• Ban Was Ineffective, Current Move Good For Economy — Experts
This is even as the fall of the naira is continuing despite the policy by the CBN. In unbanning the items, the CBN stated emphatically that the step was aimed at bringing everyone into the Investors and Exporters (I&E) window to attract foreign exchange into the economy.
Experts are of the view that the idea behind lifting the ban on the 43 items was to reduce the pressure in the black market and increase liquidity through the official route, where exporters would be able to buy and sell forex at the I&E window instead of the unofficial market.
Indeed, the idea behind the ban initially was to manage the scarce forex and protect local manufacturers by making the import of those items quite expensive and unable to compete with locally manufactured products.
Unpacking the confusion surrounding the unbanning of the 43 items and why the step has not resulted in forex availability, an investment banker, Oludare Michael, said: “If there is one thing the Nigerian economy has taught me, it is not to bet on the principle of a ‘free market’. The structural distortions and inefficiencies especially in the supply side of our forex market make me less optimistic about this policy. The greed and opportunities of an arbitrage system make the incentive of the black market too alluring to an average Nigerian and this will continuously make them keep their forex just to create an artificial scarcity.”
He insisted that the CBN must find a way to ensure enough external inflow of forex that breaks the apron strings of the market so that it stops being at the mercy of the supply side of the market locally while also improving the structural distortions in the market.
For the public affairs analyst, Ndubuisi Ekekwe, absence of working papers by the CBN that explain public policies and serve as a repository of knowledge for future reference is worrisome.
He added: “The website of the CBN for years has no working papers the public could consume to see the data, which is driving some of the policies. And when some policies are reversed, we do not have the benefit of going back to see what could be learned from those previous calls. I am yet to read a working paper or publication on the border closure benefits. No one has written on the economic impact of the recent Naira redesign. The Research and Development and Strategy units in CBN should not make these reports classified if they have them. Do we have a working paper to explain the benefits since this ban was implemented? Where are the papers? And now that we are reversing the call, do we have models? By forcing CBN staff to develop working papers, you push them to become more rigorous and analytical as they craft policies. If that becomes the way the bank operates, you will likely get deeper insights on previous policies, and that will help you architect future ones.”
Chief Executive Officer, Dairy Hills Limited, Kelvin Emmanuel, believes that the decision to unban the 43 items that restricted access to the official FX markets over the last decade is a good decision, which is in line with the liberalisation of the foreign exchange.
He maintained that he does not believe that companies that have invested in backward integration for import substitution would suffer losses from dumping and vailing because there remains a customs import ban on most of those items that were on the list of 43.
His words: “A key way the Central Bank can protect the local producers is to advise the Fiscal authorities to raise the levy on those items that are classified as a prohibited list to discourage and make their imports non-competitive. The implication for the economy is that while there remains a supply issue to both clear outstanding FX forwards, the liberalisation will bring these categories of businesses into the official window, reduce the migration from official to parallel markets, and help towards unification, required to attract foreign investments.”
Conversely, other stakeholders flayed the unbanning, describing the step as ‘putting the cart before the horse’.They argue that with the I&E window already averaging $100 million in daily turnover, fresh entrants into the limited pool would drive demands upwards.
Also, there are backlogs of trapped funds, which, according to the International Air Transport Association (IATA), amount to $783 million for foreign airlines. Fitch Ratings believes CBN has over $12 billion pending payments. Furthermore, the $3 billion crude oil swap loan from Afreximbank, which was greeted with fanfare, is currently experiencing delays.
The impact of fuel subsidy removal with no working refineries is currently hitting Nigerian households hard. Fuel prices increased to a staggering 224 per cent while salaries remained stagnant.
National President, Oil Palm Producers and Marketers Association of Nigeria, Alphonsus Inyang, said the CBN couldn’t fund the demand that would come from unbanned 43 items.
“You can see how the dollar rate is rising. What it means is that all those who used to go to the parallel market for dollars are now going to the government to demand it. They wanted to close the gap between the official and the black market to discourage round tripping, but do you have the capacity to fund the dollar demand? They don’t have it. So, it is a cheap and lazy way of managing the monetary policy of the country so that people will say the government is working,” he explained.
