Last Thursday, the Central Bank of Nigeria (CBN) announced that it had lifted the restriction on the 43 items prohibited, in 2015, from accessing foreign exchange (FX) from the official foreign exchange windows.
“Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market,” a statement signed by Isa AbdulMumin, the CBN’s director of corporate communications, said.
The new decision by the central bank to remove forex restrictions on these items came about eight years after the bank on 23 June 2015 restricted those who deal in the items from accessing forex at the authorised FX window. The aim of the policy was to reduce pressure on the demand for dollars for importation and to encourage local production of these items.
Some of the affected items include rice, cement, margarine, palm kernel, palm oil products, vegetable oils, meat and processed meat products, vegetables and processed vegetable products, poultry, tomatoes/tomato paste, soap and cosmetics, and clothes.
Other items include private aeroplanes/jets, Indian incense, tinned fish in sauce, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes/containers, enamelware, steel drums and pipes, wire mesh, steel nails, wood particle boards, and panels.
Also affected were security and razor wire, wood particle and fibre boards and panels, wooden doors, furniture, toothpicks, glass/glassware, kitchen utensils, tableware, tiles (vitrified, ceramics), textiles, wooden fabrics, plastic/rubber products, polypropylene granules, and cellophane wrappers.
Subsequently, amidst efforts to achieve its backward integration policy on key items, the central bank added fertiliser and maize/corn to the list of items.
The policy drove importers to source forex in the parallel market for transactions, resulting in additional pressure and demand for FX at the unauthorised window.
A review of the unbanned items indicates that there are about 10 food-related commodities among those restricted.
Impact on food security
Over the last decade, prices of food commodities on the aforementioned list such as rice, maize and poultry products ( eggs, chicken) among others, which are major staple foods among Nigerians, have skyrocketed by over 100 per cent.
The upward trend in the prices of these staples as well as other products has had a negative impact on the purchasing power of many citizens, making it difficult for many households in the country to afford daily meals.
Last year, PREMIUM TIMES reported how the average price of poultry feed in Nigeria rose by at least 168 per cent in the last three years, a surge that underlines the scale of Nigeria’s food inflation in the last few years.
According to the National Bureau of Statistics (NBS) latest inflation report, Nigeria’s food inflation rate in September rose to 30.64 per cent on a year-on-year basis. The figure implies a 7.30 per cent points increase compared to the rate recorded in September 2022 (23.34 per cent).
The ripple effect of this trend is evident in the state of food availability, accessibility and affordability in the country amidst inflationary pressure and the lingering effects of climate change.
In July, amidst rising food prices, President Bola Tinubu declared an immediate “State of Emergency” on food insecurity in the country.
The move is perceived as part of an aggressive push to boost agricultural productivity and reduce the high prices of major staple foods in Nigeria.
The government also noted that the development is in line with its short-, medium and long-term strategies towards addressing the challenges of food affordability and accessibility in the country.
While the CBN’s decision to lift the ban on the 43 items signifies a major step in resolving the country’s forex crisis, experts have also registered mixed feelings about the impact of the removal on the state of food security in the country.
Experts speak
Reacting to the CBN’s removal of the forex restrictions on the 43 items, Dairy Hills Limited Chief Executive Officer, Kelvin Emmanuel, described the initiative as a “good development”.
He said the restrictions gave undue advantage and drove demand to the parallel market, which created a black market premium that currently sits at 32.5 per cent.
Mr Emmanuel expressed concerns that the lifting of the ban on the 43 items will not impact the backward integration drive that has been touted by the government.
He said aside from allowing those who deal in the items to access FX from the official window, they are still under a customs ban.
“I believe in order to truly bring back the FX rates to the band of real effective exchange rates (REER), the Central Bank needs to clear all outstanding forwards in Capital & Dividend Remittances, Form A and Commercial Letters of Credit,” he told PREMIUM TIMES in an interview.
He explained that the CBN needs to also work on rebalancing the encumbrances on the external reserves for FX swaps to banks as well as securities lending done with External Asset Managers to the apex bank without approval from the National Assembly.
“An important key to slowing down inflation, and adjusting the inflation to interest yield curve for sustainable credit, Nigeria needs to fast track backward integration for import substitution for enterprise manufacturing, to reduce the shocks for durable goods to FX,” Mr Emmanuel said.
On his part, Azeez Salawu, founder of Community Action for Food Security (CAFS AFRICA), described the CBN decision as a “complex move” with both potential benefits and risks.
On the one hand, he said, it might help increase the supply of these food items in the domestic market by making it easier for importers to access foreign exchange, and could subsequently help in stabilising prices and addressing short-term food shortages.
However, Mr Salawu noted that there are concerns that the move might discourage local food production.
“Nigeria has been striving to achieve self-sufficiency in food production, and by easing the FX ban, there’s a possibility that the agriculture sector might not receive the same level of support it needs to thrive,” he said.
The food systems expert said the FX ban removal could negatively affect small-scale farmers and local food producers, who may face stiffer competition from cheaper imported products.
Impact on food security
Speaking on food security, Mr Salawu explained that the impact on food security in Nigeria hinges on how well the CBN’s decision is managed.
“It’s crucial that it doesn’t disincentivize local food production efforts. The government should take a balanced approach that encourages importation of what can’t be produced locally while promoting and supporting domestic agriculture to ensure long-term food security,” he said.
Razaq Fatai, Research and Advisory lead at Vestance, a data-driven intelligence and advisory firm helping to transform Nigeria’s food systems, said because key agricultural inputs were not on the list of the 10 food-related items affected by the CBN policy, the impact on domestic production costs were limited.
However, he lamented that there is a risk of increasing agricultural input costs if naira depreciates further at the official channel due to increased FX demand.
Mr Fatai said importers of food items like rice and cooking oil may still rely on the parallel market for dollars, maintaining price pressure. He explained that to genuinely benefit households, complementing the CBN policy with a reduction in import tariffs on these vital food products could pave the way for price reductions.
“Stabilising the exchange rate by curbing crude oil theft and boosting local food production is crucial for domestic food price stability,” he added.
Way forward
For importers of the 43 items to secure dollars, Mr Fatai said a substantial increase in FX supply is imperative, and that this will primarily hinge on the government’s ability to boost oil production.
“Borrowing is not a viable option due to rising global interest rates unless the government can secure concessional loans from institutions like the World Bank,” he said.
The food system expert said the flow of remittances won’t pass through official channels until exchange rates harmonise, and that other FX sources, like foreign investments, won’t materialise until macroeconomic stability is achieved.
On his part, Mr Salawu said the success of the CBN’s policy largely depends on effective monitoring and control to ensure it doesn’t compromise Nigeria’s progress towards self-sufficiency in food production.
