Follow Us on Google
By Omoniyi Salaudeen
Varied opinions have been expressed on the yawning gap between the official and parallel foreign exchange market rates.
In this interview, Prof Segun Ajibola speaks on the implications of the ban on some 43 items recently announced by the Central Bank of Nigeria.
What is the implication of the lifting of the ban on some 43 items recently announced by the Central Bank of Nigeria to shore up the value of the naira?
There are a number of implications. First, there will be more items jostling for allocation in the foreign exchange market which may also put pressure on the official exchange rate. Prior to now, you are well aware that even the unbanned items were still struggling for allocation from the official market. So, by adding the 43 items, the list has become elongated which will mean more and more scrambling for the available foreign exchange. Secondly, those whose items were not banned and could not get foreign exchange from the official market were also patronizing the parallel market, thereby sustaining the gap between the official rate and the black market rate. If there is no enough supply at the official market, authorized users who cannot get official rate will still be patronizing the parallel market, thereby putting pressure again on the black market rate. The overall implication is that the unacceptable gap between the official rate and the black market will be sustained. Thirdly, there will be implications for the productive sector of the economy. One of the things the Central Bank told Nigerians in 2015 was that some of those items were banned to allow local investors and local manufacturers to see priority and benefits in the investment into those items like rice, palm produce, poultry products, and textiles, etcetera. And, of course, so many investors bought into it and invested heavily in those items. Lagos State, for example, has just put up perhaps the biggest rice mill in Africa somewhere in Imota, after Ikorodu. I believe that was in reaction to that call. You also remember the LAKE Rice, which was a collaborative effort between Lagos and Kebbi. So many other private investors also went into the Agricultural sector. I, for example, went into palm produce in my state on a commercial scale. We have many others in textile, poultry, grains, and so on. By the time you open the economy and we have a floodgate of these items coming into the country, you will be killing the local industries. The question we should ask ourselves is for how long are we going to remain an import-dependent economy? Sixty-three years after independence, if we still have to allow toothpicks to be imported into Nigeria, what message are we passing across? Why do we want to extend the import dependency scenario? What will be the multiplier effect on inflation and unemployment? We are creating employment for other economies while employment is shrinking in the local economy. At this point in time, what should be the number one priority is to see how the problem of supply can be addressed in the foreign exchange market on a sustainable basis. If you expand supply, then it becomes easier to accommodate supply. In the 1970s, Nigeria rolled out what we used to refer to as the Export promotion and import substitution strategy. What has happened to those policies?
What do you think the government intends to achieve from this policy summersault?
All along, the Central Bank used to pretend that there was nothing like a black market. But we all knew that the black market had always existed since 1986. So, to say that it doesn’t exist is to live in self-denial. What the Federal Government is trying to do by unification is like what happened in the oil industry where the issue of subsidy was removed so as to put a stop to the economic rent syndrome. Economic rent is a situation where some people are feeding fat at the expense of the majority by doing nothing. It is the same thing in the foreign exchange market. If somebody succeeds in getting a million-dollar allocation in the official market, and roundtrips to the black market with N300 per dollar differential, that is N300 million coming to somebody’s pocket from $1 million for doing nothing. There is no leadership that will not be pained by such a scenario. That is why any patriotic professional will applaud such a policy. But there are always condition precedents and conditions subsequent to any policy. There is also what lawyers call an unintended consequence of any radical policy. So, for any policy to stand the test of time, we must look at condition precedent, condition subsequent, and unintended consequences and address them. The black market will always arise where there is a problem of supply compared to demand. So, where you have supply rigidity and you are trying to put a ceiling on the price, the black market will arise. That is the problem we are having right now. We don’t have enough supply of foreign exchange and at the same time, we don’t want to surrender our naira to the forces of supply and demand. That supply rigidity is constraining the foreign exchange market which is why there is the black market. The question is, what do we do to the problem of supply? Where do we look to fortify supply? We have to start rolling out policies that will help the supply side and also manage the demand side.
How would you situate the state of emergency on food security that President Bola Ahmed Tinubu recently declared and the lifting of ban on those 43 items?
There has been this slogan for a long time that we should eat what we produce and produce what we eat. When are we going to achieve that? That is the question we should be asking ourselves now that we are still importing farm produce, poultry items, and so on. When are we going to get ourselves out of that debacle? There are so many stakeholders that need to provide answers to these questions. We have the Ministry of Agriculture, federal and state, we have financial institutions, we have the Ministry of Trade and Industry and so on that are also involved in investment, both local and foreign. What can we do to beef up investment in food production locally rather than relying on imported ones in the face of scarcity of foreign exchange? Ninety percent of answers to that question should be focused on local production to remain self-sufficient. A country that cannot feed itself is at the mercy of other countries. With a clearly defined deadline to achieve food self-sufficiency, we will get there. Relying on imported food items should not be our priority at this time. By encouraging the importation of food items, it is like we have lost faith in our capacity to produce food for ourselves. We shouldn’t give that kind of signal to local investors and even the rest of the world.
Given all incentives, what gestation period are you looking at for investors to meet the target goal of producing sufficient food to feed the nation?
It is difficult to place a definite time. The starting point is to review the document on export promotion and import substitution strategy to know what went wrong. Let’s define our roadmap and commit ourselves to the right path, time will sort itself out. There are 1.3 billion people in India, they are feeding themselves. India has one of the most robust textile industries in the world today. Here in Nigeria, most of our textile industries have closed shop. There are 1.8 billion human beings in China, they are feeding themselves. What is our problem with just 200 plus? We need to redirect our local industry to promote local production. Let’s first of all start the journey, time will sort itself out.
