Mixed reactions as CBN lifts ban on 43 items to stem hunger, inflation

Adebayo Obajemu

Eight years after CBN banned importation of 43 items by restricting them from Fx window, the new Central Bank governor, Dr. Yemi Cardoso announced last week that the apex bank has restored access to forex to the unbanned items.

This is coming in the wake of growing economic hardship in the country, which is being attributed to as a result of fuel price removal and foreign exchange rates unification.

“As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time,” the CBN said.

The bank in a major monetary policy shift, restored the 43 items, which were banned from accessing forex since June 2015 under Godwin Emefiele leadership of the apex bank in order to, according to it, “sustain the stability of the foreign exchange market and the derivation of optimum benefits from goods and services imported into the country.”

The development was disclosed in a statement signed by Isa AbdulMumin, the CBN’s director of corporate communications on Thursday last week. This may be to reduce the pressure on the parallel market, which has been the cause of constant depreciation of the naira.

Recall that exactly eight years ago, the CBN restricted the availability of foreign exchange to the importation of the 43 items, which could be locally produced within the country.

“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 apex bank said last Thursday.

Giving further hope, the statement said consultation was ongoing with market participants to achieve the goal of unifying the Fx rates.

It promised to continue to set much priority on 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.

“As market liquidity improves, these CBN interventions will gradually decrease,” the CBN said.

Blacklisted items that former Central Bank governor, Godwin Emefiele announced in June 2015, as not having valid status for Foreign Exchange” because they could easily be produced in Nigeria rather than being imported into the country include: rice, cement, margarine, palm kernel, palm oil products, vegetable oils, meat and processed meat products, vegetables and processed vegetable products, poultry, tomatoes/tomato paste, soap and cosmetics, and clothes.

Other items include private aeroplanes/jets, Indian incense, tinned fish in sauce, cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes/containers, enamelware, steel drums and pipes, wire mesh, steel nails, wood particle boards, and panels.

Also affected were security and razor wire, wood particle and fibre boards and panels, wooden doors, furniture, toothpicks, glass/glassware, kitchen utensils, tableware, tiles (vitrified, ceramics), textiles, wooden fabrics, plastic/rubber products, polypropylene granules, and cellophane wrappers.

The apex bank, thereafter, included fertiliser and maize/corn to the list of banned items. The CBN’s decision to upend the ban on the 43 items signposts a bold step in resolving the country’s forex crisis. But experts are divided over the development.

According to the apex bank, the current Foreign Exchange (FX) rates should be sourced from platforms such as the CBN website, FMDQ, and other valid or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates,” the statement said.

This development comes in the thick of a worsening foreign exchange crisis with growing margin between the official and parallel markets despite the rate unification policy.
As the dollar exchanges for N770 in the Investors & Exporters (I&E) FX window, it recently dropped to over N1000 in the parallel market.

Some experts are of the view that the new policy might increase the worsening forex challenge as it would increase demands without commensurate boost in supply.
In his response to the announcement, Dr. Olufemi Omoyele, an entrepreneur and analyst, who was former director of Centre for Entrepreneurship at Redeemer University said the ” development will further worsen the forex crisis, as it will gear up demand without commensurate supply.”

Director, Center for Economic Policy Analysis and Research, University of Lagos, Prof. Ndubisi Nwokoma seemed to agree with Omoyele. Nwokoma insisted the reversal of the policy will definitely accelerate worsening fx crisis. He said what the development meant is the spurring on of increasing demand without a commensurate boost in supply.

“You know when you lift the ban, you are increasing the demand. At face value, I can say they are increasing the demand but I need to understand the motivation.

“What they should be focusing on primarily is to boost supply. Supply has to increase, oil theft should be minimised, money from oil revenue.”

But the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, sees a ray of hope in the development, saying the decision to reverse the forex exclusion policy on the 43 items was a good step in the right direction, adding that it was part of the policy normalisation process.
Yusuf said Emefiele policy on the 43 items was in the first place one of the several drivers of distortions in the forex market.

“The exclusion of the items also contributed to the persistent divergence in rates between the official window and the parallel market. The exclusion was also in conflict with extant trade policy as the items were not under import prohibition in the first place. It was an example of lack of policy coordination under the previous administration,” he said.

The former Director General of the Lagos Chamber of Commerce and Industry (LCCI) said the new directive will also improve transparency and disclosures in foreign exchange transactions while urging fiscal authorities to “continually monitor the economic landscape to shape the character of fiscal policy measures to regulate imports in line with comparative advantage principles.”

Reacting to the policy last week, media reports quoted the President of the Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke as saying that the policy was coming at inopportune time, adding that it will have a negative impact on local manufacturing.

“Its immediate impact will be to reduce the premium between the official and the parallel market.

“But it will have negative implications for import substitution and local manufacturing. The decision to readmit 43 items is ill timed in view of the current forex shortage.

In the face of the reversal of the policy, the Association of Bureaux De Change Operators of Nigeria (ABCON) last week called on the Central Bank of Nigeria (CBN) to ensure speedy implementations of policies as it lifts forex restrictions on the hitherto banned 43 items from importers.

The president of ABCON, Aminu Gwadabe, said, “My call to the CBN is to ensure speedy implementations of the policies.”
He said the over eight-year embargo had worsened poverty, increased food inflation, and created forex scarcity, broadly affecting the Nigerian economy.

According to Gwadabe, unbanning the 43 items from accessing forex would create favourable market situation and stimulate bilateral trade. He said, “It is a booster aimed at boosting confidence and eliminating uncertainties in the market.”

He, however, pointed out that the policy would entail reforms, compliance with official market rates and liquidity interventions. The ABCON president stressed that CBN needs to emphasise intervention in the retail end sector.

“To enhance the buffers, the CBN should pursue a paradigm shift from demand measures to supply measures to boost the needed liquidity in the market,” Gwadabe added.

In his own view, the executive vice chairman of Highcap Securities Limited, David Adonri, said the reversal of the policy is a right step in the right direction.

“Beyond that, the new foreign exchange policy has already made the policy ineffective because forex for all imports is sourced at almost the same rate from the market.
“The non-convergence of rates between the official market and parallel market is a market imperfection that will disappear very soon,” Adonri noted.

Recall that on 29 May, during his inauguration, Tinubu announced the removal of subsidy on petrol. This development has caused hardship for many Nigerians with its attendant increase in the prices of goods and services.

Apart from the removal of subsidy, the CBN also announced the unification of all segments of the forex exchange (FX) market as part of efforts to engender transparency in the markets and boost investors’ confidence.
Inflation has remained high in the economy, forcing the apex bank to hike interest rates to their highest levels in nearly two decades. In July, the Central Bank of Nigeria (CBN), increased its benchmark lending rate to 18.75 per cent.

The apex bank rationalized the decision by saying , “hiking the interest rate has made a lot of difference in moderating the rate of inflation”.

It noted that the option to continue the hike in the policy rate, albeit moderately, also presented a strong alternative premised on the expected liquidity injections into the economy from the recent efforts to unify the nation’s foreign exchange markets.