Forex, inflation concerns rise, as CBN lifts import restriction on 43 items
[By VICTOR NZE]
Economic analysts in the country have raised concerns over the lifting of import restrictions on 43 items by the Central Bank of Nigeria (CBN).
According to the experts, foreign exchange (forex), inflation, in addition to the already exorbitant price of local and foreign rice brands are at risk of driving the country’s already spiralling inflation out of control on the strength of the new directive by the CBN.
It would be recalled that former President Muhammadu Buhari had in 2015 days after inauguration placed 41 items on import restriction list, before adding two more items in 2016.
In August 2019, Buhari further ordered a ban on dollar allocation for food imports, forcing importers to source for foreign exchange at parallel markets. A year later, in 2020 the president reissued that ban on dollars for food imports, adding fertilizers in the restricted items this year.
“I am restating that nobody importing food or fertilizer should be given foreign exchange from the Central Bank. We will not pay a kobo of our foreign reserves to import food or fertilizer. We will instead empower local farmers and producers,” the President wrote in a tweet. Nigeria’s economic policy has normally centred on food and agriculture security even as food prices remain at an all-time high,” Buhari said in December 2020.
Speaking at the fifth regular meeting with the Presidential Economic Advisory Council, held on
Tuesday, December 29, 2020, at the State House in Abuja, Buhari directed that the CBN ‘must not give money to import food.’
In specific terms, the President noted that due to the sharp deterioration in international economic environment and its impact on Nigeria’s continuing dependence on food import, the ban has become imperative.
However, with food inflation spiralling at an all-record high worsened by a foreign exchange which has seen the local Naira edging past N1000 mark at the parallel market, the CBN has lifted all previously-imposed restrictions on imported items.
The local currency’s depreciation, coupled with the removal of subsidy on petroleum products without a corresponding increase in local production, and the consequent rise in cost of food prices have all combined to drive up the inflation rate.
While the depreciation of the local is largely attributed to its floating, a measure which led to its freefall in the foreign exchange market, the subsidy removal is directly blamed for the rise in cost of food and transport fares, all of which are tied to petrol pump prices.
According to the Lagos Chamber of Commerce and Industry (LCCI), it is already anticipating that businesses will implement a variety of cost reduction strategies to lower operating expenses and maintain profitability amidst on the back of the inflationary pressures, even as it urged the CBN to halt any further planned increase in the interest rate by banks to ease pressure on the supply side of the economy.
Nigeria’s 18-year-high inflation rate of 25.8 per cent is also believed to be taking pressure from some fiscal and economic policy decisions of the President Tinubu’s administration, according to economic analysts.
The CBN directive to lift these restrictions also follows the recent decision by the International Monetary Fund (IMF) to downgrade Nigeria’s economic growth prospects for the year, earlier in the week, on the back of a rising inflation rate coupled with a drop in crude oil production in 2023.
The CBN earlier, announced lifting restrictions on importers of all the 43 items previously restricted by the 2015 circular referenced TED/FEM/FPC/GEN/01/010 and its addendums and also restated its commitment to continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle.
The bank in a statement by its Director Corporate Communications Dr Isa AbdulMumin also reiterated that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the rates.
The 43 items include: Rice, cement, margarine, palm kernel, palm oil products and vegetable oils, meat and processed meat products and vegetables and processed vegetable products.
Others are: Poultry and processed poultry products, tinned fish in sauce (Geisha)/sardines, cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers, enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), Iron rods and reinforcing bars, Wire mesh, steel nails, security and razor fencing and poles, Wood particle boards and panels.
Also, the CBN lifted restriction on: Wood fiberboards and panels, Plywood boards and panels, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles-vitrified and ceramic, textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules, cellophane wrappers and bags, soap and cosmetics, tomatoes/tomato pastes, Eurobond/foreign currency bond/ share purchases, piston crowns, ball bearings, high voltage cables, transformers/switch gears and gas cylinders.
The bank maintained that as part of its responsibility to ensure price stability, it will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time and as market liquidity improves, the interventions will gradually decrease.
“Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market.
“The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.
“The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal.
“Participants and the general public are to be guided by the above,” the bank said.
