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Backward integration strategy will save $1.2b from milk import

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Nigerians were caught unawares at the dawn of second quarter of 2015, when the Central Bank of Nigeria (CBN) stopped foreign exchange (forex) funding of some goods and services at its official window, popularly known as the “41 Items”.

The items are: Rice; cement; margarine; palm kernel/palm oil products/vegetables oils; meat and processed meat products; vegetables and processed vegetable products; poultry chicken, eggs, turkey; private airplanes/jets; indian incense; 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; and wire rods (deformed and not deformed).

Others are iron rods and reinforcing bard; wire mesh; steel nails; security and razor wine; wood particle boards and panels; wood fibre boards 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; soap and cosmetics; tomatoes/tomato pastes; and eurobond/foreign currency bond/ share purchases.

The policy is currently made up of 43 items, with the addition of fertilizer and textiles, but tending towards 45 items in just a matter of time. This “fight”, led by the apex bank, in its efforts to save the depleting national reserves, revive local productive capacity and create employment has been without break.

From then till now, controversy over the policy has been the common theme and unending, including misinterpretation of each decision; questionings over CBN’s powers; economic benefits; wrangling over policy alternatives; claims of aggravation of economic crisis; and persistent pressure to end the “movement”.

The latest is the disclosure of a planned implementation of similar policy on milk importation. Unfortunately, it is coming at the height of insecurity in the country, allegedly orchestrated by the herders of the animal that produces the milk. So, the policy that had hitherto induced investments in other segments like rice, wheat, oil palm, tomatoes, cassava, starch and some production lines, is now caught in emotional and political crossfire.

A reliable source at CBN told The Guardian that the latest move by the financial regulator was sequel to assessed successes of the restriction policy and engagements with some milk importers, where the governor had asked them to take advantage of CBN’s low-interest loans to begin local milk production instead of relying endlessly on milk imports.

“The bank is now ready for them and wants to push it like it did for rice, tomato and starch, among others. There is nothing more than this,” the source said.

CBN Governor, Godwin Emefiele, had on Tuesday, on the sidelines of the bi-monthly Moneytary Policy Committee meetings, said that the bank would restrict forex for importation of milk, pointing out that $1.2 billion to $1.5 billion is being spent yearly on milk importation.

For clarity sake, CBN, by the disclosure, did not ban the importation of milk and it has so admitted that it is not within its jurisdiction to do so. It only, for reasons concerning the monetary policy in its purview and the trending development interventions among global central bankers, withdrew the use of dwindling forex earnings for financing of items it feels there are local alternatives and capacity.

It means that those who import the items in question will not buy foreign currency from the official window to pay the overseas suppliers. Invariably, they may do so from any other source available to them, for example, the parallel market, also known as the “black market”.

It is worth reemphasising that the policy on milk is only in the making, not yet implemented.

But some Nigerians, noted for importing virtually everything, especially for its sake and status symbol, the development has not gone down well with. Similarly, given infrastructural constraints, lack of capacity to fill the gaps in the immediate and the assessed short to medium term implications, particularly, production and employment, the rationale would be placed under further serious inquisition.

It is also worth noting, that we are now becoming used to emergency and coming out better than when we run on plan. This does not mean we should not plan, however. In the last four years, the country’s position on those banned items are only improving rather than becoming worse. There are verifiable numbers to the claim.

The milk in question, has a current yearly import bill of more than $1.2 billion. This load is reserved for the nation’s foreign exchange reserves. But unfortunately, the country’s foreign exchange earning capacity has also been impaired since the last four years more than ever in the last 15 years.

Emefiele, said: “Plans to restrict foreign exchange to importation of milk into the country is correct. This is because we believe that milk is one of those products that can be produced in the country today.

“Nigeria belongs to all of us. When we make policy, we want people to respect it. We are saying that the much we spend in foreign exchange to import milk is too much and we need to reduce it. We are saying that by doing backward integration, it helps to limit or reduce herders-farmers conflict in the country. We are determined to make milk production in Nigeria a viable economic proposition.”

But the Director of Corporate Communications Department at the apex bank, Isaac Okorafor, noted that milk importation has been going on in Nigeria for over 60 years and that the use of Google search on West African Milk or Friesland Campina, will show how long they have been importing milk into the country.

Okorafor said that the critics were attempting to mislead the general public by misrepresenting the ordinarily unassailable case for investments in local milk production and the medium to long-term benefits of the planned policy.

“We are aware that some of our policies may hurt some business interests, but we are thankful to Nigerians for the buy-in and intense interest in the policies of the CBN.

As a people-oriented institution, however, we shall remain focused on the overarching and ultimate welfare of the Nigerian masses.

“We therefore, wish to reiterate our policy case as it relates to the planned restriction of access to foreign exchange for importers of milk that Nigeria and the welfare of all Nigerians come first in all our policy considerations.

“Being an apolitical organisation, we do not wish to be dragged into politics. Our focus remains ensuring forex savings, job creation and investments in the local production of milk,” he said.

According to him, about three years ago, the CBN started a policy to encourage backward integration to conserve foreign exchange and create jobs for our people.

“Today, although there have been some successful attempts at producing milk locally, the vast majority of the importers still treat this national aspiration with imperial contempt.

“The ongoing resort to blackmail and undue politicisation through the use of social media attacks can only serve to strengthen our resolve to wean our country from the clutches of powerful and highly influential traders and dealers, who have kept the masses of our people hostage to foreign consumption and condemned our youths to perpetual unemployment.

“We call on Nigerians to enlist in this vanguard to take our economy back from vested interests, make our country a productive economy and create jobs for our teeming youths,” he said.

In the last three years, CBN repeatedly said that the drop in crude oil prices between 2015 -2017 marked a turning point for the economy and necessitated the need to develop policies and programmes that will drive productivity across key sectors of the economy, but mostly create employment and support price stability.

So far in the bank’s foray into development financing, as at March 15, 2019, it has committed N171.35 billion in the Anchor Borrowers Programme, with active participations across 36 states of Federation and Federal Capital Territory.

About 920,788 farmers have benefitted in the programme, cultivating about 960, 643 hectares of land across 16 different commodities.

On tomatoes, CBN’s intervention currently stands at a little above N10 billion in eight projects, with one of them being Dangote’s greenhouse manufacturing project that has the capacity to produce 10 million seedlings in a month.

This would be sold to about 5,000 out-growers that would grow and supply the tomato factory which commenced operations a few weeks ago with tomato fruits. The project has the capacity of generating one million jobs from supporting small holder farmers in tomato cultivation to paste, as well as save the economy over $250 million yearly.

Of course, local capacities are being rallied across the country and various sectors, just as Psaltry Farms in Molete, Oyo State, has reduced the importation of starch with local production capacity courtesy of the policy drive.

An investigation in the production of the said company showed that it is currently supplying starch to majority of the conglomerates sector players like Guinness, Cadbury, among others. This has indeed, saved foreign exchange for the country.

Oil palm companies like Presco and Okomu, recorded improved financial year reports, as they have increased capacity, as well as taken over a chunk of demand for palm oil in the country.

Courtesy of the policy direction, Nigeria is now boasting of millions of tonnes of Paddy rice, as Kebbi, Ebonyi, Anambra, Lagos states, among others, are championing the resurgence of rice farming in the country.

Of course, at whatever level, the management of the forex market has rejuvenated domestic production, especially in items that were wholly imported into this country. It is an opportunity to change the economy’s structure, resuscitate local manufacturing and expand job creation.”


In this article:
CBNforexGodwin Emefiele
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