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President Buhari orders CBN to stop FOREX for food importation

President Muhammadu Buhari has directed the Central Bank of Nigeria (CBN) to stop Foreign Exchange (FOREX) for the importation of food into the country. 

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President Buhari Democracy Day speech

In an apparent breach of the CBN’s independence, President Muhammadu Buhari has directed the Central Bank of Nigeria (CBN) to stop providing Foreign Exchange (FOREX) for the importation of food into the country. 

In a statement issued on Tuesday by presidential spokesman, Garba Shehu, the president disclosed that the directive was given to ensure the steady improvement in agricultural production and attainment of full food security. 

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The details: The President announced the new directive given to the Central Bank while hosting governors under the All Progressive Congress (APC) to Eid-el-Kabir lunch on Tuesday at his hometown in Daura, Katsina State.  

[READ MORE: N5 trillion debt: Buhari approves law empowering AMCON to access debtors’ account]

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According to the President, foreign reserves would be conserved and utilized strictly for diversification of the economy, to discourage dependence on foreign food import bills.  

The foreign reserve will be conserved and utilized strictly for diversification of the economy, and not for encouraging more dependence on foreign food import bills,” President Buhari was quoted as saying. 

The President further went on to say that the CBN must not release any ‘cent’ to import food into the country while reiterating that his administration had achieved food security and physical security.  

Initiative to feed the nation: Similarly, the President stated that while some states in the country had taken advantage of the policy of the Federal Government on agriculture with huge returns already being generated, the big picture is to feed the nation.  

“Some states like Kebbi, Ogun, Lagos, Jigawa, Ebonyi and Kano had already taken advantage of the Federal Government’s policy on agriculture with huge returns in rice farming, more states should plug into the ongoing revolution to feed the nation.”  

Speaking further, the President disclosed that young Nigerians and graduates alike had started exploring agri-business and entrepreneurship, with many enjoying good returns on their investments. 

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[READ ALSO: Milk: NECA urges CBN to suspend Forex restriction]

Recent Development: In recent weeks, the CBN has been premeditating the move to add to the 43 items restricted for FOREX in Nigeria. To drive home the point, the CBN, in a recent circular disclosed the bank was set to restrict FOREX for the importation of milk and other dairy products.  

According to the CBN Governor, Godwin Emefiele, Nigeria spends between $1.2 billion to $1.5 billion annually on importation of milk and other dairy products. 

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While the CBN has through various statements reiterated its stand on the policy, industry analysts have called for a review of the policy in order not to complicate certain economic realities. 

The decision according to the CBN is targeted at ensuring FOREX savings, job creation and investments in the local production of milk. 

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What this means: One of Nigeria’s foreign exchange windows is the Investors’ and Exporters’ windows (I&E FX Window), where investors transact foreign currencies for investing purposes. In this market, foreign currencies are usually pegged as the CBN is equally a participant.  

  • By restricting FOREX for food, it means food importers will have to source for FOREX through the parallel market or other means. 
  • Buying from the parallel market or other sources come at a high cost, and this may trigger the general price level and prices of food items will jack up. 
  • Restricting FOREX for food importation is indeed a welcome development, however, the presidency needs to cautiously approach this, as the policy may nosedive the economy into stagflation (a condition of slow economic growth and relatively high unemployment, accompanied by rising prices). 

  [READ FURTHER: Investors to get CBN’s loans as milk initiative takes-off]

 

 

Patricia

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Business

Manufacturing sector in Nigeria and the reality of a “new normal”

The rise in unemployment caused by the pandemic might affect enthusiasm towards the event.

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Manufacturing sector in Nigeria and the reality of a "new normal"

Across the globe, there is a pervading awareness that things will never be the same in the post-pandemic era. Already, some business ventures that were once considered the ‘crème’ of the global economy have taken serious hits in unimaginable measures, and some of the little ones which were regarded as below the rung, are fast rising to match up.

With the new social rules in place, some businesses have come to the sad realisation that they may have to remain closed for much longer than they expected. Even for those businesses that have been allowed to reopen their operations as the world enters a phased and gradual reopening, obvious adjustments still have to be made – including limited physical contact, among others.

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In a recent interview, the President of the Manufacturers Association of Nigeria (MAN), Engineer Mansur Ahmed, noted that these new developments have added significant complications to the manufacturing processes and operations.

