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CBN policies contributing to Nigeria’s rising poverty, food inflation, FX scarcity


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POLICIES initiated by the Central  Bank of Nigeria (CBN) have led to worsening poverty, food inflation and foreign exchange (FX) scarcity in Africa’s most populous nation, The ICIR analysis has shown.

In the last six years, the CBN under Godwin Emefiele has excluded certain items from the official market. This means that importers of those items cannot get dollars from the official market, which is often cheaper. The items include tomatoes, milk, roofing sheets, textiles, soaps and cosmetics, among others.

In 2015, the CBN  began with 41 items, but the number has since reached 45.

“For the avoidance of doubt, please note that 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,” said Director of Trade and Exchange Department Olakanmi  Gbadamosi  on June 23, 2015, when the FX restriction began as the apex bank’s policy.

But the reality on ground has been different from the CBN’s claim. Once the apex bank restricts any item from the FX market, banks stop issuing FX form known as ‘Form M’ to importers – a signal that the only way they can bring in the commodity is by seeking FX from the unpredictable and expensive parallel market. Also, the Nigeria Customs Service sometimes follows it up with either a tariff increase or other forms of restriction.


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This explains why economists refer to the CBN’s FX restriction as a technical ban.

In the last two years, CBN has added milk, maize, and textiles to the growing list. Experts say the CBN’s FX restrictions have forced up prices of food items and created artificial scarcity in the economy. As of the week of July 13, 2020 when the CBN restricted maize from the FX market, a ton of the commodity was sold for N160,000, according to Afex Commodities, which provides pricing updates on food items. On June 21, 2021,  a ton of maize stood at N222,690, according to Afex, representing 39 per cent increase in the price of maize in a space of 11 months.

FX restrictions and impact

Nigeria is Africa’s second largest maize producer after South Africa. The country produces 10.5 million metric tons of maize per annum with a demand of 15 million metric tons (MT), leaving a supply-demand gap of 4.5 million MT annually, according to data from the Federal Ministry of Agriculture and Rural Development, a Nigerian government’s ministry.

Analysts explain that apart from insecurity which has raised maize price, the FX restriction by the CBN has led to the scarcity of the commodity as a result of huge demand. Maize has since become more expensive as local production is not enough to satisfy demand, and importers have had to get dollars at over N400-N500/$  to bring the commodity into Nigeria. Many of the importers have been manufacturers using the commodity as a raw material.

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Maize is an essential raw material that is used by the production of noodles, starch, cornflakes, sweeteners, oil, beverages, glue, industrial alcohol, and fuel ethanol. It also serves as feed for the poultry industry and for consumption.

“The rising cost of maize is threatening livelihoods of small businesses in Nigeria. It is not only poultry farmers’ investments that are threatened; the investments of other players in the value chain are also under threat, thus plunging the economy into deeper crisis,” Chairman of Poultry Association of Nigeria  in Delta State Alfred Mrakpor said while talking about the impact of the restriction on the local poultry industry.

Due to this policy, maize price has risen and manufacturers have responded by increasing the price of finished products. Major noodles manufacturers have raised prices by N400 to N700 per carton since the FX restriction in 2020, according to The ICIR‘s findings.

The Lagos Chamber of Commerce and Industry (LCCI) has explained that when prices rise and income remains stable, more people would be unable to afford essential goods – and could be forced into extreme poverty.

Few weeks after, when the CBN discovered that it had shot itself in the foot, it granted waivers to four firms – Wacot Limited, Chi Farms Limited, Crown Flour Mills Limited and Premier Feeds Company Limited – for the importation of 262,000 metric tons of maize. By so doing, the bank excluded other players from getting foreign exchange at the official market to import the product.  Despite CBN’s waivers to the companies, demand for maize is still far higher than supply.

The apex bank is now extending Anchor Borrowers funds to 120,000 maize farmers, Managing Director/Chief Executive Officer of Unity Bank Tomi Somefun said last month. One manufacturer explained that this decision was informed by growing scarcity and price increase of the product.

