On Thursday, October 12, 2023, the Central Bank of Nigeria (CBN), announced a policy redecision, by lifting the foreign exchange restrictions placed on the importation of 43 items in 2015.
The apex bank had on June 23, 2015, issued Circular TED/FEM/FPC/GN/01/010, which put 41 product categories on a list of items not valid for FOREX in the Nigerian Foreign Exchange market.
The restriction, according to CBN, was aimed at reducing foreign exchange demand for products that could be locally produced, improve employment generation and conserve foreign reserves.
The items were “Rice, Cement, Margarine, Palm kernel, Palm oil products, Vegetable oils, Meat and processed meat products, Vegetables and processed vegetable products; Poultry and processed poultry products;
“Tinned fish in sauce (Geisha)/sardine; Cold rolled steel sheets; Galvanized steel sheets; Wheelbarrows; Head pans; Metal boxes and containers; Enamelware; Steel drums; Steel pipes, Wire rods (deformed and not deformed); Iron rods; Reinforcing bars; Wire mesh; Steel nails;
“Security and razor fencing and poles; Wood particle boards and panels; Wood fiberboards and panels; Plywood boards and panels; Wooden doors; Toothpicks; Glass and glassware; Kitchen utensils, Tableware; Tiles-vitrified and ceramic; Gas cylinders; Woven fabrics;
“Clothes; Plastic and rubber products; Polypropylene granules; Cellophane wrappers and bags; Soap and cosmetics; Tomatoes/tomato pastes, and Eurobond/foreign currency bond/share purchases”.
Subsequently, fertiliser and textile products were added to the list, making the items 43.
In 2015 alone, Nigeria spent about $2.41 billion or N1.5 trillion on rice importation from India, Thailand, the United States, Vietnam, and the United Arab Emirates.
The then CBN governor, Mr. Godwin Emefiele, disclosed that about $1.2 billion worth of fish was also imported into the country annually.
Within the same period, the country was also spending about $15 million annually to import toothpicks from China and Germany.
Obviously, the Nigeria’s monthly food import bill of $665.4 million as of January, 2015, was unsustainable, therefore, the implementation of the policy was to help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.
CBN said, with the high import bills of the 43 items, it was imperative to exclude their importers from accessing foreign exchange at the Nigerian foreign exchange markets in order to encourage local production of these Items.
CBN was so clear about the policy. It said, “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 own funds without any recourse to the Nigerian foreign exchange markets”.
Unfortunately, rather than approaching the parallel markets to source for FX, most of the importers resulted to smuggling.
The smuggling was so pronounced that the then President, Muhammadu Buhari directed the CBN to blacklist any firm, it’s owner and top executive caught smuggling any of the 43 items ineligible for the FX.
In 2016, the federal government imposed a ban on the importation of rice through land borders.
In 2021, reports had it that about two million metric tons of rice was smuggled into the country.
To change this narrative, in January 2022, the federal government banned the import of parboiled rice through the country’s seaports, but the ban was not fully effective. Because, early this year, the Nigeria Customs Service seized a total of N3.02 billion worth of smuggled rice.
The Customs said, a total of 206,835 bags of rice were seized within the period under review and about 344 smugglers were arrested.
Nevertheless, the restriction help improved the local production of some items and reduced the import bills of the country.
Emefiele, acknowledged the fact that Nigeria’s monthly food import bill fell from $665.4m in January 2015 to $160.4million as of October 2018.
He said the reductions in food import were recorded on rice, fish, milk, sugar and wheat, adding that the policy would be maintained.
“Noticeable declines were steadily recorded in our monthly food import bill from $665.4m in January 2015 to $160.4m as at October 2018; A cumulative fall of 75.9 per cent and an implied savings of over $21bn 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.
“We are glad with the accomplishments recorded so far. Accordingly, this policy is expected to continue with vigour until the underlying imbalances within the Nigerian economy have been fully resolved,” Emefiele said.
Also, for the first time Nigeria could produce toothpicks as a result of the restriction. The Managing Director of Royal Plum Nigeria Limited, Mr Amadi Ogbebor, was one of the Nigerians that ventured into manufacturing toothpicks. following the banning of 41 items from the eligible foreign exchange list by CBN.
About 250 Nigerian graduates, under the sponsorship of the National Directorate of Employment (NDE), established a factory that started producing toothpicks and pencils in Akure, Ondo State.
The idea of local toothpicks production was brought up by one of the young graduates, who convinced the NDE that the products could be produced with bamboo stems from the state.
The fact to be noted, however, is that there was no import ban on the 43 items as was erroneously believed. There was only a restriction on buying FOREX in the official market to import these
Meanwhile, CBN said, its decision to lift the ban was because, the restrictions pushed importers into the parallel market, contributing to the
surplus demand for FOREX. Thus has weakened the parallel-market exchange rate, pushing up prices.
The CBN wants to promote orderliness and professional conduct by all Nigerian
Foreign Exchange Market participants to ensure market forces determine
exchange rates on a Willing Buyer – Willing Seller principle.
The CBN wants a unified market for FOREX with flexible and transparent
pricing. The CBN wants to ensure price stability and is seeking to boost liquidity in the Nigerian Foreign Exchange Market. As liquidity improves, we expect the
distortions to moderate.
On the implications of removing the FX restriction, CBN said, “Monetary Policy tools become more effective with the attainment of a unified, well-functioning market for FX, where pricing is based on a willing-buyer and willing-seller system. With this, the CBN’s core functions and mandates become realisable.
“The willing-buyer and willing-seller system allows the exchange rate to adjust to clear the market and ensure that there is always supply. In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.
“Importers of these products rely on the parallel market to source FX for
importing these goods. This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently
segmenting the market. Removing these restrictions eliminates the need for
importers of these products to go to the parallel market, reducing the pressure
on the naira.
“The hitherto FX restrictions had implications on inflation, causing the prices of affected goods to increase”.
On the benefit to local production, the apex bank said, “local production will benefit from cheaper imported inputs, and consumers will benefit from cheaper retail products. The policy is suitable for a unified FOREX market and positive as well for inflation.
“It is expected that employment generation will be boosted as closed factories re-open. Price stability will benefit the economy and the standard of living in general”.