CBN Forex Exclusion Policy Dangerous to Economy—LCCI

August 12, 2019
CBN Forex Exclusion Policy Dangerous to Economy—LCCI

By Dipo Olowookere

The Central Bank of Nigeria (CBN), in order to stimulate economic growth and boost local production in the country, restricted the supply of foreign exchange (forex) to some items that can be easily produced in Nigeria.

This gave rise to the 43 items on the forex restriction list. What this means is that importers of items on the list would not be able to get foreign exchange directly from the windows created by the apex bank to bring the products into the country, but only at the black market.

Recently, the central bank announced the addition of milk to the list and this generated mixed reactions from Nigerians, experts and economists.

Also commenting on the matter was the Lagos Chamber of Commerce and Industry (LCCI), which said the forex restriction policy of the CBN was harmful to the nation’s economy.

According to the agency, Nigeria is not ripe for the forex restriction policy on milk importation because it would create a crisis of immense proportions in the dairy industry supply chain and put investments worth billions of dollars at risk.

The LCCI noted further that the policy will do more harm than good, both to investors and the citizens because it would trigger avoidable disruptions and dislocations in the investment environment and further undermine investors’ confidence and create huge supply gaps in the market with severe harmful consequences.

“We currently do not have dairy cows in the country. The dominant milk producing system in Nigeria is the Fulani Nomadic System whose cows have a milk yield of less than two litres a day; whereas, a good dairy cow will produce an average of 28 litres of milk per day over 10 months.

“During peak lactation, a high yielding dairy cow can produce as high as 60 litres of milk per day. The reality is that Nigerian cows have very low yield because of poor genetic composition, poor feeding practices and the laborious nomadic system of breeding. These are fundamental issues that we need to fix before contemplating any form of import restriction.

“These are challenges to be posed to the Federal Ministries of Agriculture and Water Resources at the federal and state levels as the present administration moves to the next level. These are the agencies of government that have primary responsibilities for such matters. The environment needs to be created for these investments to happen,” the agency said in a statement to react on the matter.

In the statement signed by its Director General, Mr Muda Yusuf, the LCCI warned that the policy could lead to a massive job loss, pointing out that, “There are over one million direct and indirect jobs that will be in jeopardy across the value chains of these industries.”

“These companies engage Nigerians as employees, distributors and retailers as well as thousands of suppliers and service providers who are dependent on these businesses for their livelihood. For a country that is grappling with unemployment crisis, the consequences will be too grave. Therefore, there are profound investments, economic, nutritional and social issues to worry about,” it said.

The agency said additionally, such policy will boost the smuggling economy since there will be an estimated 50 percent short fall in the supply of dairy products to the Nigerian market, with the supply gaps creating scarcity and put the prices of the products beyond the reach of the average Nigerian.

It further warned that there would be loss of revenue to the government as smugglers naturally move to fill the supply gaps in the market, adding that there is a major risk of closure/drastic scaling down of operations of existing investments in the dairy industry.

According to the LCCI, there will be a higher risk of malnourishment of citizens especially children and the low-income earners, heightened risk of loss of jobs in the dairy sector, while neighbouring countries will profit from the increased smuggling triggered by the policy, as the Nigeria ports and maritime sector workers loose revenue and jobs to the ports of the neighbouring countries.

In the statement, the LCCI urged the CBN to give enough timeline to diary companies for a sustainable transition from the current state of affairs to the desired level of backward integration in the dairy industry.

“There should be robust incentives to attract investors to the supply chain in the dairy industry in line with the backward integration aspiration.

“The ministries of Agriculture and Water resources should take on the challenge of driving this change process through the creation of incentives for modern animal husbandry facilities and practices.

“There should be generous support from government to facilitate the importation of cattle breed [dairy cows] suitable for milk production, it said.

“On account of the foregoing, we urge the CBN to put on hold its proposal to exclude the dairy industry investors from the foreign exchange market in order to save the economy of the consequential shocks, business disruptions, investment dislocations and job losses,” the LCCI concluded in the statement.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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