A welcome change

It is perhaps reasonable that the Central Bank of Nigeria’s (CBN) announcement lifting the restriction on the 43 items prohibited, in 2015, from accessing foreign exchange (FX) from the official foreign exchange windows would generate a measure of disquiet. Coming eight years since the apex bank decided that the items for which the country ordinarily possesses local comparative advantage in production should have no place in the official forex allocation mix, the decision would ordinarily seem typical of the policy somersaults for which the country is renowned.

Vice-Chairman of Basic Metal, Iron and Steel Products Sector of the Manufacturers Association of Nigeria (MAN), Lekan Adewoye, puts the matter succinctly: “Some of our members, who have invested in backward integration will now start to regret this move because everyone who can access forex will claim to be an importer, forcing sincere manufacturers to close shop, thus increasing the number of jobless persons”.

He continues: “Nigerian manufacturers don’t really have any competitive advantage over those in other developing countries. At best, what you have is competitive parity, because something has to be an advantage if your competitors don’t have it. And the little incentive that the government has provided is now being removed by the directive of the Central Bank of Nigeria.”

The apprehensions of the manufacturers are understandably hinged on three grounds. The danger of collapsing the advantage hitherto enjoyed by the local producers, thus putting their very survival at stake; the distinct possibility of the gains of the past eight years being eroded as producers and importers will have the same unfettered access to the official forex market; and the grim possibility of factory closures and increased unemployment from unfair competition.

But then, the position of the apex bank is no less persuasive. It says it wants to “promote orderliness and professional conduct by all Nigerian foreign exchange market participants to ensure market forces determine exchange rates on a willing buyer – willing seller principle. And that it wants to “ensure price stability and is seeking to boost liquidity in the Nigerian foreign exchange market. As liquidity improves, we expect the distortions to moderate.” And finally, that the removal would “make monetary policies effective, reduce the inflation rate and eliminate the need for importers of these products to go to the parallel market”.

Painful as it may sound, the truth is that the forex restriction policy has largely failed to deliver on its advertised objectives. Popular as the restriction was at inception, it was more of a psychological thing. In other words, any claimed boost in local outputs in the selected items would seem more apparent than real. Today, we know that inflation is still on the rampage, so has the demand for forex, even for those excluded items gone on uncurbed. And as the CBN is wont to argue, forex demand for the excluded items, merely shifted to the parallel market while the exclusion lasted.

Yes, forex exclusion might have served the interest of MAN and other bodies while it lasted; the real question is – has it served its advertised cause of boosting domestic capacity, bringing down the prices of the affected goods and by so doing giving the importers a run for their money? The answer of course is in the negative. What about the distortions in the forex management which the apex bank also alluded to? Are they not also valid?

It would seem that MAN and those opposed to the latest CBN move are only focused on the symptom rather than the malaise. The fundamental problem here is forex scarcity which the apex bank has little or no control over. Clearly, if the argument by MAN is that local businesses deserve special protections given the odds so clearly stacked against them, there can be no argument against that. In fact, the issue cannot be overstated: the sector needs all the help that it can get. MAN and others surely have a bounden duty to properly articulate and channel such issues that concern them to the fiscal authorities for attention.

But their fixation with the apex bank would in the circumstance appear utterly misplaced. Surely, there can be little or no arguments about the current move to reset the apex bank, to restore it to its core mandate of monetary policy management. Surely, it is the way to go if only to ensure a more stable macro-economic environment that the economy badly needs.