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Nigerians spent N1.39trn on the importation of seven out of the 43 items earlier restricted by the Central Bank of Nigeria from accessing foreign exchange on its official platform in the fourth quarter of 2023, findings have shows.
This was as citizens imported goods worth N4.29trn in 2023, indicating an increase of 100 per cent N2.15trn from the total worth of N2.14trn commodities imported in 2022.
In 2015, the CBN had categorised about 41 import items as not valid for forex, which meant importers of the commodities were forced to source for FX at the black market often at higher rates, putting pressure on the naira.
The apex bank said the restriction was part of efforts to sustain the stability of the foreign exchange market, ensure effective utilisation of foreign exchange and the derivation of optimum benefit from goods and services imported into the country. However, these items were not banned or prohibited by the Nigerian Customs Service, so they can still be imported.
But last October, the Central Bank of Nigeria in a statement lifted the ban on importers of 43 items allowing the purchase of foreign exchange in the Nigerian foreign exchange market.
Hence, the reversal of the apex bank’s forex ban policy led to a noteworthy improvement of N1trn worth of imported goods to N1.39trn from the N1.29trn recorded in the third quarter of 2023.
The World Bank also in the December 2023 edition of its Nigeria Development Update report said that the removal of import restrictions in Nigeria will lift about 1.3 million people out of poverty.
“Recent World Bank estimates show that removing import restrictions could lower the prices of affected items by 4.7 per cent. This would lead to an overall increase in purchasing power which, in turn, would lift about 1.3 million people (around 0.6 per cent of the population) out of poverty.”
According to an analysis of the latest Nigerian Foreign Trade reports of the National Bureau of Statistics, items such as crude palm oil, vegetable products, animal products, meat, vegetable fats and oil, rubber and plastics, and textiles were imported from various countries.
The yearly breakdown showed that crude palm oil got a total of N50.44bn with imports from Malaysia and China, vegetable products got N1.63trn, animal products recorded trade of N597.47bn, while mackerel meat got N124.99bn with imports from Chile, Ireland, Poland, South Korea and the Netherlands.
According to data released by the NBS, Nigeria imported N1.29trn worth of plastic and rubber items, textiles recorded a trade of N377.18bn and vegetable fats and oil got a total of N214.6bn.
Reacting in an earlier PUNCH interview, the Director of Centre for Promotion of Private Enterprise, Muda Yusuf, described the forex ban list by the central bank as an “aberration”, explaining that the banned items were legally acknowledged in the nation’s trade policy document.
Yusuf said, “The list itself is creating confusion in our trade policy because it is only fiscal authorities that should determine what you can import and not import. What the CBN has done is unusual, an aberration because the trade policy of any country is documented in its fiscal policy; a trade policy document which will show the tariffs and items under import and export prohibition. That means you can’t import those products.
“When you have that information document by concerned authorities, the CBN now has its own list of items which you can’t officially source foreign exchange so it creates a lot of confusion in the system. What needs to be done is harmonisation and it is not the duty of the apex bank to decide what items to give forex for. That is a trade policy decision.”
He explained that the ban can be considered to be a major factor in the gap between the official exchange rate and the parallel market.
“It is also creating a lot of pressure on the parallel market and is helping to widen the gap between official and parallel exchange markets since that is where the importers get forex from. And that is creating a whole lot of problems for them.”
A financial analyst and Managing Director of Cowry Asset Management, Johnson Chukwu, on his part, also advised the government to prioritise local production of goods to reduce the country’s dependence on imports.
Chukwu said, “In the first place if we have a sufficient supply of those products, it would be inadvisable for anyone to import them
“The reason is that once you have enough supply of these products, the prices would go down below what we can import them.”
Forex crisis: Senate warns against supplementary budget, excess loans
Tope Omogbolagun, Oluwakemi Abimbola, Dare Olawin, Justice Okamgba and Edidiong Ikpoto
The Senate has warned the executive against increasing the budget size through a supplementary budget, advising the government to use the excess savings that are expected to be made from the recent depreciation of the naira to fund deficit.
This came against the backdrop of the depreciation of the local currency against the United States dollar from N900/$r to over 1,500/$, following a series of moves by the Central Bank of Nigeria to unify the parallel and official market exchange rates of the naira.
The National Assembly had in December moved the 2024 budget benchmark exchange rate from N750/dollar sent by President Bola Tinubu to N800/dollar.
Giving reasons at that time, the Chairman of the Senate Committee on Appropriation, Senator Solomon Adeola, explained, “The current price of the dollar at the black market is between N1200 and N1300 and in the Central Bank of Nigeria, it is between N950 and N1000 and we have a budget which was pegged at N750, if you look at the gap, you’d realise that has covered a lot of gaps already.”
“Again, we did some external consultations, most especially in the area of oil benchmark and petroleum resources, if we had gone in that line, we’d have pegged it at N850/N900 to a dollar and we agree that we want to be conservative in our approach, so that nobody will think that we want to increase the budget for any ulterior motive, that was why we left it at N490bn out of which N44bn is for statutory transfer, so effectively, the increment is about N446bn that is going into the Federal Government pocket as consolidated revenue.”
“So, you can see that what necessitated our action is the economic reality and what is obtainable in both the black and open markets.”
However, following the depreciation of the naira from N900/dollar to over N1,500/dollar, the Senate has advised the Federal Government against increasing the budget size, saying the move could worsen the country’s already high inflation rate.
Rather, the Senate said the executive should use the excess savings to cut down on loans it would seek to fund the deficit in the budget.
The Chairman of the Senate Committee on Banking, Insurance and other Financial Institutions, Tokunbo Abiru, in an exclusive interview with The PUNCH, advised the Federal government to avoid increasing the budget size.
