CBN’s FX restrictions and Nigerian consumers

Recently, the CBN added sugar to the items under its foreign exchange prohibition list. EHIME ALEX writes that while the intent is laudable, the timing is questionable

The Central Bank of Nigeria’s decision to stop providing foreign currency for importers of sugar and wheat is drawing criticism, and likely to spike increases in prices of most staple foods and other household goods.

The monetary regulatory body had, in a tweet posted on its official website on Friday, stated, “Sugar and wheat to go into our FX restriction list. We must work together to produce these items in Nigeria rather than import them.”

In 2015, the CBN restricted access to foreign exchange for 41 items, and has since been adding to the list.

Experts, who spoke with Financial Street over the weekend raised concerns about the CBN’s decision, saying it was ill-timed and, among other things, a bad sign for Nigeria’s economy.

Advisory Board Member, African Council for Trade, Tourism and Investment, Dr Ikechi Agbugba, said the halt in the supply of dollars by the CBN to these importers was in order, but that the timing was wrong.

“The truth is that Nigeria is really broke and it is, all the same, really saddening that many issues arising at such a time are directly and negatively impacting on food security (comprising food availability, accessibility, utilisation and stability), ranging from the seizure of the items of the Fulani cattle-rearers which led to the unanticipated disruption of the food supply chain, to the forex restriction by CBN in importation of sugar and wheat,” he said.

Agbugba, who is an agribusiness expert, consultant, researcher and don, said he could underscore that the problem with the CBN’s latest restriction would cause hike in the cost of items as well as derivatives of sugar and wheat, such as bread.

“Prior to this time, we can recall that after the rice importation ban, the commodity became more expensive. Where is this huper inflation leading us to?” he said.

According to him, the level of food insecurity, which is more or less proportional to high crime rate, is heightening by the day.

“I feel the goal of the government is to reclaim or strengthen the devalued or devaluing naira, which is quite imperative. However, we must have to note that the gap, which is filled by the poor, food-insecure and vulnerable persons will definitely keep widening, since families and households will have to devote more money to food, that is really a bad sign for Nigeria’s economy.

Agbugba retorted, “This sudden and dogged move by the CBN in strengthening the naira by this forex restriction should not be the first option? What about the huge subsidies and soft grounds given to importers of fuel?”

According to statistics by Knoema.com, Nigeria’s sugarcane production was about 1.46 million tonnes in 2019, while wheat production in 2020 stood at 60,000 tonnes.

“Nigeria produces sugar and wheat locally, but at the moment, the demand for these products (which serve as raw materials for the baking and confectionery industries) outweighs the supply,” Agbugba added.

He said Nigeria was not yet self-sufficient in its production of those items, considering its population size and few available industries.

“People should be made to understand the situation that food and agro commodities are not industrial products and less controlled by technology.

“Agriculture deals with living organisms, involves time lag in production, harvesting and distribution, and this can largely be influenced by diverse kinds of risks and uncertainties,” Agbugba said.

He cited Borno State, which has the soil conditions for wheat cultivation, but currently hit hard by terrorism.

“Insecurity issues and a porous security network is of huge concern. Sadly, the growing secessionist movements are of increasing concern and cumulatively add to the cloud of uncertainty and insecurity looming in the country,” said Agbugba.

Truly, in as much as the restriction will be painful in the short to medium terms since the prices of sugar and wheat will be hiked, it will result in forceful adjustments in the long-run to grow these products locally, thereby helping to conserve forex.

As an agro media researcher, Agbugba disclosed that quick responses from the research he carried out indicated this move by the Nigerian government was politically-motivated and would “definitely” favour the major dealers of the items such as Dangote and Floor Mills.

“This type of market structure is imperfect and tends towards oligopoly, a market situation arising when few firms are in control of the market. As earlier said, this move by the CBN is ill-timed as it can create a ripple effect on prices of most staple foods (the average man’s food) and other household goods,” he added.

The President, Association of Micro Enterprises of Nigeria, Saviour Iche, lamented the FX restriction on food items.

He said stakeholders in the industry were not carried along.

The country, he added, was already in a “very terrible” situation, as cost of items were increasing daily.

Asserting that policies were formulated without proper consultation, Iche said, “Before some national issues that concern the masses ought to be taken, there should be a stakeholders’ forum, where ideas are shared.

His words, “Restriction of forex for sugar and wheat will widen the supply inadequacy of these two products. Or is there evidence that we have surplus? No, we don’t have surplus.”

To avoid creating an oligopoly, he urge the government to aid many businesses to go into the production of sugar and wheat.

Nigeria targets to achieve self-sufficiency in sugar production by 2023. Though the Nigerian Sugar Master Plan terminates in 2022, the country failed to meet 1.79 million tonnes targeted for 2020.