The CBN has also barred milk importers from the FX market.  Nigeria produces 700,000 metric tons (MT) of dairy products annually but demand stands at 1.3 million MT, according to the Federal Ministry of Agriculture. The CBN, after the ban, gave waivers to Nestle, Integrated Dairies Limited, FrieslandCampina WAMCO Nigeria, Chi Limited, TG Arla Dairy Products Limited and Promasidor Nigeria Limited to import milk, which, again, was heavily criticised as a one-sided policy targeted at helping the bank’s friends.

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Director-General of the LCCI Muda Yusuf told one of our reporters that the Nigerian economy was not ripe for the policy and argued that it was tantamount to a ban on importation of milk in whatever form as most banks would not process Form M for any product on the CBN forex exclusion list.

“We currently do not have dairy cows in the country,” Yusuf said.

“The dominant milk producing system in Nigeria is the Fulani Nomadic System whose cows have a milk yield of less than two litres a day, whereas a good dairy cow will produce an average of 28 litres of milk per day over ten months.  During peak lactation, a high yielding dairy cow can produce as high as 60 litres of milk per day.”

Muda Yusuf, DG of LCCI
Muda Yusuf, DG of LCCI

He said Nigerian cows had very low yield because of poor genetic composition, poor feeding practices and the laborious nomadic system of breeding, which should first be addressed.

He further said there were over one million direct and indirect jobs that would be in jeopardy across the value chains of the industries.

“Enough timeline should be given to diary companies for a sustainable transition from the current state of affairs to the desired level of backward integration in the dairy industry,” Yusuf said.

The same situation applies to tomatoes, textiles and other products. The CBN’s restriction on tomatoes has yielded little result. The Dangote Tomato Factory has not been fully operational since 2016 when it was set up, and some tomato processors only import and  package locally, so cannot be classified as full-fledged manufacturers. Tomato prices have since risen, with a sachet of tomato paste, which was sold for N40 prior to the FX restriction, now selling for N100 in Abuja and Lagos markets, indicating a 150 per cent rise in price. Similarly, 100g of tomato paste, which was sold for N50 before 2015, now sells up to N120.

Tomato production is also not increasing. Africa’s biggest economy produces 1.5 million tons of tomato per annum, with 0.7 million metric tons post-harvest loss. Tomato demand in Nigeria is estimated at 2.2 million metric tons per annum, leaving a gap of 700,000 metric tons, according to official data from the Agricultural Ministry.

The CBN argues that the essence of the FX restriction is to increase local production and reduce pressure on foreign reserves. But manufacturers have contended that some of the items restricted by the bank are raw materials for them. This explains why there is a disconnect between CBN policies and manufacturers in Nigeria.

In the wake of President Muhammadu Buhari’s directive to the CBN governor to restrict access to foreign exchange for food importers, the Manufacturers Association of Nigeria (MAN) told one of our reporters that the policy could be counterproductive.

“We need to know the local capacity available compared to national demand and if not adequate, creditably determine what time and resources are needed to ramp up capacity and production. It is pertinent to pre-determine these suggestions as part of the implementation strategy. To achieve sustainable self-
sufficiency, local producers ought to be incentivized otherwise we may be inviting a looming barrage of smuggling activities,” Director-General of MAN Segun Ajayi-Kadir said.

Founder and Managing director of Cowry Assets Management Limited Johnson Chukwu told The ICIR that he did not subscribe to the use of ‘fiat’ to discourage consumption.

Johnson Chukwu, CEO of Cowry Asset Management Limited
Johnson Chukwu, CEO of Cowry Asset Management Limited

“I encourage the use of trade tools. The reality is that you cannot ban the consumption of commodities that people have demand for. When you do that, you force that commodity to black market, where the people will now have to pay extra cost to keep them. You cannot legislate against human consumption,” Chukwu said.

“My approach is to say, for instance, let us use ‘trade tools’ such as higher tarrif to discourage such commodities that we do not want people to bring in. So their cost becomes more expensive. That way the government makes money and local firms are incentivised to produce more locally,” he explained.

“Overtime as the local production improves, and tarrif is lowered.”

Foreign exchange management 

The CBN’s management of the FX market has been rated poor by local and international institutions.

The bank has refused to float the FX market since 2015 when oil prices began to trend south, and it has since maintained multiple exchange markets from Importers/Exporters (I &E) window to NAFEX. This has sent negative signals to investors.

The bank has preferred intervening in the market, rather than allow the market to function effectively, experts say.