He lamented that local oil palm producers would be forced out of the market because of the policy. Inyang said: “Before now, palm oil will leave Indonesia, spend two to three months on the sea and still arrive cheaper than the locally produced ones; that is when they were buying forex from the parallel market. Now that they can bid for forex and get it at the official rate, it means that palm oil will arrive here much cheaper. The implication is that big players will now find it more attractive to import palm oil and its other derivatives than patronising local producers. That will push local farmers out of the market.”
He added that the policy would not help the real sector. Also speaking, National President, All Farmers Association of Nigeria (AFAN), Kabir Ibrahim, said the business proposition by the CBN is not valid.
“Does the CBN even have the dollars to give the business community? In any case, the cheapest rice from around the globe is from India and the landing cost in Lagos is $580 per bag, which means it just cannot compete in the Nigerian market.
“But the truth of the matter is that the business proposition is not valid, the CBN did not interact with the stakeholders. This policy will make Nigeria lose all the gains that we may have made as a result of the ban. What Buhari did was limited protectionism to help local industries grow by making them look inward to produce what they needed but could not import, which happened in Russia and China during the era of the Iron Curtain. For a very long time, they shut their borders and depended on what they could produce. Today, China is the biggest producer of wheat in the world, the combined production of Russia and Ukraine cannot match that of China,” he said.
On his part, Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said the lifting of the ban raises to the front burner the need for the harmonisation of monetary and fiscal policy.
“Ideally, trade regulation should be a function of fiscal and trade policy. However, the absence of sound fiscal policy allowed the Emefiele-led CBN to fill a void since nature abhors a vacuum.
“Lifting this ban without a response from fiscal policy, not by increasing tariff on these items, but by deploying non-tariff measures such as levies, may expose the local manufacturers of these products to undue competition from foreign producers whose governments provide various production subsidies.
“This may lead to factory closures, retrenchment of workers, loss of government revenue in personal income tax (PIT) and company income tax (CIT) if not properly managed,” Onyekpere said.
Other stakeholders maintain that the intended objectives of the ban were not met hence the reinstatement of the items. Benard Obaiye, who is a wholesale trader at both the Wuse Market and IBB Market in Suleja, Niger State, said accessing foreign exchange has become difficult, which has led to increase in the prices of his goods.
He, however, believes that lifting the ban on the 43 items was a good decision by the apex bank to rediscover the nation’s economy by interacting freely with other neighbouring countries.
A former Director-General of Abuja Chambers of Commerce and Industry (ACCI), Chijioke Ekechukwu, said that an average Nigerian would think that the ban would cause a lot of havoc for the economy, but explained that while the ban existed, there was no improvement in the exchange rate supply and so, these were the things the government considered necessary to remove the ban because it did not lead to influx of forex as envisaged.
Ekechukwu explained that the ban was a violation of trade agreements that have been entered into by the Federal Government such as with the African Continental Free Trade Area (AfCFTA) and Economic Community of West African States (ECOWAS) stressing, “we should ask ourselves how has the policy helped us?”
He expressed confidence that the removal of the forex ban on the 43 items would not have any effect on the economy.
He, however, advised the government to ensure that the nation’s refineries are brought on stream so that petroleum products would be available for local use and for export, adding that it would reduce the cost of production of goods and services. On his part, Prof. Omo-Ogun Ajayi of the University of Calabar told The Guardian that the reversal of the ban gladdens his heart.
Prof. Sheriffdeen Tella of the Onabisi Onabanjo University, Ago-Iwoyi, also said that the action of the apex bank was good. He argued that while protectionism is good, there must be a timeline for such intervention.
Tella lamented that the industries used the ban to increase prices rather than increase their production and bring down unit costs and prices.
“What is of concern is the increased demand for forex in both official and unofficial markets and the eventual continuous depreciation of naira with the concomitant further economic crisis,” he stated.
