of foreign exchange, delays in the processing of Form ‘M’ to import raw materials in order to meet demands and this has adversely led to loss of market share. With this continuing, massive job loss is anticipated in no time from now.
“Also, the manufacturing sector using crude palm oil as raw material in their daily production of goods like biscuits, noodles, cosmetics etc., will be affected as the locally produced and supplied raw material cannot meet the required demand for production.”
The LCCI president expressed the regret that for an economy that is largely driven by the private investors, the government should source for alternative means rather than resorting to a total exclusion of certain items from the foreign exchange market.
He however urged the federal government to prevail on the CBN to review the policy in the interest of the impending danger to the workforce, the private sector and the economy at large.
Among the 41 items marked as ‘Not Fit for Forex’ also include: rice, cement, margarine, meat and processed meat products, vegetables and processed vegetable products, poultry chicken, eggs, turkey, private airplanes/jets, indian incense, tinned fish in sauce(Geisha)/sardines, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods(deformed and not deformed), Iron rods and reinforcing bar, wire mesh and steel nails, wood particle boards and panels, wood fibre boards and panels, plywood boards and panels, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles-vitrified and ceramic, textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules , cellophane wrappers, security and razor wine, soap and cosmetics, tomatoes/tomato pastes and eurobond/foreign currency bond/ share purchases.
Echoing similar sentiments, LCCI’s Director-General, Muda Yusuf, said the chamber disapproved of the apex bank’s policy which restricted 41 imported goods from accessing foreign exchange from the bank.
He said the policy would serve as a disincentive to the Nigerian manufacturing sector and the economy.
The LCCI stated that the restricted items included critical elements of the manufacturing process of many firms, across sectors in the country.
According to LCCI: “The policy means that manufacturers who require any of the 41 restricted items as inputs and raw materials for their production may have to simply shut their operations once their existing stock is exhausted.
“The LCCI understands the CBN’s constraints and circumstances, as it drew up this policy. It, however, appears as if the formulation of the policy has suffered from the CBN’s limited understanding of the manufacturing process of many of the sectors affected by this policy.”
Although the CBN directive was aimed at encouraging local production of the items, the chamber maintained that the policy was ambiguous as the restricted items were not well-defined and specific.
The LCCI, therefore, urged the apex bank to amend the policy with full product definition, specification of all restricted items, including their HS Codes, and excluding items which are non-substitutable industrial raw materials from the list.
The chamber further called for appropriate time frames for items which required some interval before local substitutes can be created for imported raw materials.
It reminded the CBN and the federal government that manufacturers had yet to recover from the losses they suffered due to the recent currency devaluation.
The LCCI added that: “Compounding recent devaluation losses with higher costs and the complete inability to source critical raw materials may push many firms over the precipice.
“This may result in business closures, job losses, declined manufacturing sector production and greater social tension.”
Additionally, the LCCI called for increased engagement and consultation between the CBN and the private sector, for adequate understanding of the impact of its policies on the manufacturing sector.
No going back on forex restriction
For those still nursing the idea that the CBN may soon rescind its decision banning importers from accessing foreign exchange, the forex policy will remain in force.
The CBN governor, Godwin Emefiele reiterated this on Monday in Lima, Peru, while briefing journalists at the International Monetary Fund (IMF)/the World Bank Group meetings.
“The CBN will continue to deny access to forex to import goods that can be produced locally,” he insisted.
“We have not banned any items. What we just did was to exclude from accessing foreign exchange, items that can be produced in the country. We think that because of the problems we’ve had, the drop in commodity prices and revenue accruing to the nation, and because we know that these items have been produced in large quantities in this country in the past, that provision still stands. The CBN is not reconsidering the ban, the exclusion still stands,” Emefiele stressed.
The apex bank’s chief said in the course of the period that this policy has been in force, he has been prompted from various quarters to even elongate the ‘excluding items’ list, but he however said the CBN would confine itself to the items as presently indicated.
The CBN, Emefiele stressed, “has at different fora received the list of additional items which some section think should be included from receiving foreign exchange, but the CBN has for now limited the options to the existing ones.”
In defending the apex bank’s stance, Emefiele argued that if there’s global economic slowdown which has affected the growth and resilience of emerging and frontier markets, including Nigeria, and there is a drop in revenue receipts which has impacted negatively on everyone, “there’s abounding need for the regulator to intervene to restore stability in the exchange rate regime, look for ingenuous ways of increasing the sources of foreign exchange, such as encouraging exporters to repatriate their proceeds and make more foreign exchange available to the real sector, so as to grow the economy.”
He said the reforms that commenced about two years ago, with respect to economic diversification and taxation, will be vigorously pursued with a view to increasing the government’s revenue base.
He said since about two years ago, and even before, government has been on the path of reforms, focusing on how to increase the countries revenue base. He said the collaboration with Mckinze (a foreign Accounting Tax Consultant), resulted in the increase of revenue by about N75billion in 2014, pointing out that a N150billion revenue target is being expected from this engagement, this year.
Emefiele, who spoke on a wide range of issues, said investors are exiting from frontier and emerging markets on account of the uncertainty and insecurity that pervade the markets, saying that in the last quarter of this year alone, about $48billion capital outflows has been recorded in these markets. He said people are pulling funds out and are looking to more stable and safe zones to invest.
“This is why, he argued, “we are saying that we should be nationalistic in our approach, that we have to carry our cross by ourselves,” pointing out that there is need to prioritise, by making sure that “foreign exchange is made available to only those who are importing essential raw materials and goods we know cannot be produced within the country. That is the only way we can conserve our foreign exchange.”
He said the CBN will continue to intervene in the foreign exchange market and to ensure that forex is made available to meet the import needs of our people,” pointing out that is in this respect that the apex bank is appealing to exporters to make available their export proceeds to further boost available foreign exchange.
Emefiele said the slow down as a result of the drop in commodity prices, the anticipated rate hike by the US by the Federal Reserve Bank and the tension in the global arena, have affected some of the economies, to the extent that some have gone into recession.