MAN President Mansur Ahmed said in 2020 that 40 per cent of manufacturers were unable to access dollars to import inputs.

Mansur Ahmed, President of Manufacturers Association of Nigeria (MAN)
Mansur Ahmed, President of Manufacturers Association of Nigeria (MAN)

Unification of the FX market creates certainty and forces investors to come in with their money, thereby raising the Foreign Direct Investment (FDI), said   Financial Derivatives Company Managing Director Limited Bismarck Rewane.

Economists have explained that if the FX market is determined by the forces of demand and supply, the market resolves the problem of availability and price on its own.

At a meeting attended by one of our reporters in July 2020, the International Monetary Fund (IMF) Mission Chief for Nigeria Jesmin Rahman asked the CBN to unify the FX market to achieve flexibility and certainty.

The FDI into Nigeria in 2018  stood at $1.9bn, down from $3.5bn in 2017. Ghana, in comparison, recorded $3.5bn in FDI in 2018, up from $3.2bn in 2017. Also, Ghana recorded total investments of $869.47 million, with total foreign direct investments (FDI) value estimated at $785.62 million between January to June 2020. On the other hand, Nigeria, over the same period, had $362.84 million in foreign direct investments, representing a 29.70 per cent drop from $470.51 million reported in the corresponding period of 2019 (H1’19).

Food inflation, poverty

The general impact of the CBN’s policies can partly be felt on food inflation and poverty.

The composite food index rose to 22.28 per cent in May 2021 compared to 22.72 per cent in April 2021, the National Bureau of Statistics (NBS) said this month. A report said Nigeria’s food inflation rose 105 per cent between September 2015 and September 2020.

About 87 million Nigerians lived in extreme poverty in 2017, said World Poverty Clock. Since 2017, Nigeria has continued to be world’s poverty capital.

According to the World Poverty Clock, the number rose in 2019. Nigeria had a total population of 205.32 million in 2019, with 105.097 million living in extreme poverty, representing 51 per cent of the population. This means the number of extremely poor people rose from 87 million to 105 million in two years.

An individual is classified as living in extreme poverty if the person earns below $1.90 per day.

The NBS said in a 2020 report, covering September 2018 to October 2019, that 40 per cent of people in the country lived below poverty line of N137,430 ($381.75) a year, representing 82.9 million people.

No, there is no dollar anywhere

However, Johnson Chukwu, earlier quoted,  said the major problem was that Nigeria did not have multiple sources of foreign exchange.

“In as much as a liberalised foreign exchange market is ideal, our situation is peculiar in some instances. You cannot have a perfect market if you do not have perfect market conditions,” he said.

“We do not have multiple supply sources of the foreign exchange. What we have is a monopoly supply from the oil sector. Our FX earning source is from the sale of crude. The Central Bank is the recipient of the proceeds from the sale of crude.

“The Central Bank is the sole market maker in our FX market. In that case of not having many suppliers in the FX, you cannot have equilibrium price. We must recognise that we do not  have multiple suppliers and that makes our case peculiar.

“To expand the sources, we must have multiple export commodities, multiple export sources, several exporters receiving export proceeds, and people accessing FX easily from the banks. That is only when we will have a liberalised market.

“Until we achieve this, we are going to live with this kind of situation, which is not a perfect market condition. We must recognise the peculiarities of our own economic environment in as much as we desire for a more liberalised FX market.

“At this point even if you want to liberalise, the CBN will still be the sole supplier, hence market price will be determined by what the CBN supplied. Because they are the sole supplier or what you call the market price, they determined price.”

Chijioke Ekechukwu, former DG of Abuja Chamber of Commerce
Chijioke Ekechukwu, former DG of Abuja Chamber of Commerce

In his view, Former Director General of Abuja Chamber of Commerce and Industry (ACCI) Chijioke Ekechukwu, an economist, told The ICIR that floating the exchange rate now would spike inflation and worsen Nigeria’s economic problems.

“We cannot float the exchange rate now because of our peculiar situation and having one major source of foreign exchange which is the oil revenue resources. It is still necessary that the central bank keeps intervening in foreign exchange market, pending when there is enough supply of the foreign exchange,” he said, noting that “because we don’t have enough supply, the CBN strategy is good.

“As they’re intervening,they should ensure that the supply end is enhanced.”

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