The Central Bank of Nigeria (CBN) has been commended for its forex policy and resilient of the banking sector. But for how long can the apex bank continue to play its role if dollar accretion continues to fall? ABDULWAHAB ISA reports
The management of foreign exchange and reserves is the exclusivity of the central bank of every nation. This is, in addition to building and sustaining price stability and public confidence in the banking sector. In Nigeria, the banking watchdog performs these noble functions. While the apex bank is the custodian of foreign reserves, it lacks the capacity to determine the volume of forex that accrue therein.
The robustness of forex reserves is a function of export and import, which is outside of apex banks’ control mechanism. To build reserves sufficient to sustain months of imports, there has to be a sustained variety of exports of commodities. A high level of exports will impact positively on the economy, leaving it with sufficient foreign exchange as well as strengthening the local currency.
Single export commodity/forex crisis
The Nigerian economy is driven by one major commodity export – crude oil. A rise in crude oil price at the international market naturally translates to robust forex reserve balances as had been witnessed in the recent past when crude oil price rose above $100 per barrel. Similarly, the crash in crude oil price, the current trending scenario, sign posts a dwindling acreage of forex into reserves.Data on merchandise trade (export and import) released by the National Bureau of Statistics (NBS) have been consistently indicating that the economy has been persistently weighed down by huge volume of imports and slight exports.
CBN efforts at reversal
To reverse the trend and entrench culture of building healthy reserves, a number of initiatives were put in place by the management of the apex bank last year. Precisely June last year, the banking watchdog announced daring measures considered unprecedented in the history of the bank policy issuance. The directive stopping some imported goods and services from the list of items valid for forex in the Nigerian foreign exchange markets jolted stakeholders.
Before then, local manufacturers of goods had lamented uncontrollably about their disadvantaged position against all manner of imported goods, which had edged them out of business. Among the listed 41 items on forex prohibitive list 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, tomatoes/tomato pastes and many others.
Essentially, the policy implies that those who import these items can no longer buy foreign currency from the official window to pay the overseas suppliers. Rather, they would have to source for forex from the parallel market or Bureau De Change (BDCs) to pay for their imports.
The apex bank, in a statement that further clarified its position on this policy, said: “It’s important to emphasise that the importation of these items are not prohibited or banned. It only means that importers of these items are no longer qualified to get foreign exchange from the CBN or the official market to buy these items from overseas.” The ban on forex for selected items received applauses from local manufacturers. The umbrella body of manufacturers, the Manufacturers Association of Nigeria ( MAN), endorsed CBN’s step. Notable manufacturers such as Chairman of Erisco Foods Limited, Chief Eric Umeofia, described the CBN’s decision as the right step to be taken.
He said: “The government needs to ban the importation of tomato paste to help local producers in the tomato industry. Erisco Foods now produces 45,000 metric tonnes and the only company processing dried tomatoes and converting same to paste. Tomatoes that would have been wasted are being dried and processed into paste by Erisco Foods. This has created jobs for people that help in drying fresh tomatoes to preserve them in some states. With what we are doing, we have impacted the lives of rural farmers.”
Threat to shut down factories
In the face of insufficient forex at the disposal of the apex bank, some local producing firms said they may have no choice but to shut down their operations due to insufficient forex allocation by the apex bank. In previous weeks, two renowned tomato paste producers – Alhaji Sanni Dangote, Group Vice- Chairman of Dangote Industries Limited and Chairman, Erisco Foods Limited, Chief Eric Umeofia, threatened to shut down their tomato factories. Alhaji Dangote hinged plans to stop tomato paste production on the harsh operating environment, which, he said, gave advantage to imported production.
Dangote, who spoke at the 2nd group meeting of the Zero Hunger Committee in Abuja, said: “We have been talking for the past one year and up till now, there is no clear cut direction where the government is heading.” He said that the forex policy being implemented by the CBN had not stopped importers from making profit from importation, instead, it is the local industries that are recording losses. According to him, forex is not the problem but establishing a policy that would restrict the importation of tomato. “We are not looking for forex.
We are only saying that government should put up a policy where we are producing tomato concentrate to those industries that are into packaging; we are not into retail packaging,” he said. Similarly, Erisco Foods Limited threatened to shut down its plants over forex scarcity, an action that may lead to job losses. Addressing the media in Lagos, Umeofia attributed the company’s predicament to scarcity of foreign exchange.
He said if at the end of 30 days, the situation did not improve, he would move his manufacturing firm out of Nigeria. “We cannot get forex to buy machinery. We run our big factory with forex sourced from the parallel market at the exchange rate of N450/dollar. The companies that get forex at the official exchange rate are those that import items included in the list of items not valid for forex. “We cannot continue this business because we are running at a loss while importers continue to flood our markets with banned tomato paste and prevent our products from selling,” he said.
But those privy to the CBN and the quantum of forex intervention given to Erisco Foods Limited said Umeofia was not correct on his facts. He was said to have been given more allocation than the rest of his colleaques, a fact he owned up to, when he featured last week on a live television programme.
It was learnt that Erisco Foods Limited’s challenge is not forex. Its problem may also be rooted in estranged financial relationships with its bankers over debt service issues. Investigations showed that the company had received about N2billion intervention fund of CBN. Umeofia confirmed this on the television programme. It was revealed that Erisco and other beneficiary firms between June 2014 and April 2016, received various sums for the importation and installation of tomato processing lines and the stockpiling of raw materials for operational efficiency.
Two protests happened last week in the capital city of Abuja. One was against the economy and CBN forex policy and the other in support of CBN and tFederal Government economic policy. During the protest by women and youths, the group decried the prolonged spate of economic hardship occasioned by recession in the economy, a development the protesters laid on the shoulders of economic management team and mis-priority of forex policy.
They sought the disbandment of Economic Management Team by the president. A day later, a more organised group staged a protest backing the Federal Government’s economic policy and CBN’s forex policy. Under the auspices of coalition of Civil Society Group, the group threw its weight behind policies of the CBN, including efforts by the Federal Government to revive the economy.
Its convener, Etuk Bassey William, commended the policies of the CBN, particularly the blockage of leakages to the country’s foreign reserves as well as the injection of funds into the real sector, with a view to revamping the ailing economy.
William, who noted that the current economic challenges and recession were the culmination of many years of financial imprudence on the part of government at different levels, noted that the CBN had shown leadership by daring to plug loopholes in Nigeria’s foreign reserves.
“By restricting Forex allocation to 41 items in which Nigeria has comparative advantage, the CBN has given new lease of life to many companies that were hitherto suffering from strangulation brought about by the importation of items that can be produced in the country,” he noted.
With the economy facing its toughest time, what is required at this peril time is unconventional approaches in management of forex . This is what the management at CBN is doing – sustaining confidence in Nigerian banking sector.