READ MORE: Manufacturing: Activity levels pick up albeit readings still below water

For one, the 8-week nation-wide lockdown kept most manufacturing companies shut, or at best operating at significantly lower capacity for the best part of Q2. The result of this was reflected in the sector’s indices, both in terms of output and employment.

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Resuming operations after the lockdown, the manufacturers have had to deal with the challenges of a completely changed system of operation–one which we now commonly recognise as the “new normal.”

A major change in operation can be seen in the sourcing for raw materials. Besides having to deal with the immediate impact of the border closure on operations, there is now the uncertainty of foreign exchange and its impact on the costs of importation (or smuggling of materials when borders are closed).

Nairametrics wrote about a recent CNBC interview where Partner and Head of Consumer & Industrial Markets at KPMG Nigeria, Obi Goodluck, stated that most Nigerian manufacturers had been compelled to source raw materials locally or risk being shut down completely.

READ MORE: COVID-19: The ‘New Normal’ for Nigerian aviation industry

Goodluck explained that prior to the pandemic, most of the Nigerian manufacturing companies imported a significant percentage of their materials from China, but the pandemic had disrupted that supply chain thus compelling them to look for alternatives.

“Specifically from the Nigerian point of view, we will no longer reply on importation of raw materials. As it were, this pandemic started from China and over 80% of Nigeria’s raw material imports come from China and the Asian countries. With the lockdown even in China, that became an issue. As such, companies had to come up with alternative and innovative means of raw material sourcing. Those who already imported raw materials prior to the lockdown relied on their stock until they ran out…”

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These alternatives are not just intended to serve as an immediate alternative but can forestall the possibility of such in the future.

Manufacturing companies have also had to rethink the way they transport goods to their customers, in view of the non-pharmaceutical safety rules put in place. One of the regulations in place presently is ensuring minimal physical contact in the processes.

By implications, companies have to rework the way they move their products to the consumers and this has largely impacted on the logistics costs. It also means that deliveries and logistics is ‘the next big thing’ in the Nigerian market.

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READ MORE: Innoson reacts to FG order to relocate manufacturing plant to Lagos, Kaduna in order not to lose license 

Having to deal with all these changes at a time when thousands have lost their jobs and primary sources of income is even more of a difficult situation. People generally have less purchasing power now than they did before the pandemic, and so weighing of priorities and opportunity costs will always come to play.

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Worse still, they would be paying even more now for the same items, given the extra factors at play in the production process. For instance 1kg sachet of Dangote granulated sugar which sold for N250 before the lockdown, now sells between N800 and N900 per unit, while the 250g sachet which sold for N100 before the lockdown now sells between N250 to N300.

Right now, the manufacturing sector is in that small space between the rock and a hard place, and manufacturers are going to have to make some difficult decisions going forward.

One suggestion that comes highly recommended among experts in the industry is backward integration. At the CBN roundtable discussion in April this year, Nigeria’s richest man, Aliko Dangote had also suggested in his keynote address that backward integration was about the surest way to hasten the long-awaited diversification of the economy.

READ ALSO: CAC: Certificate of incorporation will now be delivered via email or courier

There were concerns about how fast the industry could integrate with the agricultural sector so that more of the local produce went into the industries, but the manufacturers were optimistic that this could be worked out in time to enable them enjoy waivers and benefits in the African Continental Free Trade Agreement (AfCFTA).

It was agreed that the backward integration would require some support moves from the government in creating the right financing and regulatory environment for industries, so that they could integrate more local input in their processes and products and strengthen the supply chain.

READ ALSO: Analysis: Nestlé strong but exposed.

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The MAN president had already assured that the CBN promised that investment in the sector would go towards supporting manufacturers to go into backward integration. If the financial sector could also review its regulations to capture current realities and the needs of the manufacturing sector, more could be achieved in less time.

The Economic Sustainability Plan of the federal government also captures quite a lot to show that the manufacturing industry has a place in the government’s plan, but a seamless implementation remains to be seen. The struggle to ensure that Nigeria produces what Nigerians consume is still on.

In light of new realities, the Unified Exchange Rate proposed by the Central Bank of Nigeria (CBN) could also help to create some stability in the FX. Once the exchange rate is more certain and stable, businesses and investors can make definite plans on imports and exports.

