That forex restriction on food import
When he gave the open directive to the Central Bank of Nigeria (CBN) not to “give a cent to anybody to import food into the country,” President Muhammadu Buhari thereby served notice of discontinuing that economic policy. It occurred on the occasion of the Eid-el-Kabir homage by state governors of the All Progressives Congress. The open directive was initially construed an outright ban on food imports by the mass media and public commentators until a subsequent clarification indicated that food imports were not prohibited provided prospective food importers made use of forex sourced from elsewhere.
Worthy of note are that, first, the homage took place 76 days into Buhari’s second term as President. Second, with the benefit of hindsight, the clarification made the open directive a restatement of the agricultural elements of the 41 items couched in the CBN policy circular of 23 June 2015. Conclusively, therefore, Buhari made his first major economic decision 26 days after assumption of office by authorising CBN to release the policy circular containing “List of 41 items not valid for foreign exchange at the Nigerian foreign exchange window.” The list has now been extended to 43 items.
Essentially, the listed items are not valid for firsthand purchase of CBN-withheld Federation Account dollar allocations, which Buhari also has impliedly acknowledged as CBN’s external reserves and which the apex bank sells from time to time by way of interventions in its various forex market windows. And third, because other sources of forex may be used to import the items, the president simply authorised a partial forex-exclusion policy.
The objectives of the policy are to be put in proper context: to encourage local production of the affected items, resuscitate domestic industries, improve employment generation, help stabilise the forex market and conserve foreign reserves. No doubt that these are good directive principles of economic policy. But it must be stated that the scope of the policy and measures for its effective implementation extend beyond the monetary responsibility of the CBN. Thus, while the objectives are desirable, at issue is whether the partial forex-exclusion policy would deliver the hoped-for results. More than four years into the authorisation of the policy, it was not out of place to talk about its achievements during the homage. Indeed, encomiums that targets had been surpassed rent the air. But what are the facts?
The Buhari administration’s Agriculture Production Policy (APP) (2016-20) at inception faced the following 2016 best estimates production shortfall across key crops and activities (in ascending order): yams (5%), maize (7%), sorghum (11%), soya beans (20%), chickens (30%), oil palm (44%), rice (63%), tomato (64%), fish (70%), milk/dairy (70%) and wheat (99%). In physical terms, the production gaps were, for instance, rice (4.0 million tonnes), wheat (4.6 million tonnes), chickens (60 million birds), fish (1.9 million tonnes) and milk/dairy (1.4 million litres). There have been some four major planting seasons since the initiation of the partial forex-exclusion policy. It is unclear if the handover notes of the ex-minister of the Federal Ministry of Agriculture and Rural Development (FMARD) availed the presidency of the updated version of the above gaps. However, NBS food price index provides a proxy indicator of the impact of food production under the APP. Food inflation (year-on) has been in double digit throughout and ranged from 10.64 per cent in January 2016 to 20.32 per cent in September 2017 with July 2018 and July 2019 recording 12.85 per cent and 13.39 per cent respectively. It is therefore fair to conclude that both presidency’s claims at the homage that the country has become food secure and the Kebbi State governor’s assertion that prices of major cereals have reduced by not less than 40 per cent in the last one year are not factual, after all. Similarly, the fact that Nigeria as at May 2018 became and has remained the poverty capital of the world debunks the governor’s further claim that the country currently is more prosperous than in 2015.
Following the unsatisfactory performance of his first major economic policy, the re-launch of the same policy 76 days into Buhari’s second term is an effort to make a river flow uphill with predictable results. It is in the realm of economic rationality to examine the causes of failure and chart the correct course forward. Towards that end, note by way of illustration that locally produced ‘Lake Rice’ (collaboration between Lagos and Kebbi states) costs more than foreign rice in the domestic market. Recall that foreign rice can be imported with Nigeria’s hard-earned foreign exchange by merely avoiding firsthand purchase of forex from CBN. The foreign rice imports attract neither tariff nor forex access tax and so do not contribute to government revenue. But the availability of cheap foreign rice undermines domestic rice production and associated value chain activities. Ditto for the other 42 listed items.
