AT an average of $300 million spent on 41 items on its restriction list from subsidised official foreign exchange window, the Central Bank of Nigeria (CBN) may have expended an estimated $12.3 billion between January and May, this year to subsidise imports of finished goods.
Meanwhile, a blame game is on 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.
Indeed, members of the OPS and manufacturers differed with the apex bank on the classification and definition of some of the products restricted from access to forex market, stating that some of the products are raw materials used in the course of production in their factories.
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Similarly, the manufacturers faulted access to the forex market by fuel importers while restricting members of the real sector.
Maintaining its stance on its forex policy, the CBN sought understanding from members of the OPS, explaining that 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 into the country.
Specifically, the CBN while describing the intense pressure it has had to cope with in defending the naira between January and May 2015, stated that $575 million was expended on wheat importation, $375 million on fish and $349 million on electrical and electronic appliances and components.
In its analysis of the trends, observed that if over $300 million was expended on importing an item that could be sourced locally, more would have been expended on subsidising intermediate products and raw materials used by many local manufacturers.
Meanwhile, the apex bank has kept mum on possible further devaluation of the naira, noting that its mandate to protect the currency would not be undermined through macro-economic policies that may be impeached.
In another twist, some of the importers noted that the fear of devaluation has made many of them hold tightly to letters of credit issued by the bank, adding that they are struggling to mitigate their risks in the current fiscal policy regime.
The Director of Monetary Policy Department, CBN, Moses Tule, while speaking at an interactive forum organised by the Lagos Chamber of Commerce and Industry (LCCI) in Lagos, yesterday, affirmed that private sector issues are not treated with kids’ glove by the apex bank while the sector remains the backbone of the economy.
He pointed out that the nation’s forex reserves cannot be depleting without replacement and still remain what it used to be, hence the drastic measure to curtail unhealthy demand.
He also noted that because the economy is heavily dependent on imports and the exchange rate pass-through to high inflation, the adjustment is optimal now.
According to him, for employment considerations, the apex bank is determined to do anything to sustain economic activities as well as keep the country afloat.
Tule dispelled suggestions that CBN was supposed to dialogue with stakeholders before embarking on policy changes of such magnitude, saying that no central bank in the world can do that as it would stoke incontrollable pressure and speculations.
Speaking on the exigency of the policy, he said that it is not just in response to the pressure on the naira, but as an opportunity to change the economy’s structure, resuscitate local manufacturing, and expand job creation for the citizens.
Citing rice imports as example, he queried why Nigeria should be 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 other rice producing countries.”
Reiterating that CBN did not ban any importation of those items, but only said it would not expend its little reserves on those items that can be produced locally, he challenged manufacturers and entrepreneurs to take advantage of the opportunity rather than the easy way out.
He insisted that the items were listed after thorough and exhaustive discussions at the highest policymaking body of the bank, with the strategic national interest of Nigeria as topmost goal and backed up by verifiable data.
But the Managing Director of Coleman Wires and Cables, George Onafowokan called for a review of the policy even as he noted that some of the products listed under the prohibited list have not been thought through.
He lamented that improper definition of the categories is already affecting production capacity of many industrial firms.
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.
With a loss of $800 million due to what he described as technical devaluation by the CBN, Onafowokan noted that his company having staked about N11 billion on expansion within the last two years, is currently 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,” he said.
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 stressed the need for the apex bank to enlighten stakeholders on the value proposition of its policies, adding that the worries of the OPS also border on the restriction on the use of export proceeds to only items valid for forex.
Also, Mr. D. Yanfa, who represented the Director, Financial Market, Emmanuel Ukeje, said that forex policy has been evolving over time in response to the prevailing economic conditions at each particular point in time.
He noted that forex developments moved from the Wholesale Dutch Auction System, Retail Dutch Auction System to the Interbank Foreign Exchange Market at present.
Affirming that the latest move is part of efforts to avoid further devaluation, he reiterated that there is adequate provision of intervention funds to aid businesses and new entrants to explore further activities in the affected items.