The CBN’s purported overarching goal is to bolster liquidity in the FX market and, in theory, create an enabling environment for foreign investment. However, one must question the effectiveness of such measures, as lifting the restriction on the 43 items is a crucial step in achieving the CBN’s objective of increasing investor confidence. However, it’s far from what’s required to address Nigeria’s FX challenges.
On September 13th, the Central Bank of Nigeria announced that it had lifted the foreign exchange restriction on importing 43 items, assuring its commitment to boost liquidity in the foreign exchange market. “As part of its responsibility to ensure price stability, the CBN will increase liquidity in the Nigerian Foreign Exchange Market by interventions occasionally. As market liquidity improves, these CBN interventions will gradually decrease.
Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010, and its appendices are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market. 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’s policies have often been plagued by inefficiency, inconsistency, and a lack of transparency. These issues have failed to inspire investor confidence and have usually done the reverse. 2015, the CBN banned these 43 items to conserve foreign exchange for vital imports and promote local production.
The ban was primarily driven by the Buhari administration’s import substitution policy. The former president instructed the Central Bank of Nigeria (CBN) to refrain from providing credit for food importation. “The CBN must not give money to import food. Already, about seven states are producing all the rice we need. We must eat what we produce, said Buhari.
The arbitrary restrictions and controls imposed on the FX market have stifled businesses and impeded economic growth. It also had consequences for inflation, resulting in higher prices for the affected goods. Rather than fostering a friendly environment for foreign investors, these actions have deterred them, leaving many questioning the CBN’s commitment to a free and open market. Mixed reactions have trailed the new policy, as many are concerned that it would lead to increased demand for forex without a proportional rise in supply. Also, the naira would decline in value beyond the current exchange rate of $1/1050.
Olumide Adesina, a financial analyst, believes that ending the eight-year ban on the 43 items is a commendable step in the right direction. Still, the main issues are liquidity and backlogs. “The CBN should have tackled liquidity issues before lifting the ban on 43 items to avoid further FX pressures at the official and black markets. The FX queue will now be longer at the official market without liquidity,” he said.
Nigeria’s economy continues to rely heavily on imports. The country’s total imports reached N5.726 trillion in the second quarter of 2023. The CBN’s foreign reserve will further deplete as more forex will be needed to import products.
The manufacturing sector also has its fair share of worries as the new policy may exacerbate the industry’s challenges, especially the rise in production costs. This could lead to further job losses, forcing local manufacturers to compete with imported, often more cost-effective products. Reports show that the capacity utilization in the Nigerian manufacturing sector dropped by 4.1% during the latter half of 2022.
Creating an enabling environment for foreign investment requires far more than cosmetic gestures. It demands comprehensive reforms and a clear commitment to the rule of law – all of which are conspicuously absent in Nigeria’s current economic landscape. A more holistic, transparent, and consistent approach is needed to tackle Nigeria’s FX woes, which goes beyond the superficial lifting of restrictions on a handful of items.
