The Central Bank of Nigeria (CBN) policy restricting importers of some items from accessing foreign exchange is generating heated debates. The directive categories 41 items as ‘not valid for forex’. OKWY IROEGBU-CHIKEZIE reports that although the ‘policy will help curb a situation where poverty is being imported and jobs exported, there is need to review the list to ensure that raw materials are not taken as finished goods
IN its heydays, it supplied the plywood needs of many and employed hundreds. Now, the vast empire called Epe Plywood is a shadow of the dream of its founder – Oodua Investment Company.
But, Epe Plywood is not alone in its afte. Take a stroll around industrial areas in Ikeja, Ilupeju, Kano, Kaduna and elsewhere in the country, and you are bound to be confronted by huge factories that are either dead or dying.
Most of these companies are into enamelware, steel drums, steel pipes, wire rods, iron rods and reinforcing bars, wire mesh as well as steel nails. They are also makers of security and razor wire, wood particle boards and wooden doors.
Some other dead or dying industries are into toothpicks, glassware, kitchen utensils, tableware, textiles, woven fabrics, clothes, plastic products, polypropylene granules, cellophane wrappers, soap, cosmetics and tomatoes/tomato pastes.
Over the years, importers have found pleasure bringing in these items through the ports and other entry points. Local manufacturers of these items have been the worse for it. Several government policies to remedy the situation have achieved little or nothing.
An average of $300 million is spent on the 41 items on the restriction list from subsidised official foreign exchange window monthly – meaning about $12.3 billion has gone into subsiding imports of finished goods in the last six months.
Succesive governments have been worried over the state of local industries. Policies upon policies have been formulated to remedy the situation.
The latest in the efforts to protect local manufacturers of plywood, tooth picks and others is from the Central Bank of Nigeria (CBN).
The policy bans importers of any of these items from sourcing foreign exchange from the Bureaux de Change and the interbank market.
In a circular by its Director, Banking Supervision, Olakanmi Gbadamosi, the CBN said: “In the continuing efforts to sustain the stability of the forex market and ensure efficient utilisation of forex and the derivation of optimum benefits from goods and services imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian forex markets in order to encourage local production of these items.
“The implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.
“For the avoidance of doubt, please note that the importation of these items are not banned, thus importers desirous of importing these items shall do so using their funds without any recourse to the Nigerian foreign exchange market.”
The policy has, however, led to a blame game between the CBN and members of the Organised Private Sector (OPS). While the apex bank alleges non-remittance of forex earnings by OPS members who retain such in foreign domiciled accounts, thereby mounting demand pressure on the bank for forex, the OPS says the CBN’s action encourages investors and manufacturers to pay for inefficiencies in governance and management of resources.
Another grey area is the classification of some of the restricted products. OPS members see some of the products as raw materials.
The CBN position
For the CBN, members of the OPS must understand there is a yawning gap in the demand-supply chain of the nation’s foreign exchange earnings, therefore necessitating an adjustment on the demand side by reducing the pressure from importers of finished goods.
The CBN, while describing the intense pressure it has had to cope with in defending the naira between January and May, stated that $575 million was expended on wheat importation, $375 million on fish and $349 million on electrical and electronic appliances and components.
CBN Governor Godwin Emefiele said the country spent an estimated N1.3 trillion on items that could be manufactured locally, adding that Nigerians need to have a soul-searching conversation on the impact the import regime has on the economy, especially industrialisation and job creation.
He said: “Sometimes, policy changes are forced on policymakers as a result of exogenous shocks beyond their control. While most people do not like to be forced to do something, one of the hallmarks of effective policymaking is to be nimble and responsive when such situations arise.
“I am happy to inform and underscore that this policy change is in line with my long-held belief that Nigeria cannot attain its true potential by simply importing everything.
“At some point, we have to all decide what we really want for our country, and I believe that the time is now right for that deep and honest conversation.”
The CBN boss maintained that the huge amount of money that Nigeria spends on importing things that could be produced locally have become a significant drag on the foreign exchange reserves.
Emefiele said: “Most of you are aware of the often-quoted number of N1.3 trillion, which is what we spend on the average importing rice, fish, sugar and wheat every year.
