CBN’s new forex restrictions

The apex bank said in a circular dated June 23 that the policy would also facilitate the resuscitation of local industries that have been nearly comatose over the years, and boost employment.The CBN has taken a series of measures since 2014 when Nigeria’s foreign exchange earnings began to plummet due to sagging global oil prices […]

The apex bank said in a circular dated June 23 that the policy would also facilitate the resuscitation of local industries that have been nearly comatose over the years, and boost employment.
The CBN has taken a series of measures since 2014 when Nigeria’s foreign exchange earnings began to plummet due to sagging global oil prices to ensure the efficient utilisation of forex and the derivation of optimal benefit from goods and services imported into the country, but perhaps this is the most far-reaching policy initiative it has taken so far.
The circular signed by the bank’s director of trade and exchange,  Olakanmi Gbadamosi, explained that an import ban has not been placed on the 41 items, but importers desirous of shipping them in  would have to obtain forex from sources other than the official window.
Nigeria is arguably one of the world’s biggest importers of food, spending an estimated N1.3 trillion annually on wheat, rice, sugar and fish imports. This is not acceptable, especially if Nigeria still hopes to become one of the 20 largest economies by 2020.
CBN Governor Godwin Emefiele, wondered at a meeting with bankers a day after the circular was issued that: “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 and toothpicks to eggs?”
“I believe 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,” Emefiele said, while explaining what informed the new policy.
Indeed, the initiative could not have come at a better time as it rhymes with the federal government’s policy to promote domestic production, especially of items like rice, where it aims to attain self-sufficient by 2017.
A report by Ecobank Nigeria Economics Research shows that the listed items make up 63.6 percent or $5.7 billion of the $9 billion total forex utilisation on visible imports in the fourth quarter of 2014 alone.
Add this to the huge sums of hard currency spent on unverifiable fuel subsidies and presidential waivers on all manner of items then it becomes clearer that the policy was long overdue. This is unsustainable given our depleted foreign reserves which stood at $29.03 billion by the end of May, the lowest in over two years.
Surely, the restriction will put a strain on the parallel market like raising the exchange rate and inducing inflation in the short-to-medium term, but in the long-run things should stabilise if the policy is diligently implemented and sustained.
To achieve this, the regulator will have to put in place measures to checkmate unscrupulous elements who may want to take advantage of the exchange differential between the alternative forex markets – parallel and bureaux de change – to engage in round tripping.
Most of the items classified as invalid for the official market can be produced locally given the right environment. Only a few years ago cement ranked highest on Nigeria’s import list, but today we are not only producing enough to meet local demand, we are also exporting it.
It didn’t take rocket science to achieve the feat which can be replicated in other sectors of the economy. CBN should therefore, consider extending the restriction to other areas where Nigeria has the potential of producing to protect our reserves and the naira.
But let us not deceive ourselves that forex restriction alone will solve the problems that have hobbled the manufacturing sector, a holistic approach is needed. The federal government must take urgent steps to strengthen Nigeria’s infrastructural base by improving power supply, and upgrading our transport system to help stimulate local industry.
The CBN also needs to complement the initiative with a monetary policy that would make lending to the real sector more flexible and ultimately transform Nigeria into a producer economy.