Instead of the current situation where the manufacturing sector contributes less than 10% of the GDP, Nigeria is definitely capable of having a manufacturing sector that contributes as much as 25% or more to her GDP, and this should be the target.

Patricia
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Business

China will not accept any Microsoft-TikTok deal

Trump had raised security concerns about TikTok’s entry into the United States.

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China will not accept any Microsoft-TikTok deal, Microsoft acquires CyberX to beef cybersecurity 

China has vowed to fight against the US’ desperate attempt to force Chinese technology firm, ByteDance, (TikTok parent’s company) into selling the company’s US operations to Microsoft.

An editorial piece on China Daily Newspaper, which is state-owned, was straight to the point when it declared that the “US administration’s smash and grab of TikTok will not be taken lying down.” The piece then went ahead to describe America’s moves against TikTok as a “theft” and said the government would respond in due course.

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READ MORE: Microsoft acquires CyberX to beef cybersecurity 

“After vowing to ban the popular short-video sharing app TikTok in the United States on Friday, the White House is reportedly weighing the advantages of allowing Microsoft to purchase its US operations. Such shilly-shallying is a tactic the US administration employed during the trade deal negotiations with China,” the editorial explained.

Why the Chinese are angry: Some hours ago, President Donald Trump gave the world’s most valuable software maker (Microsoft), tactical approval to go ahead with the acquisition of TikTok. Consequently, China, through its state-backed paper, disclosed that it had “plenty of ways to respond if Trump’s administration carries out its planned smash and grab.”

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READ ALSO: Microsoft shares fall, despite impressive Q2 2020

The Backstory: Recall that Nairametrics reported that the world’s biggest software maker, Microsoft, was in talks with ByteDance, the Chinese owners of TikTok, over a possible acquisition of its US operation.

The offer by Microsoft seems to be an escalation of President Trump’s recent attacks on TikTok and other Chinese tech startups. President Trump, in June, had raised security concerns about TikTok’s entry into the world’s largest economy.

Patricia
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Edo, Rivers, Ondo, Katsina, 17 others attract zero investment in 4 months

Lagos topped the list of states that attracted investments during the period under consideration.

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Ekiti, Jigawa, Abia, 10 others record no investment in 2019

About 21 states in Nigeria attracted zero investments in the last 4 months according to data from the Central Bank of Nigeria.

According to data, the following states, Rivers, Ondo, Edo, Sokoto, Oyo, Abia, and Anambra recorded zero capital importation in the last 4 months. Others are Adamawa, Bauchi, Benue, Borno, Cross River, Delta, Ebonyi, Enugu, Imo, Kastina, Kogi, Kwara, Osun, Oyo, Yobe, and Nassarawa states.

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This information is contained in the Capital importation report obtained from the Central Bank of Nigeria, CBN. The report also detailed the total amount of fresh investments attracted to the Nigerian economy during the period.

[READ MORE: States’ IGR hits N691 billion as Osun, others recorded biggest growth]

Note that most of the states that failed to attract investments during the period under review also failed to attract any investments in 2019. This means that it is either the necessary steps were not taken by the governments, or foreign investors could not find attraction in the states or the environments were simply not conducive for investment.

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Lagos outshines FCT, Niger, 5 other states

As expected, Lagos topped the list of states that attracted investments during the period under consideration. Lagos attracted the highest amount of $5.39 billion during the period. The investment inflow into the state represents over 87% of the $6.17 billion.

Lagos is followed by the Federal Capital Territory which attracted a total investment inflow of $754.01 million.

Niger State attracted a total investment inflow of $11.60 million. Sokoto State also attracted $2.50 million, while Kaduna State attracted the sum of $1.98 million and Ogun attracted $1.70 million.

Kano and Akwa Ibom states recorded investment inflow of about $700,000 and about $237,000 respectively among others.

The limited investment inflows into some of these states clearly indicate that the states are not really attractive to the investors, even before the pandemic. The Managing Partner, FA Consult, Peter Adebayo, explained that the nation’s economy is not attractive enough to pull investments to states that lack the desired viability.

“Most of the investors are scared of insurgencies in the country, though such is limited to some parts of the nation, except for the well-connected investors that are given special attention,” he said.

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Back story: Last March, Nairametrics reported that Ekiti, Kogi, Sokoto, Bayelsa, Ebonyi, Gombe, Jigawa, Abia, and five other state governments failed to attract investments in 2019.

Patricia
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