At this juncture, note that technically because there is no ban on importation of the listed items, bringing them in is not considered to be smuggling. Nonetheless, their importation amounts to frittering away Nigeria’s hard-earned foreign exchange. Two, behind the dam of withheld Federation Account dollar allocations, there is a vast and swelling artificial lake of the country’s hard-earned forex that is devoted to subjugating the national economy in diverse ways. The forex lake is made up of (a) huge funds in domiciliary forex accounts. These non-legal tender moneys ordinarily should not be kept for indefinite period outside CBN vaults. (b) Ballooning remittances from Nigerians in the Disapora have become the largest source of the country’s export earnings. The accounting firm of PriceWaterhouseCooper has established that official remittances alone have exceeded Nigerian oil export earnings for four consecutive years as at year-end 2018. But acting against national economic interest, CBN in June 2014 issued guidelines, which threw away official remittances for CBN-installed financial interlopers to use in carrying out non-rewarding economy activities. And similarly looking the other way, the Monetary Policy Committee at its latest meeting in July half-heartedly “called on CBN to intensify efforts to encourage Nigerians in the Disapora to use official sources for home remittances.” The impression is that smugglers and their ilk can access the prime invisible export earnings but CBN cannot issue a circular in accordance with economic best practice for remittances, the national invisible export proceeds, to be routed appropriately and transacted in the much desired economy-building single forex market. (c) Other forex inflows have also fallen prey to abuse with impunity by the financial interlopers to the detriment of the real sectors of the economy.
And so the partial forex-exclusion policy has (i) effectively exported Nigerian jobs to foreign countries that produce the items being imported and to neighbouring ECOWAS countries that facilitate transit of the products on the way to Nigeria; and (ii) actively impeded diversification of the economy contrary to the vow by the President to conserve the foreign reserves strictly for the diversification of the economy.
It is historically consistent that all the objectives, which Nigeria’s leader set forth to achieve with the forex-exclusion policy have failed to materialise. The President brusquely overrode economic best practice procedures governing the national currency by relying on withheld Federation Account dollar allocations (forex) as a means of managing the economy. Forex comprises alien currencies over which the CBN has next to zero control. In a course of action that denies the primacy of the national currency, Federation Account dollar proceeds have since the 1970s been withheld and replaced with pro-rata fiat printed subordinated naira funds for government budgetary spending. The resultant inappropriate apex bank deficit financing of the budgets of the tiers of government led to ex-post excessive fiscal deficits, which have served as the baton which successive Nigerian leaders have taken turns to wield in the economic relay race that, true to economic expectation, has earned Nigeria the prize of poverty capital of the world.
However, while CBN implemented the naira-trampling forex-exclusion policy, the FMARD drew up strategic measures for actualising the APP. Among the ministry’s recommended fiscal policies is to “increase tariff on any commodity that Nigeria can produce (rice, starch, sugar, etc) to promote domestic production and local content.” In fact, that is the all-powerful rule (which cuts across ministries, departments and agencies) for curbing imports of any competing goods and services. But the rule can only be effective where there operates a sound single foreign exchange market as envisaged by the CBN Act and the Appropriation Act. Sadly, presidential forbearance (refraining from strict enforcement) of the preceding key fiscal and monetary legislations since the 1970s is the bane of the economy. It has been shown conclusively that proper management of the national currency will disperse the economic doldrums.
Instructively, our founding fathers instituted the naira as Nigeria’s national currency. It was not intended that the naira should be a vassal currency to forex or any alien currency as has been the travesty after the discontinuation of the Bretton Woods system of fixed exchange rates. The moral then is for the country to heed the counsel of the The Good Book, namely, “Go to the ant, thou sluggard, learn its ways and …” Accordingly, Nigeria should choose any one of the world’s leading economies, learn how that country manages its national currency, adapt same and flourish.