In a major monetary policy shift, the Central Bank of Nigeria (CBN) recently restored the 43 items prohibited from sourcing of foreign exchange (FX) from official market, eight years ago. Consequently, the importers of the previously banned items are now allowed to buy forex in the foreign exchange market. This is contained in a statement signed by the CBN Director, Corporate Communications, Mr. Isa Abdulmunin.
According to the CBN, all the items previously restricted by the 2015 ban are now allowed to purchase FX in the Nigerian foreign exchange market. It avowed that the new policy will boost liquidity in the market and assured Nigerians that it is committed to accelerating effort to clear the backlog of FX with existing participants. It will also intervene at intervals to ease the challenges until liquidity improves. About $10 billion backlog of FX is yet to be cleared by the CBN.
Some of the items on the restored list are rice, cement, toothpicks, margarine, palm oil/ palm kernel, vegetable oils, meat and processed meat products, poultry, chicken, turkey, eggs, soap and cosmetics, tomatoes/tomato pastes, tinned fish and sauce (Geisha) sardines. The rest include enamelwares, steel drums and steel pipes, steel balls, iron rods, security and razor wire, wood particles boards and panels, wooden doors, kitchen utensils, tablewares, among others.
In June 2015 when the restrictions on the importations of the items were imposed, the CBN explained that it was a monetary policy measure to conserve FX and encourage domestic production, self-sufficiency and exports. Also, the CBN will continue to promote “orderliness and professional conduct” to ensure that market forces determine exchange rates on a “willing buyer-willing seller principle,” in addition to ensuring that prevailing FX rates are referenced from platforms as Financial Market Infrastructure warehousing Group (FMDQ) and other recognised or licensed trading systems that will promote price stability, transparency and credibility in the FX rates.
However, forex shortage has worsened in the last eight years. Recently, the Manufacturers Association of Nigeria (MAN) revealed that more than 200 of its members were adversely affected while the ban on the items lasted. Similarly, business owners had also argued that the ban caused serious distortions in the forex markets and contributed to the persistent divergence in rates between the official Importers and Exporters (I &E) window and the parallel market.
Expectedly, the lifting of FX restrictions on the importation of the 43 items has elicited mixed reactions. For those who are of the view that the exclusion of the items in 2015 was one of the several drivers of distortions in the forex market, and contributed to the divergence in rates between the official window and the parallel market, the decision of the CBN is seen as a step in the right direction.
The move appears to be a market-friendly decision and part of policy normalisation process that will address the complaints by local manufacturers. But why must we import toothpicks, palm oil and palm kernel and some other items on the list we can produce locally? How can we boost the non-oil exports with this policy shift?
However, we believe that effective implementation of the policy will be key to ensuring its success. It must also be said that the exclusion of those items eight years ago was at variance with extant trade policy. This is because many of the items were not under import prohibition and therefore, lacked policy coordination and coherence. Nevertheless, the CBN should quickly address the supply side of foreign exchange.
For instance, in 2022, CBN reportedly injected $1.5 billion monthly in the forex market. All the same, it was grossly inadequate to meet the forex demands. Government and the CBN should work together to ensure enough supply of forex to take care of the acute shortage. In the parallel market, the naira continues to weaken as $1 exchanges for N1,100 due to high demand of the US currency.
Also, importers and clearing agents have expressed dismay over the escalating import duties resulting from the current forex rate. Import duties have surged by over 200 per cent. This has impacted the cost of imported goods. This has also disproportionately affects importers, as the country largely depend on imports for various goods and commodities. We advise the CBN to diligently monitor the economic environment in line with the character of fiscal policy measures that will regulate imports.
Despite the seeming benefits of lifting FX restrictions on the 43 items, the immediate impact of this on local manufacturing sector could be negative if the monetary and fiscal authorities do not address the acute fiscal crisis. The removal of FX restrictions on the 43 items will likely attract more foreign investment and boost the economy if it is well implemented. With Nigeria currently listed by the US Trading Economics as one of Africa’s 10 riskiest countries for investors due to economic and political uncertainty and insecurity, navigating these market challenges requires efficient management of the economy.