“Each time I ponder these issues; many vexing questions trouble my mind. Let me take the case of rice for illustration. Why should we keep importing rice into Nigeria when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are being wasted and ignored?
“What will it take for these importers to stop the importation and instead go into processing these locally produced rice? Why are these importers not utilising the vast expanses of arable land for rice cultivation instead of taking the easy route of importing rice?
“Do we, as a people, realise how many jobs we are creating for other countries by ignoring local production and simply concentrating on imports?
“How can we keep complaining about the depreciation of the naira when all we do as a people is to import everything from ordinary Geisha (canned fish) and toothpicks, to even eggs?”
“Let me emphasise that the CBN does not have the power to outrightly ban the importation of the items we listed in our circular.
“Of course, anyone listening to me now would know what I could have done if I had that power. But what we have done is to simply say that the Central Bank of Nigeria cannot continue to support the imports of these items using Nigeria’s hard-earned foreign exchange.
“Importers who may want to continue bringing in these goods or services into the country will have to source their foreign exchange from private sources.
“Let me reiterate that the Central Bank of Nigeria will continue to be vigilant around this policy and will keep reviewing the list of these items as we become comfortable that items can be produced locally if we apply ourselves sufficiently enough.
“I believe that the current situation we find ourselves affords us a unique opportunity to embrace self-sufficiency in Nigeria, reduce our appetite for everything and anything foreign, conserve the country’s scarce foreign exchange, and create jobs here at home for our people.”
Exporting hard currency
In what appears to be an attempt to derail the policy, the CBN says those offended by the policy have resorted to exporting hard currency across the borders with neigbhouring countries. The CBN said large quantum of cash is now being transported through the borders following its foreign exchange denial to importers of restricted products.
The apex bank said it was collaborating with relevant agencies to ensure that the culprits are apprehended.
“The apex bank has noted the unwholesome practice of movements of huge foreign currency cash across Nigerian borders by individuals and corporate bodies without compliance to extant law of declaration to the appropriate authorities. The bank is already collaborating with other relevant agencies of government to ensure compliance to the provisions of the law,” the CBN said.
The CBN also reminded the Bureau de Change (BDC) operators that they are not allowed to sell more than $5000.00 to any individual customers for business travel/personal travel allowance, monthly mortgage payment, school fees abroad, credit card payment, Utility bills, Life insurance premium payment.
The CBN said: “The bank, however, stated that the BDCs are only authorised to deal in foreign currency cash and to sell not more than US$5000.00 to an individual customer and strictly for the following transactions: (i)business travel/personal travel allowance; (ii) monthly mortgage payment; (iii) school fees abroad; (iv) credit card payment; (v) utility bills vi) Life insurance premium payment.
“For the avoidance of doubt, the Central Bank of Nigeria has directed that BDCs are not authorised to fund import transactions in any form whatsoever, either by cash or wire transfer. Accordingly, authorised dealers are hereby barred from effecting wire transfers from the account of their BDCs’ customers henceforth.”
The apex bank added that it would not take desperate measures to satisfy those it described as “few misguided interests in the market.”
The CBN wondered why the country should keep allocating scarce forex to rice importers when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty “while we export their jobs and income to rice producing countries?”
It added: “Few decades ago, Nigeria was one of the world’s largest producers of palm oil but today we import nearly 600,000 metric tonnes while Indonesia and Malaysia combine to export over 90 per cent of global demand. Under these circumstances, the CBN will do the little it can to protect the jobs and incomes of local farmers, using some of the same principles Western Economies use to justify the protection of their farmers through huge subsidies.”
The OPS position
The President, Dangote Group, Aliko Dangote, threw his weight behind the CBN, describing the decision as “excellent and one of the best decisions taken so far by the CBN Governor, Mr. Godwin Emefiele”.
He described the CBN’s intervention as appropriate for the economy, saying: “We cannot be importing poverty and exporting jobs.”
He added that the measure would encourage his firm “to look inward and massively produce locally to create jobs for our growing young population.”
Dangote said without such ban by the administration of former President Olusegun Obasanjo, he would not have been able to grow his cement business. His company now exports cement when only 10 years ago Nigeria was importing cement massively.
