The Lagos Chamber of Commerce and Industry (LCCI) is concerned that the recent Central Bank of Nigeria, (CBN) circular that excluded 41 products from access to the foreign exchange market would have unintended consequences on the Nigerian economy. Alhaji Remi Bello, president of LCCI, said that the directive would potentially result in major disruptions, dislocations and panic among many investors in the economy because of its multi-dimensional and far reaching implications.
The chamber claimed that many of the products on the list of the 41 products are intermediate goods, which are critical inputs for many manufacturing firms as well as other critical sectors of the economy. “This 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 are iron rods, Cold Rolled sheets, wire rods, reinforcing Bars, Polypropylene granules, glass and glass ware,” Bello said.
In addition, the construction, real estate, fabrications and housing sectors among others would be adversely affected. The LCCI said that a painstaking gap analysis to determine the domestic capacity for local production vis a vis the demand should have preceded the policy decision by the CBN.
Moreover, the list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for the implementation of the directive because the HS codes of the items are not indicated in the CBN circular. It feared that discretionary interpretations would create room for corruption.
Furthermore, the chamber observed that the exclusion is tantamount to trade prohibition because the alternative forex markets, which include parallel market and the BDCs, are not deep enough to meet the demand of the essential intermediate products on the exclusion list. “The policy measure will lead to the widening of exchange differentials between the interbank markets and the parallel markets. The immediate consequence will be rampant round tripping of foreign exchange which the CBN has limited capacity to curb. The CBN approach to forex allocation appears administrative in nature, a system prone to abuse and considerable corruption. It could only be likened to the import licensing era of the early eighties,” the chamber said.
The LCCI called the central bank to put the policy on hold pending a proper study of the demand and supply gaps in the various sectors affected by this policy. “The CBN should focus more on the market fundamentals and as much as possible allow market mechanism to drive the allocation of foreign exchange. The closer the rate is to equilibrium the better for the economy and less disruptive for investors,” adding that the “Buhari administration should urgently set up its Economic Team and constitute its cabinet to give clear direction to the economy. Some of the actions of the CBN (by implication) bother on fiscal policy measures than monetary policy. There is need for the administration to come up with a clear policy on trade (import-exports), interest rate, exchange rate etc. The ministries of National Planning, Finance and Trade and Investment should have critical inputs into policies of this nature. This is necessary to stem the current uncertainty and volatilities in the economic policy space. There should be an integrated approach having regard to the inter-sectoral linkages and inter dependence of sectors in the economy.
By Dike Onwuamaeze