Steadily, an unintended pattern is fast emerging that every policy of the President Bola Ahmed Tinubu administration turns out to be controversial: unleashing more pains and hardship on the citizenry and pushing the economy further into the woods. The latest in the series of these policies is the return of 43 items to access to foreign exchange (FX) through the official window, exactly eight years after they were banned (in 2015). In a release, announcing this policy reversal, the Central Bank of Nigeria (CBN) re-stated its commitment to “Willing Buyer, Willing Seller” in the determination of the exchange rate of the Naira against the dollar (and others) in the FX market.
At the inception of the policy (ban of the 43 items) in 2015, perceptive observers of the Nigerian economy thought the initiative meant some sort of import-substitution industrialization strategy by the erstwhile Muhammadu Buhari administration. And really, the CBN policy at that time: denying importers of those items official access to FX implied strict discouragement of the continued importation of those items. The policy also implied an encouragement for local producers of those items to embark on ‘backward integration’, by sourcing their raw materials locally. Without a doubt, a number of astute and patriotic investors did key into the policy; and in no time, moved into local production of some of those items.
A cursory look at the list of those items vividly shows that their continued importation amounts to avoidable dissipation of our scarce foreign exchange. The list include: toothpicks, maize, tomatoes, kitchen utensils, clothes, plastic and rubber products, soap and cosmetics, cement, margarine. Others are: palm kernel/palm oil products/vegetable oils, poultry (chicken, eggs, turkey), Indian incense, tinned fish in sauce (geisha)/sardines, roofing sheets, furniture, security and razor wire, etc.
In economic history and international relations, no country ever opens its borders for all manner of goods and services to be imported. On the other hand, nobody advocates autarky; but some sort of protection through tariffs, import quotas and/or ban on select items is in order. Eight years ago, when the apex bank took the initiative to ‘creatively restrict’ the importation of those 43 items, it was seen as a bold signal for the encouragement of local manufacturing of not only those items, but also many others. The measure served as alert to all importers that their time could be up anytime the CBN decides to shut the official FX door against them.
Under that palpable ‘fear’ instilled by the CBN’s policy, not a few investors opted to produce some items locally rather than continued importation. And if anything had stalled or retarded the economic development of Nigeria over the years, it is the unrestrained importation of all manner of things. Hence, the country has ‘infamously’ remained an import-dependent economy—a consumption and not production economy. Foreign exchange inflow from crude oil sales in the past five decades or so, has rendered the country a mono-product economy. Petrodollar inflow has bestowed every Nigerian with the purchasing power; and taste and preference for imported products.
It was therefore quite politic that the CBN had to encourage local production in a very subtle way—by denying importers of the 43 items access to FX through the official window. Now, eight years down the road, the President Bola Ahmed Tinubu administration decided to fling the door open to all and sundry (including the 43 items) to keep importing everything without let or hindrance. The implication of this policy somersault is manifold. Nigeria is virtually at the lowest ebb in terms of availability of FX because of the impact of a number of recent economic policies of the Tinubu administration.
Removal of petrol subsidy and licensing of more people to be importing the commodity is adding pressure in the FX market that is already facing acute shortage of forex. The floatation of the Naira or forex rates unification mid-June has implied massive devaluation of the local currency—with demand for FX far outstripping its supply consistently. It is against this background that the recall to official access to FX to importers of the 43 at this time is bad omen to the economy. The direct implication of this is that the move to begin to import those items will redound to rising demand for (the scarce) FX. Whatever happens, sooner than later, local producers of those items (in the past eight years or so) will begin to lose the market to imported (cheaper) brands.
This is an ineluctable fate because the Nigerian business environment has remained constricting for some time. Cost of doing any business in Nigeria is prohibitively high vis-à-vis other climes; and as such not a few firms have opted to shut-down their operations in the country. The country, no doubt, is a large market, and readily serves as a dumping ground for all conceivable imports. This is tantamount however to (un)willful asphyxiation of players in the real sector of the economy.
Thus, lamenting the latest policy reversal of the CBN, the Vice Chairman, Basic Metal, Iron and Steel Products sector of the Manufacturers Association of Nigeria (MAN), Mr. Lekan Adewoye, said “for items that can be produced in Nigeria, such manufacturers ought to be encouraged. This directive by the Tinubu-led federal government through the CBN, will further kill the manufacturing industry that is already struggling to survive. The problem is about policy somersaults; some of our members who have invested in backward integration will now start to regret their move because everyone who can access FX will claim to be an importer, forcing sincere manufacturers to close shop; thus, increasing the number of jobless persons in the country.”
Adewoye who spoke on a TVC Business Program said: “Nigerian manufacturers don’t really have any competitive advantage over those in other developing economies; at best, what you have is competitive parity, because something has to be an advantage if your competitors don’t have it. And the little incentive that government has provided now it been removed by the directive from the Central Bank of Nigeria.”
Yes, the CBN’s directive is a retrogressive policy with the capacity to getting the Nigerian economy flooded with imported toothpicks, toilet soaps, vegetable oils, name it, in a matter of months. The policy amounts to direct elimination of not a few manufacturing concerns in the country in a couple of months. This is because such businesses cannot stand the impending stiff competition against imported (usually superior and cheaper) brands or substitutes. Infant industry protection principles alone should have guided the initiators of the policy reversal to stick to the status quo antebellum. Alas, the harm is already done; and the economy keeps rolling down the abyss. Unfortunately!
- The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: obioraokeke2000@yahoo.com