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Setback hits importers of banned items as FX freeze may induce inflation

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There are palpable fears in the maritime industry that the Central Bank of Nigeria’s (CBN’s) suspension of the sale of foreign exchange (forex) to bureau de change (BDC) operators will worsen the cost of importation.

Stakeholders in the industry believed that the new monetary policy would plunge the country into steeper inflation, and cause Nigerians to spend more on imported essential items.

The President, the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero, said the CBN was yet to get its policies right, hence it should go back to its drawing board.

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He said the exchange rate drives importation and that Nigeria should expand the local capacity.

“When you have removed 44 items from a forex basket and ask the importers to source from the parallel market and suddenly begin to frustrate the alternative source, how will the economy survive?

“CBN should be able to balance its policies with the peculiarities of the economy. They need to go back to the drawing board and perfect the system. This is an import-based country. If there is no importation, the economy will collapse.

“We have not developed local capacity over the years. Nigerian importers should be able to have access to forex. They need to strengthen the import policy. You cannot stop people from importing because you have not developed the manufacturing sector. The few manufacturers are going through difficult times at the moment,” he said.

Spokesman of Seaport Terminal Operators Association of Nigeria (STOAN), Bolaji Akinola, said importation of several essential commodities would be affected by the new policy, especially the 44 items on the apex bank forex banned list.

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The CBN had banned 44 import items from accessing FX. The items include rice, cement, margarine, fertiliser, milk and dairy products, maize/corn, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables/processed vegetable products and poultry chicken.

Others are eggs, turkey, soap/cosmetics, tomatoes/tomato pastes, plastic/rubber products, polypropylene granules, cellophane wrappers, 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, wire mesh, steel nails, enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), iron rods and reinforcing bars, security and razor wine, wood particle boards and panels, wood fibre boards and panels and plywood boards/panels.

According to Akinola, importers of the banned essential items had found solace in BDCs. He noted that with the new CBN monetary policy, the importers might find it difficult to source forex, which would increase the cost of importation.

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Akinola said Nigerians should expect an increase in prices of some commodities in a few days, adding that this would cause more hardship as people would spend more of their incomes on food.

He said: “When the prices of the imported items increase, the locally-manufactured ones will also be hiked. The man who produces locally also needs money to buy some other things, including imported inputs. So, if the amount of money he needs to meet his production is higher, he will need to make more money from what he sells. So, it is a spiral effect. Nigerians should be ready for more hardship because the days ahead will be tougher.”

MEANWHILE, the President of the Shippers Association of Lagos (SAL), Jonathan Nicol, backed the CBN policy, saying it was a good signal for the economic development of local industries and the import sector.

Nicol stressed that while the BDCs acted as an alternative market, their rates became very expensive for importers.

On the effect of the new policy on the 44 CBN banned items, the SAL president said: “We expect the CBN to remove the ban on several other items under the import adjustment policies, including the 44 items. It is expected that there will be an initial challenge as a result of slow take-off by banks’ FX operations. This might induce some difficulties and inflation. With time, hopefully, it will blend into a management system,” he stated.

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The Deputy National President of the Air Logistics, National Association of Government Approved Freight Forwarders (NAGAFF), Dr. Segun Musa, described the CBN’s move as insensitive, noting that starving the BDC of forex would cause a crisis, especially for the 44 banned items.

On his part, the National President, Africa Association of Professional Freight Forwarders and Logistics in Nigeria (APFFLON), Frank Ogunojemite, said Nigeria is import-dependent, implying that a weaker naira would have an enormous impact on its economy.

Former Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said the apex bank’s current approach would continue to increase distortions in the economy, perpetuate round-tripping, fuel speculation, over-invoicing, capital flight, worsen forex supply and increase the size of the underground economy.

The economist said the crisis in the forex market was already having impacts on manufacturers and other players in the international trade process.

He said the depreciation of the naira; the illiquidity issues in the forex market and the pervasive uncertainty around the foreign exchange market were undermining the confidence of investors across all sectors. He noted that access to raw materials and costs of inputs were major factors responsible for the inflationary pressure.

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“The action of the apex bank amounts to tackling the symptoms rather than dealing with the causative factors, which is not a sustainable solution. It is regrettable that the CBN does not believe in market mechanisms. Yet, market systems are time-tested as instruments of efficient resource allocation in leading economies around the world.

“Moving retail forex transactions from BDCs to the banks is like kicking the can down the road. The same issues would manifest even with the banks. Managing a subsidy regime is typically a herculean task. We have seen this happen with fertiliser subsidy and petrol subsidy. The story cannot be different with foreign exchange. Suppressing the market is like swimming against the tide. It is a difficult battle to win,” he stressed.

The economist noted that the way out of the foreign exchange conundrum is for the CBN to allow the market to function, adding that it was also imperative to de-emphasise demand management and focus on stimulating forex inflows.

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