However, the development follows the IMF’s decision to downgrade Nigeria’s economic growth outlook by 0.03, representing a drop to 2.9 in 2023, according to its recently released World Economic Outlook (for October) released, last Tuesday.
The IMF also disclosed that the projected drop in growth prospects follows a steady rising inflation rate reported in the country, since the start of 2023, and also in addition to reduced earnings from the oil and gas sectors.
It would be recalled that last month, the National Bureau of Statistics (NBS) reported an 18-year-high rate of 25.8 per cent inflation rate for August.
The NBS in its report disclosed that the country’s inflation rate has now hit a staggering 25.8 per cent in August, a figure representing an 18-year high last recorded in August 2005.
In addition to the listed factors, the experts also identified logistics costs and money supply growth as fueling inflation rise in the country.
According to the NBS, the country’s August inflation figure rose for an eighth straight month from July’s 24.08%, compounding a cost of living crisis worsened by President Bola Tinubu’s reforms.
According to the NBS, Nigeria’s GDP grew by 2.51 per cent in the second quarter of 2023.
The last time Nigerians experienced this level of inflation was in August 2005, official data shows.
The NBS had disclosed that the country’s inflation rate of 25.8 per cent in August represents an 18-year high last recorded in August 2005.
It would also be recalled that the Central Bank of Nigeria (CBN) raised rates by a smaller-than-expected 25 basis points in July, contrary to analysts’ expectations. It is due to set rates again on September 26 and some analysts expect a more hawkish stance.
Earlier in July, the IMF had projected that Nigeria’s economy would grow by 3.2 per cent in 2023. Then, it predicted that growth in the country would be impacted by security issues in the oil sector.
Commenting on its new prediction for the country, the Washington-based lender said the country’s growth is expected to decline from 3.3 percent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.
“Growth in Nigeria is projected to decline from 3.3 percent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.
The forecast for 2023 is revised downward by 0.3 percentage point, reflecting weaker oil and gas production than expected, partially as a result of maintenance work.”
Explaining the downgrading of Nigeria’s economic outlook, head of the World Economic Studies Division in the IMF’s Research Department, Daniel Leigh, highlighted that the downward review in Nigeria is due to the recent demonetisation move of the government, high inflation, and more.
“There is a downward revision for this year, partially this is due to the demonetisation, high inflation, shocks to agriculture and hydrocarbon output that is coming on top of the external headwinds.
“I will also add that President Tinubu has moved quickly with important reforms including ending the fuel subsidy and unifying the exchange rates. We welcome these initial bold reforms because we see them as paving the way for strong and inclusive growth,” said Leigh, who also heads the department which produces the World Economic Outlook.
Commenting on the CBN directive, however, some economic analysts say the condition of the Naira may worsen, just as they also opined that inflation could also shoot past its already record figures on the back of the CBN policies.
“If you are granting import license to importers for food items already being produced locally, where does that put the fate of local manufacturers who are already groaning under the weight of high overhead and operational costs?
“I’m asking because it’s only recently that the Manufacturers Association of Nigeria (MAN) and even the Lagos Chambers of Commerce and Industry (LCCI) warned of job losses arising from manufacturers being unable to meet costs of operations due to high forex rates,” noted Mr John Pwajok, an economic analyst based in Jos, Plateau State.
Others who spoke to Oracle Today newspaper, Friday, say there is already an existing pressure on the Naira, adding the new items, or some of it, may now be stretching the limit to a breaking point.
According to Mr Aliyu Ibrahim, ‘items like toothpick, soaps, cables, enamelware should not necessarily be in that list.’
“I would not really understand the rationale behind such a decision against a situation where the local currency is receiving a bashing in the foreign exchange market and local agricultural producers are facing the temptation to export rather than supply to the local market.
According to Ibrahim, the Federal Government should instead be helping the MAN to get a strong footing by local manufacturers in the industry rather than adding the competition of importers of these finished products.
However, for Mr Emeka Okoroafor, the decision by the Federal Government to reopen competition for producers of items like cement and poultry products is ‘entirely welcome.’ According to him, “We have given the producers more than enough time to get their acts right as they had demanded, but it now seems they are holding the Nigerian populace to ransom with their high prices and indiscriminate price hikes. So we might as well go to foreign.”
