The Central Bank of Nigeria’s latest foreign exchange rules, especially the recent directive on the exclusion of 41 products from access to the foreign exchange market may have unintended and adverse consequences on Nigerian manufacturers.
“The concern is the fact that many of the products on the list of the 41 products are intermediate goods, which are critical inputs into many manufacturing industries and other critical sectors of the economy. Although the intention of the policy is to create jobs and protect industries, it will work in the opposite direction leading to negative consequences”. Muda Yusuf, Director General of the Lagos Chamber of Commerce & Industry told CNBC Africa.
Despite the fact that there is a lot of pressure on the foreign exchange market and there is a need for it to be eased, it should be managed in a way as not to create worse problems for the economy.
As stated in the press release by The Lagos Chamber of Commerce and Industry, the development will put several investments at risk with implications for job losses, quality of loan assets in the banking system and the welfare of citizens. Examples of these products are iron rods, Cold Rolled sheets, wire rods, reinforcing bars, polypropylene granules, glass and glassware. The construction, real estate, fabrications, housing etc. will be adversely affected. A painstaking gap analysis to determine the domestic capacity for production vis-a-vis the demand should have preceded the policy decision by the CBN.
“The alternative forex markets – parallel markets and the BDCs are not deep enough to meet the demand of the essential intermediate products on the exclusion list. Therefore the exclusion of the items from the forex market is as good as import prohibition” says Yusuf to CNBC Africa.
The new rules are believed to create some distortions in the economy as some products are present on the list while others are not. The result of this is that there will be a significant gap between the rate in the interbank market and that in the parallel market. CBN is aware but they believe it’s a sacrifice worth making. Yusuf believes that the rate needs to be moved to equilibrium so that issues will not be generated.
“The Buhari administration needs to urgently set up its Economic Team and constitute its cabinet to give clear direction to the economy” stated Yusuf.