He also advised that gains from the budget should be spent on reducing the budget deficit.
He said, “My position will be to advise that the Federal Government not to expand the size of the budget, rather use whatever gains that come to moderate inflation excess; and even the appetite for contracting loans for deficit should be moderated.”
He also explained that it was too early to determine the workability of the budget despite the volatility of the naira.
He explained, “What you use in budgeting is average rate not spot rate. What you are seeing today in the forex market is still looking like a spot rate.
“And you can see all attempts, all efforts from the end of Central Bank of Nigeria and the federal government is to find a way to stabilize. I can’t tell what the stabilized number would be.”
Abiru added, “So it will be too hasty to begin to judge from the current spot performance, not until when we have something close to our average or stable position. That’s when you should not be thinking about any revision of the budget.”
Also speaking in the same vein, the Deputy Chairman of the Senate Committee on Appropriation, Senator Ali Ndume, said the country would be saving over N600 on every dollar in the 2024 budget.
According to him, Nigeria earns over 60 per cent of its revenue in dollars and, as such, the fall of the naira against the dollar has created huge savings for the country.
Explaining he said, “We should be talking about budget excess not deficit. We spend naira, our budget is in Naira and we are spending in naira.
“The crude oil is our major source of income and it is being sold in dollars. So, if we are to analyze things, then we are making more money than losing money. The Federal Government pegged it first at N750 but at the National Assembly we jerked it up to N800.”
Ndume added, “So, we are selling our crude at about N1400 instead of N800, so we are making about N600 budget excesses. So, we have more money to spend.
“The budget is a dolarised budget so to say, such that our income is in dollars and expenditure is in naira. We are spending naira and earning dollars.”
On the increment in the prices of foodstuff, the lawmaker said that the hike in the prices was caused by Nigerians who were taking advantage of the volatility of the foreign exchange.
Ndume added, “The problem we have is in foreign exchange, but most of our foods are produced locally. So, the increment is on people who decide to take advantage of the foreign exchange.
“For instance, we don’t import corn, beans and other foodstuff, so why are the prices of foodstuff going up?”
Economists react
A professor of Economics at Babcock University, Ilisan, Ogun State, Segun Ajibola, said the rise in dollar would affect both the budget revenue and expenditure.
“You know budget is both sides – revenue and expenditure. The first thing we should realise is that if government earns dollar, the government will monetise that dollar at the exchange rate, then expenses will be incurred at that same exchange rate, so it will affect both the revenue and the expenditure,” Ajibola said.
He noted that foreign exchange accounts for about 60 per cent of total government revenue, stating, however, that there might still be a shortfall because this year’s budget is a deficit budgeting.
“So, the onus is on the government to drive supply. If the government can drive the supply of foreign exchange earnings, not just from the monolithic earning that we have, where we earn most substantially from crude oil; If we can drive non-oil foreign exchange earnings, then it will help. However, the important thing is to stabilise the economy.
“The Federal Government should see what could be done quickly, what we call quick wins. How can we redirect our exposure in the foreign exchange market? If our local refineries work, we can cut off importation of fuel. There are some items we need not spend foreign exchange on, like toothpicks,” the don said.
He, however, observed that there might be the need to review the budget later in the year.
Speaking, the Managing Director/Chief Economist of Analysts’ Data Services and Resources, Dr Afolabi Olowookere, said that the gap between the projected benchmark of the dollar in the 2024 budget and the current rate of the dollar had multiple effects on the government and the economy.
“Devaluation will help their budget in terms of revenue because money coming from abroad will now be changed at the rate of N1,400/dollar or N1,500/dollar.
“It is also possible that the FG may also lose. There are two ways that they can lose. The first way is, if they need to import or travel, they have to look for N1,400, N1,500 to pay and most contractors, I know would have gone back to the government to say that they cannot execute their contracts at the previous rate.
“So, on one hand, the government will be making more money from the conversion, and on the other hand, the government will be paying more for everything it has to import,” he stressed.
Touching on the third impact, Olowookere said that the exchange rate was already affecting the local economy,
“Look at cement, which is largely produced here, has gone up. So, effectively, the government will benefit but not as much as it would have benefited,” he reiterated.
Similarly, the Managing Director at Afrinvest Securities, Ayodeji Ebo, told one of our correspondents that the devaluation of the naira was positive for the government, doubling revenue when converted to naira.
“However, in terms of capital expenditure or spending, it will affect the Nigerian government because the cost of those projects would have doubled. So, in that case, the government would have to channel more funds to achieve the targeted projects. For example, if they have budgeted N3tn for capital expenditure, it now means you would spend close to N6tn or more.
“Given the current situation, we need to focus on reducing oil theft. When we export oil, we earn in dollars. When you convert it to naira, it becomes a significant amount of money,” Ebo noted.
In the same vein, an economist, Dr Elias Aliyu, maintained that the government pegging the exchange rate at N750 to $1, and later adjusting it to N800 by the National Assembly, appeared to be an overly ambitious move.
Meanwhile, a professor of Economics at the University of Uyo, Akpan Ekpo, said the devaluation of the naira had rendered the government’s exchange rate peg in the 2024 budget infeasible.
According to him, the government would either have to readjust its spending or float a supplementary budget to cushion the damage the current exchange rate has done to its budget.
“The oil we are exporting now, we already got the money a long time ago through the future market. Knowing the government, they would have to borrow to implement the budget.
“The budget already had a deficit. We will now have a higher deficit. They will now have to go for a supplementary budget or adjust expenditure through what we call expenditure switching. But knowing the government. They will want to borrow,” he said.
Speaking further, Ekpo urged the government to consider reviewing some of its policies to attenuate the severe impact the economic reforms have had on the populace.
