Yemisi Izuora
The Lagos Chamber of Commerce and Industry [LCCI] has observed that the Central Bank of Nigeria (CBN) recently introduced policy for purchase of foreign exchange (FX) could cause more harm to the economy.
The LCCI recalled that the apex bank recently introduced a list of 41 items which are now not valid for purchase of foreign exchange from the interbank foreign exchange market, from Bureaux de Change or even export proceeds, including utilization of such export proceeds earned by the firm itself.
The chamber pointed out that given the dominant role of the CBN in FX supplies in Nigeria and the fact that all three “official” markets are excluded, the policy means manufacturers who require any of the 41 restricted items as input and raw materials for their production may have to simply shut their operations once existing stock is exhausted!
Rising from an interactive session with CBN officials, the LCCI noted that the restricted items include items which are critical elements of the manufacturing process of many firms across sectors in Nigeria.
The interactive dialogue between CBN officials, business leaders and members of the Chamber discussed the policy, its rationale and consequences, and to advise on a way forward.
A communique issued at the end of the session and endorsed by Muda Yusuf, director general of the chamber implied that though the LCCI understands the CBN’s constraints and circumstances as it drew up this policy, the formulation of the policy exposed the banks limited understanding of the manufacturing process of many of the sectors affected by this policy.
“Many of the restricted items are irreplaceable raw materials in the manufacturing process of many industries and this policy will cause significant damage to the Nigerian manufacturing sector and economy.
We affirm that while there are several items on the list which any patriotic Nigerian will not object to, there are many others that will harm the manufacturing sector” the chamber pointed out.
It therefore advised the CBN to urgently simulate the impact of the policy on employment, inflation and output in 2015 and thereafter and to review the policy accordingly, adding that the impact in all three highlighted areas will be significantly negative!
According to the communique, The new CBN policy is ambiguous as the restricted items are not well-defined and specific, plunging both manufacturers and banks into confusion regarding CBN intent.
We urge the CBN to immediately amend the policy with full product definition and specification of all restricted items, including HS Codes and excluding any items which are non-substitutable industrial raw materials from the list.
The CBN policy should also allow appropriate time frames for items which require some time interval before local substitutes can be created for imported raw materials.
The chamber also reminded both the CBN and the federal government that manufacturers have suffered significant consequences from the recent currency devaluation which they are yet to recover from.
“Compounding recent devaluation losses with higher cost of, and/or complete inability to source critical raw materials may push many firms over the precipice resulting in business closures, loss of jobs, declined manufacturing sector production and greater social tension. We invite the CBN and federal government to consider palliatives and incentives to prevent such a scenario.
We call CBN’s attention to the fact that the fundamental forces the CBN is struggling against are economic and fiscal policy dependent while the Bank continues to exert monetary policy tools almost to a point in which economic harm may result.
The fundamental factors are diversification of the Nigerian economy in terms of exports and government revenue, issues around downstream oil sector deregulation and upstream oil sector fiscal regimes, power sector efficiency and creating alternative economies in solid minerals, agriculture, manufacturing and other sectors towards building a productive, export-led local economy. These matters cannot be resolved through exclusive deployment of monetary policy tools,” it warned.