“When Obasanjo introduced the policy, he was massively criticised by multinationals and the same foreign media. But today, we are self-sufficient in cement production,” Dangote said.
Dangote maintained that those criticising Emefiele for the decision do not have the interest of Nigerians at heart.
He urged the people in the Southsouth to focus on the development of palm plantations instead of importing palm oil. He enjoined Nigerians to see this as an opportunity to invest in fish farming rather than importing fish.
“Although fish is a major staple food in Senegal, the country does not import fish….. why should we be importing fish in Nigeria with all our God given ocean resources?” he asked.
But, the Managing Director of Coleman Wires and Cables, George Onafowokan, believes there is need for a review of the policy, adding that some of the products listed under the prohibited list have not been thought through.
According to him, the development will put several investments at risk with implications for job losses, quality of loan assets in the banking system and the welfare of citizens.
Onafowokan noted that his company having staked about N11 billion on expansion within the last two years is facing a huge challenge that may affect its productivity and workforce profile.
“The CBN’s policy should have excluded raw materials through proper definition and identification of HS codes of some restricted items. We have staked at least N11 billion on expansion in the last two years. The loans we have taken within that period had to be restructured to cater for devaluation and changing interest rates. With this forex restriction, it seems the CBN is asking local firms like ours to shut down.
“Exporting out of Nigeria is a very difficult task due to a lot of factors and circumstantial policies. The manufacturing sector needs an intervention from the CBN to address the gaps created by the policy.
“Ambiguous definition of macroeconomic policies is prone to disaster. You are trying to create jobs but you are losing jobs”, Onafawokan said at a dialogue with CBN on foreign exchange policy organised by Lagos Chamber of Commerce and Industry in Lagos.
The Managing Director, Nosak Group GoddieIsibor, said some of the affected items are raw materials.
“The CBN should go back and remove raw materials so that we don’t kill industries with the hope that we are going to increase production,” he said.
For CBN’s Director of Monetary Policy, Moses Tule, the apex bank would do anything within its power to ensure that macroeconomic policies are sound.
On the need to distinguish between finished products and raw materials, he said the policy would be revisited.
“On the definition of the items, I take that as a takeaway, to look at what we can do in that regard,” he said.
Lagos Chamber of Commerce and Industry (LCCI) President Remi Bello noted that the consequences of the CBN policy have been far reaching on companies with high exposure to the forex market.
Bello urged the apex bank to enlighten stakeholders on the value of its policies, adding that the OPS was worried that many items are not valid for forex.
In a communiqué signed by its Director-General, Mr. Muda Yusuf, LCCIsaid the policy has shown CBN’s limited understanding of the manufacturing process of many of the sectors affected by the directive.
“Many of the restricted items are irreplaceable raw materials in the manufacturing process of many industries and this policy will cause significant damage to the Nigerian manufacturing sector and economy. We affirm that while there are several items on the list which any patriotic Nigerian will not object to, there are many others that will harm the manufacturing sector.”
The LCCI advised the CBN to review the policy.
“The new CBN policy is ambiguous as the restricted items are not well-defined and specific, plunging both manufacturers and banks into confusion regarding CBN’s intent. We urge the CBN to immediately amend the policy with full product definition and specification of all restricted items, including HS Codes and excluding any items which are non-substitutable industrial raw materials from the list. The CBN policy should also allow appropriate time frames for items which require some time interval before local substitutes can be created for imported raw materials.
“We call CBN’s attention to the fact that the fundamental forces the CBN is struggling against are economic and fiscal policy dependent while the bank continues to exert monetary policy tools almost to a point in which economic harm may result. The fundamental factors are diversification of the Nigerian economy in terms of exports and government revenue, issues around downstream oil sector deregulation and upstream oil sector fiscal regimes, power sector efficiency and creating alternative economies in solid minerals, agriculture, manufacturing and other sectors towards building a productive, export-led local economy. These matters cannot be resolved through exclusive deployment of monetary policy tools.”
LCCI urged the CBN to liase with the Federal Government so that more appropriate economic and fiscal initiatives can be designed to help manufacturers.
LCCI also called on the CBN to harmonise its policies with other agencies of government, including Customs, Federal Inland Revenue Service (FIRS), Standards Organisations of Nigeria (SON) and Immigration.
