In a significant change of monetary policy, the Central Bank of Nigeria announced that it would allow the 43 items that had been excluded from accessing foreign exchange since June 2015 to do so again. The bank said the decision was made to “maintain the stability of the foreign exchange market and to ensure the optimal benefits from the imports of goods and services into the country.”
The list of items includes rice, cement, toothpicks, margarine, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables and processed vegetable products, poultry – chicken, eggs, turkey, soap and cosmetics, tomatoes/tomato pastes, milk, maize and tinned fish in sauce (Gelsha)/Sardines.
The list also comprises enamelware, steel drums, steel pipes, wire rods (deformed and not deformed), iron rods and reinforcing bars, wire mesh, steel balls, security and razor wire, wood particle boards and panels, wood fiber boards and panels, plywood boards and panels, wooden doors, furniture, glass and glassware, kitchen utensils, tableware, tiles – vitrified and ceramic, textiles, woven fabrics and clothes.
The apex bank’s statement was signed by its director of corporate communications, Isa AbdulMumin.
The statement said, “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 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 said.
This move is coming at a time when the foreign exchange situation is deteriorating, as the gap between the official and parallel markets keeps widening despite the policy of rate unification. The dollar now sells for N770 in the Investors & Exporters (I&E) FX window, while it has soared to over N1000 in the unofficial parallel market.
Analysts warn that the new policy could aggravate the forex problem, as it would increase the demand for dollars without increasing the supply. Prof. Ndubisi Nwokoma, Director of the Center for Economic Policy Analysis and Research at the University of Lagos, said the decision may worsen the fx crisis. He explained that the government has increased the demand for dollars without increasing the supply.
“You know when you lift the ban, you are increasing the demand. At face value, I can say they are increasing the demand but I need to understand the motivation.
“What they should be focusing on primarily is to boost supply. Supply has to increase, oil theft should be minimised, money from oil revenue.”
However, according to Dr. Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), the policy reversal on the 43 items that were previously excluded from accessing forex is a welcome development and a step towards restoring normalcy in the forex market. The economist explained that the forex exclusion policy was one of the factors that created imbalances and inefficiencies 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. 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,” he said.
According to the ex-head of the LCCI, the new rule will enhance the transparency and disclosure of forex transactions. He also advised the fiscal authorities to “keep an eye on the economic situation and adjust the fiscal policy measures to regulate imports according to the comparative advantage principles.”
However, a finance expert and the leader of ACMAN, Prof. Uche Uwaleke, disagreed with the policy. He said it is not a good time for such a rule and it will hurt the local manufacturing sector.
“Its immediate impact will be to reduce the premium between the official and the parallel market.
“But it will have negative implications for import substitution and local manufacturing. 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