“We should be thinking about boosting local production of goods instead of scrambling for finished imported items. Boosting local production will serve to lift our Naira which in turn will make the currency compete in the exchange market. We should be thinking about what to do to end petroleum products importation regime, which happens to be the single biggest consumer of forex, and not importing toothpick and tinned food items,” said David Francis Mayei, a Lagos-based economic strategists.
Reacting, earlier in September, Director-General, LCCI, Dr Chinyere Almona, in a statement, identified some of the strategies expected of business operators to adopt downsizing and local sourcing of input factors to remain afloat in view of the attendant rising overhead cost of operations.
Almona said that the LCCI was concerned about the uptick in inflation (year-on-year) driven by increase in both the food and core components of the CPI, adding further that the slow pace of headline inflation month-on-month may be an indication that the path of price movements remains unclear in the near term.
“The Lagos Chamber of Commerce and Industry recommends government to implement prudent fiscal policy measures. This is particularly in terms of borrowings, as well as, address the challenge of food inflation by immediately reducing and removing tax on basic food items to protect the most vulnerable.
“We implore the government to hasten the provision of the anticipated palliatives to lessen the impact of the rising trend in prices on economic agents.
“Furthermore, we urge the Central Bank of Nigeria (CBN) to pause interest rate hikes to relieve the pressures on the supply side, especially at this time,” Amona said.
For some analysts still, it may not be all doom and gloom as latest figures obtained from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), showed that the country’s output in September was about 14 per cent higher than what it pumped in the preceding month of August 2023.
The IMF had downgraded Nigeria’s economic growth prospects for 2023 by 0.03, representing a drop to 2.9 in 2023, according to its recently released World Economic Outlook (for October) made public, Tuesday.
The IMF also disclosed that the projected drop in growth prospects follows a steady rising inflation rate reported in the country, since the start of 2023, and also in addition to reduced earnings from the oil and gas sectors.
The IMF’s World Economic Outlook (for October) is themed, ‘Navigating Global Divergences.’
Data from the NUPRC indicated that in September, Nigeria’s crude oil production (excluding condensates) was precisely 1,346,562 barrels per day, which was a 165,429bpd increase when compared to the 1,181,133bpd produced in August this year.
Further analysis of figures obtained from the NUPRC indicated that in January, February and March, the country’s oil outputs were 1,266,659bpd; 1,292,240bpd; and 1,266,737bpd respectively.
In the months of April, May, June and July, Nigeria produced 1,004,392bpd; 1,189,332bpd; 1,260,928bpd; and 1,089,089bpd respectively.
The above crude oil production figures therefore showed that Nigeria’s oil production in September was the highest output so far recorded by the country this year.
It would be recalled that last month, the National Bureau of Statistics (NBS) reported an 18-year-high rate of 25.8 per cent inflation rate for August.
The NBS in its report disclosed that the country’s inflation rate has now hit a staggering 25.8 per cent in August, a figure representing an 18-year high last recorded in August 2005.
In addition to the listed factors, the experts also identified logistics costs and money supply growth as fueling inflation rise in the country.
According to the NBS, the country’s August inflation figure rose for an eighth straight month from July’s 24.08%, compounding a cost of living crisis worsened by President Bola Tinubu’s reforms.
According to the NBS, Nigeria’s GDP grew by 2.51 per cent in the second quarter of 2023.
The last time Nigerians experienced this level of inflation was in August 2005, official data shows.
It would also be recalled that the Central Bank of Nigeria (CBN) raised rates by a smaller-than-expected 25 basis points in July, contrary to analysts’ expectations. It is due to set rates again on September 26 and some analysts expect a more hawkish stance.
It would be recalled that on May 29, 2023, President Tinubu boldly announced removal of subsidy on imported petroleum products, a move which immediately elicited a rise in food prices and transport fares.
The removal was not informed by any commencement of improvement in local production of the commodities, as marketers were expected to source for foreign exchange from the open market in order to import and supply to the domestic market.
The pressure of demand on the foreign exchange coupled with the slag in local currency negatively impacted on the market, as the Naira stalled and commenced its freefall, which further compelled the government to scrap the old regime of coexisting parallel foreign exchange markets by harmonizing it all rates.
