Nigerian companies making anything from soap to tomato paste could run out of raw materials and be forced to shut down as Africa’s top oil producer has effectively banned the import of almost 700 goods to prevent a currency collapse.
Selected luxury items such as make-up or brown bread imported from Europe have become scarce in some shops as the central bank denies importers dollars, seeking to stem the fallout from a crash in vital oil revenues hammering Africa’s largest economy.
The central bank has restricted access to foreign currency to import 41 categories of items to stop a slide of the naira but the Manufacturers Association of Nigeria (MAN) said this in fact amounted to about 680 individual items.
The foreign exchange bans are part of a long-term plan by President Muhammadu Buhari to encourage local manufacturing, but they run the risk of pushing the economy closer to recession after growth halved in the second quarter compared with the same period last year.
Many items on the central bank list – ranging from incense and toothpicks to plywood, glass and steel products — are not available in Nigeria in sufficient volumes.
“We’ve taken this matter up with the central bank and the highest authority in this country … Fiscal authorities will also be involved, they weren’t before,” Remi Ogunmefun, the Director- General of MAN, said.
MAN had told the central bank 105 items should be removed from the list, but the bank said it could not afford to do so and agreed to look into removing 44 items.
MAN also suggested 93 finished items that should be added to the list because Nigeria produces enough of them.
The economic crisis is a blow to Buhari who wants to end dependence on oil revenues but faces criticism for failing to name a cabinet four months after taking office.
Since the central bank unveiled its controls in June, executives have had to deal with foreign suppliers worried they won’t get paid. They also struggle to convince banks to approve dollar payments.
“It takes minimum 10 days now to get dollars, before it was 24-48 hours, and sometimes when you request like $100,000, you only get $80,000 and it’s getting worse,” said an executive at a large furniture company, asking not to be named.
It’s not clear which imports are still allowed as the central bank lists only categories. He can still bring in beds and chairs to be assembled in Nigeria, but not sofas.
Some firms have defaulted on contracts and lost credit lines. “Many companies have defaulted on fulfilling foreign obligations … even blue chip companies … for the first time,” said Muda Yusuf, director general of the Lagos Chamber of Commerce.
POLICY VACUUM
With no cabinet in place, central bank governor Godwin Emefiele finds himself discussing policies usually reserved for a finance or economy minister.
At a news conference on Tuesday, Emefiele justified the controls — which Buhari has backed — as a way to create jobs in a country hit by poverty despite its oil wealth.
“I read an advertisement in a paper that shortly after we announced the foreign exchange exclusion for the importation of tomato paste they advertised for almost 1,000 jobs,” he said, citing the example of a tomato paste company, a sector that experts do not in fact expect to flourish now.
Emefiele has ruled out another naira devaluation but on Tuesday loosened monetary policies to inject liquidity into banks, which had been forced to transfer government revenues to a central bank account as part of an anti-corruption drive.
Nigeria stepped up import controls when Buhari led a military government in the 1980s and the economy suffered then too.
Razia Khan, Chief Economist, Africa, at Standard Chartered Bank, said there was little certainty the latest controls would boost manufacturing.
“Nigeria has had substantial experience with similar import-substitution policies in the past,” said Khan. “Rarely have they succeeded in creating a vibrant, competitive industrial sector, with the capability of creating the employment growth that Nigerian demographics otherwise demand.”
According to the Lagos Chamber of Commerce, Nigeria is short of 600,000 tonnes a year of palm oil, that is used to make soap, detergents and cosmetics that have also been restricted. Pharmaceutical firms lack bottles, and glass manufacturers do not have the glass to make them.
BAGS FULL OF CASH
Companies also suffer from the central bank’s attempt to stop the dollarisation of the economy. A ban on cash deposits of foreign currency has forced firms to use informal “transfer markets”, whereby people abroad wire dollars on a company’s behalf.
That exchange rate is well below the official rate to the dollar. Some executives now carry bags of cash to deposit in neighbouring countries.
For some though, the measures offer hope.
“It’s a big challenge to compete in a market with imported frozen chicken and fish. The profit is marginal,” said Kabir Chaskewa of Ajima Farms, a family business based near the capital, Abuja.
Compared to a foreign firm that produces frozen chicken in batches of up to 1 million, Chaskewa can only do batches of 5,000. “Now there’s a rise in demand for local poultry and rice,” he said.
My Dear Governor,we have been there before,restricting some essential raw material{,(under malam ciroma governorship)(,the central bank guaranteed agriculture based bank loan)},if you want Nigeria to focuses on manufacturing.it’s more than possible to grow to about 20 % to 30 % of our gross domestic production,you subsidizes this particular sector of our economy,i.e.incentives, stimulate this sector.nigerians will see govt intention, the c.b.n can guarantee this risks that Nigerians bank.this will eliminate some percentage of fear(Nigerian Banks and enterprenuers) or Nigerian can make the uses of venture capitalist,or the federal ministry of finance can allocate some part of the annual budget, to give soft loan to manufacturers,i.e subsidizing manufacturers researches,or the Nigerian stock market regulating authority lowers the restricting of company rules, entering the stock market.we already have a secondary tier style of listing in n.s.e,why not Nigerian govt markets it’s good intentions.the choice is Nigerian govt.
The c.b.n maybe right,maybe right of the dollarizing of the naira in Nigerian economy.Why not Nigerians eliminates this fear in many ways (1)make the naira strong without harming the Nigerian economy,i.e.making the naira efficient and effective.(2)support the naira by the c.b.n buying other countries foreign currencies.e.g those in the BRIC and the MINTS and the current level of demand for forex in the next one yrs,can be meet,if the c.b.n will to do it,(DIVERSIFIES OUR HOLDING U.S DOLLAR SOLELY BASED FOREIGN RESERVE)Also the c.b.n will keep this diversified foreign currencies and charge interest on this.Who is preventing c.b.n doing it ?is it President Buhari ?(3)Why not Nigerian authorities create/allowes a foreign based currencies deposit for Nigeria banks,as they can hustle/or delegulates this rates on interest of this foreign currencies,the c.b.n can creates an overnight interest charging on foreign currencies.those in the black markets can appeals to them.it will reduces the pressures on the naira.it will also appeal to Nigerian bank,now Nigerians have an interbanks foreign currencies lending .So we can have foreign exchanged traded fund,e.g a fund is listed on n.s.e which is denotes in a specific,and Nigerians buy into this fundif Nigerians sees this funds shares go up,he can withdraws his quantity,as he like.all these idea are not new.it is available in our planet.The Russia,brazillian,turkish do not fear their economy is being dollarized.