FX: Mixed reactions trail CBN’s readmission of 43 items after 8 years


…Negative implications for import substitution, local manufacturing -Prof Uwaleke

…A move in the right direction, says Dr Yusuf

Mixed reactions have continued to trail yesterday’s readmission of the restricted 43 items into the Nigerian foreign exchange market by the Central Bank of Nigeria (CBN), as economists and industry experts expressed divergent views on the development.

The CBN announced that it has lifted the policy restricting forex sales to importers of certain items that Nigeria has comparable advantage to import.

The apex bank in 2015 had placed at least 43 Items on forex restrictions list because it wanted to promote local manufacturing capability and backward integration.

But the CBN in a statement signed by the Director, Corporate Communications, Dr Isa AbdulMumin and issued yesterday, said the “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.”

The items included rice, cement, margarine, palm kernel/palm oil products/vegetables oils, meat and processed meat products, vegetables and processed vegetable products, poultry – chicken, eggs, turkey, private airplanes/jets, Indian incense, tinned fish in sauce (geisha/sardines), cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers and enamelware.

Others included: Steel drums, steel pipes, wire rods (deformed and not deformed), iron rods and reinforcing bars, wire mesh, steel nails, security and razor wire.

Also banned were wood particle boards and panels, wood fibre boards and panels, plywood boards and panels, wooden doors, furniture, toothpicks, glass and glassware, kitchen utensils, tableware, tiles – vitrified and ceramic, textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules, cellophane wrappers, soap and cosmetics, tomatoes/tomato paste, Eurobond/foreign currency bond/ share purchases, dairy/milk and maize.

Reacting to this development, Professor of Finance and Capital Market at Nasarawa State University, Keffi, Uchenna Uwaleke, told The Daily Times that the readmission of the 43 items to the forex market will have negative implications for import substitution and local manufacturing efforts.

He pointed out, though, that the readmission has its immediate impact, which will be to reduce the premium between the official and the parallel market.

“But the decision to readmit 43 items is ill-timed in view of the current forex shortage.

“The official exchange rate will further rise to meet the parallel market rate”, he said.

On the other hand, the Director/Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said: “We welcome the decision of the CBN to discontinue the forex exclusion policy on the 43 items. It is a move in the right direction. It is part of the policy normalization process.”

According to him, the exclusion of the 43 items was one of the several drivers of distortions in the forex market. The exclusion of the items also contributed to the persistent divergence in rates between the official window and the parallel market, he noted.

“The exclusion was also in conflict with extant trade policy as the items were not under import prohibition in the first place. It was an example of lack of policy coordination under the previous administration.

“The new directive will also improve transparency and disclosures in foreign exchange transactions”, he said.

Dr Yusuf, however, charged the CBN to avoid market suppression tendencies, especially outside the I and E FX window, adding that all policy impediments to forex inflows should be removed.

Dr Yusuf also cautioned fiscal authorities to continually monitor the economic landscape to shape the character of fiscal policy measures to regulate imports in line with comparative advantage principles.

“We need to worry about the risk of import surge. There is also need to upscale the use of fiscal policy measures to boost domestic production and productivity”, he said.

Meanwhile, the circular by the CBN announcing the restriction had said: “In the continuing effort to sustain the stability of the foreign exchange market and ensure the efficient utilization of foreign exchange and the derivation of optimum benefit from goods and services imported Into the country, It has become Imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian foreign exchange markets In order to encourage local production of these Items.”

The CBN added that “the implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic Industries and improve employment generation.”

The CBN justified the revised policy as based on its commitment to boost liquidity in the forex market.

The statement further stated that the apex bank “will continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle.”

It said the “CBN reiterates that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.”

The statement further indicated that “as part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.”

It said: “The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.

“The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal.”

But, experts expressed divergent opinions on the benefits of the policy after eight years of implementation.

Whilst some said the policy increased self sufficiency in the production of certain items like rice, maize, toothpicks, and others, some others claimed the policy has not attracted as much benefits as was projected by the CBN.

But the CBN in the new circular said that the readmission of the banned items will boost liquidity in the Nigerian Foreign Exchange Market and intervention from time to time, stating that such interventions will decrease as liquidity improves.

Addressing the longstanding FX backlog issue, the CBN pledged to intensify efforts for its clearance and further engage with stakeholders to streamline solutions.

Reflecting a broader vision, the bank also indicated its pursuit of a unified foreign exchange market, with consultations already underway with market players.

The 43 banned items include a list of imports that were not allowed access to forex from official sources since 2015.

However, some of the items remain on the banned list of Nigeria Customs Service and it is unclear if they will be funded for forex purchases.

It is also unclear how much demand this will drive to the official I&E window and if the CBN has the capacity to meet this demand in the short term until liquidity returns as it expected.

culled from Daily Times Nigeria

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