Unending arguments over 41 forex items
Like a bombshell, 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” today.
From then till now, controversy over the policy has been unending, including misinterpretation of the decision; questionings over CBN’s powers; economic benefits; wrangling over policy alternatives; claims of aggravation of economic crisis; and persistent pressure to end the order.
For clarity, CBN, by the policy did not ban the importation of any item and 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”.
But Nigeria, as well as Nigerians, noted for importing virtually everything, especially for its sake and status symbol, it did not go 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 was placed under serious inquisition.
For economists, it became a case between continued short-term gains, with slow-paced substitution strategy (the usual Nigerian experience) and medium term pains for long-term benefits (if actually implemented). This has brought about persistent argument over the list of 41 items excluded from official forex intervention.
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.
Former Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo, who admitted that Nigeria’s current economic travails were a product of last administration’s misdeed, alleged that it was aggravated by ongoing policies, which he described as “two wrong steps.”
“They brought in the Single Treasury Account (TSA) and channeled funds into one account that did not allow spending, and they also fixed the price of foreign exchange,” he said, adding that prohibition of items heightened speculations and round-tripping of forex.
“These are things you do not do,” he said.
He again faulted the restrictions placed on some items, alleging that decisions have become political than economics and that there are better options than experimenting with the wellbeing of millions of Nigerians.
“We need import substitution but not through a crude form. You cannot unify foreign exchange market with discrimination, except through commercial policy and tariff, because such strategy has repeatedly failed in the country and add more trouble. It is 100 steps backward and 15 forward,” Soludo noted.
The Global Chief Economist, Renaissance Capital, Charles Robertson, corroborated Soludo, saying it is debatable whether foreign capital will be available for government to “turbo-charge” the recovery plans.
“The currency restrictions imposed on investors will likely mean that investors demand a premium to invest in Nigeria again. Zambia or Ghana or Egypt by contrast, which allowed currency flexibility, should find it easier to attract investors,” he said.
However, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, speaking on the policies and plans guiding the country’s economic trajectory, affirmed that the country is now drastically cutting costs and improving efficiency of service delivery.
But the development, as it relates to the foreign exchange policy, according to the minister, is supporting the country in its quest to attain food sufficiency in major agricultural products, particularly rice, by 2018.
These are part of the 41 items prohibited in the official window in efforts to raise local capacity, create jobs and preserve forex reserves.
A research analyst at Ecobank, Kunle Ezuh, corroborated the fact that the exclusion of the 41 items had boosted local investments.
“If these items were there, no doubt, the pressure on the reserves would have been more. But also think of the level of awareness and investments towards producing those items locally, as well as what has been achieved now, which would not have been possible,” he said.
Granted, it is not a smooth sail for the economy, as its recovery from recession is painfully slow, but the consciousness for producing what we need, as well as self discovery is now on the rise.
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, CBN noted in a response to The Guardian.
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.
CBN’s Director, Corporate Communications, Isaac Okorafor, maintained that the policy has rather been helpful to the economy than envisaged.
According to him, oil palm companies like Presco and Okomu, have never been more profitable, as they have increased capacity, as well as taken over demand for palm oil in the country.
Riding on the back of the policy implementation, the Economic Recovery and Growth Plan provided for the upscale of agriculture activities to realise self-sufficiency in rice by 2018; wheat by 2019; and Nigeria becoming a net exporter of rice, cashew, groundnuts, cassava and vegetable oil by 2020.
“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.”
According to him, many local companies with viable projects are being supported financially to boost the import substitution strategy, as well as reduce import wage bills that had impacted negatively on the national currency.
Courtesy of the policy direction, he noted that Nigeria is now boasting of about four million tonnes of Paddy rice, as Kebbi, Ebonyi, Anambra, Lagos states, among others, are championing the resurgence of rice farming in the country.
To support the policy drive, recently, a N2 billion long-term facility was granted Triton Aqua Africa Limited (TAAL), one of the emerging local companies, by Heritage Bank Plc, under the Commercial Agriculture Credit Scheme (CACS) of CBN, which is expected to boost job creation.
The fund was disbursed to enable TAAL expand its aquaculture businesses- nursery/hatchery for the production of fingerlings and brood stock in Ikeja; and earthen ponds for catfish and tilapia in Asejire, Iwo and Gambari towns in Oyo. These are all imported.
The Managing Director, Heritage Bank Plc, Ifie Sekibo, while on fact-finding mission to the company’s facilities, said: “I want to be sure whatever facility Heritage Bank is giving will add value in terms of cash flow of TAAL. If I have your cash flow as part of your production plan it would make it easy for me to treat your application for credit.”
Based on the bilateral agreement reached by the two parties, TAAL is expected to increase the production capacity of one of its nursery/hatchery unit to 15,000 tonnes at the end of the second phase of the expansion process, while the third phase is expected to start in the next three months.
The Chief Executive Officer of Aqua Group, Raju Samtani, said the farm was fully integrated in aquaculture, poultry and crop production and is a platform to generate employment for teeming youth.
“Triton Farm is designed to train youth in agriculture and create employment, as well as generate wealth. This is the only farm in the whole region that is fully integrated in aquaculture, poultry and crop production,” he said.
Alleging that those who are currently asking for the removal of the exclusion list do not mean well for the country and the investors that have responded to the local content call, Okorafor reiterated that the decision on the 41 items remained in force.