Nigerians spent N1.39 trillion on importing seven out of the 43 items previously restricted by the Central Bank of Nigeria from accessing foreign exchange on its official platform in the fourth quarter of 2023, research has revealed.
This was as citizens imported goods worth N4.29 trillion in 2023, indicating a 100% increase to N2.15 trillion from the total worth of N2.14 trillion commodities imported in 2022.
In 2015, the CBN had classified about 41 import items as not eligible for forex, which meant importers of the goods were compelled to acquire FX at the black market, often at higher rates, putting pressure on the naira.
The apex bank stated that the restriction was part of efforts to maintain the stability of the foreign exchange market, ensure effective use of foreign exchange, and derive optimal benefit from imported goods and services. However, these items were not banned or prohibited by the Nigerian Customs Service, so they can still be imported.
However, last October, the Central Bank of Nigeria lifted the ban on importers of 43 items, allowing the purchase of foreign exchange in the Nigerian foreign exchange market.
As a result, the reversal of the apex bank’s forex ban policy led to a significant increase of imported goods to N1.39 trillion from the N1.29 trillion recorded in the third quarter of 2023.
The World Bank also stated in the December 2023 edition of its Nigeria Development Update report that the removal of import restrictions in Nigeria will lift about 1.3 million people out of poverty.
“Recent World Bank estimates indicate that removing import restrictions could reduce the prices of affected items by 4.7%. This would lead to an overall increase in purchasing power, which would, in turn, lift about 1.3 million people (around 0.6% of the population) out of poverty.”
According to an analysis of the latest Nigerian Foreign Trade reports from 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 received a total of N50.44 billion in imports from Malaysia and China, vegetable products received N1.63 trillion, animal products recorded trade of N597.47 billion, while mackerel meat earned N124.99 billion with imports from Chile, Ireland, Poland, South Korea, and the Netherlands.
According to data released by the NBS, Nigeria imported N1.29 trillion worth of plastic and rubber items, textiles recorded a trade of N377.18 billion, and vegetable fats and oil amounted to N214.6 billion.
In an earlier interview with PUNCH, the Director of the 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 recognized in the nation’s trade policy document.
Yusuf said, “The list itself is causing 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.
“Once the concerned authorities provide the information document, the CBN has its own list of items that you can’t officially get foreign exchange for. This causes a lot of confusion. What needs to be done is coordination, and it's not the apex bank's duty to decide which items to give forex for. That is a trade policy decision.”
He said that the ban could be a major reason for the gap between the official exchange rate and the parallel market.
“It's also putting a lot of pressure on the parallel market and is causing the gap between official and parallel exchange markets to widen since importers get forex from there. This is causing a lot of problems for them.”
A finance expert and Managing Director of Cowry Asset Management, Johnson Chukwu, also recommended that the government should prioritize local production of goods to reduce the country’s reliance on imports.
Chukwu noted, “If we have enough supply of those products, it would not be advisable for anyone to import them in the first place.
“The reason is that once there's enough supply of these products, the prices would go down below what we would pay to import them.”
Forex crisis: Senate cautions against additional budget, excessive loans
Tope Omogbolagun, Oluwakemi Abimbola, Dare Olawin, Justice Okamgba and Edidiong Ikpoto
The Senate has cautioned 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 weakening of the naira to fund deficit.
This came as the local currency weakened against the United States dollar from N900/$r to over 1,500/$, following a series of actions by the Central Bank of Nigeria to unify the parallel and official market exchange rates of the naira.
In December, the National Assembly adjusted the 2024 budget benchmark exchange rate from N750 per dollar set by President Bola Tinubu to N800 per dollar.
For that adjustment, the Chairman of the Senate Committee on Appropriation, Senator Solomon Adeola, explained, “The current price of the dollar on the black market is between N1200 and N1300, while in the Central Bank of Nigeria, it's between N950 and N1000. The budget was pegged at N750, but considering the gap, the adjustment has already covered a lot of gaps.”
“We also did some consultations, particularly regarding oil benchmark and petroleum resources. If we had followed that route, we would have pegged it at N850/N900 to a dollar. We want to be conservative so that nobody will think that we want to increase the budget for any hidden reasons. That's why we left it at N490 billion, with N44 billion for statutory transfer. So effectively, the increment is about N446 billion going into the Federal Government's revenue.”
“So, what motivated our action is the economic reality and what is happening in both the black and open markets.”
However, following the weakening of the naira from N900 per dollar to over N1,500 per dollar, the Senate has advised the Federal Government against increasing the budget size, saying it could worsen the country’s already high inflation rate.
Instead, the Senate suggested that the government should use the extra money to reduce the need for loans to cover the budget shortfall.
In an exclusive interview with The PUNCH, Tokunbo Abiru, the Chairman of the Senate Committee on Banking, Insurance and other Financial Institutions, advised the Federal government to avoid increasing the budget size.
He also recommended that the budget surplus should be used to decrease the budget deficit.
He suggested, “I advise the Federal Government not to increase the budget size, but to use any gains to control inflation and reduce the need for loans to cover the deficit.”
He also mentioned that it was too early to assess the feasibility of the budget despite the instability of the naira.
He explained, “In budgeting, you use the average exchange rate, not the current spot rate. What we are currently seeing in the forex market is still like a spot rate.
“And despite the efforts of the Central Bank of Nigeria and the federal government to find a way to stabilize, it's unclear what the stabilized number would be.”
Abiru added, “It's premature to judge based on the current spot performance; we should wait until we have a rate closer to our average or stable position before considering any budget revisions.”
Likewise, Senator Ali Ndume, Deputy Chairman of the Senate Committee on Appropriation, stated that the country would save over N600 for every dollar in the 2024 budget.
He explained that Nigeria earns over 60 percent of its revenue in dollars, thus the depreciation of the naira against the dollar has resulted in significant savings for the country.
Elaborating, he said, “We should focus on budget surplus rather than deficit. We use naira for spending, and our budget is in Naira.
“Our primary source of income is crude oil, which is sold in dollars. So, when we analyze it, we are making more money than losing. The Federal Government initially set it at N750, but we raised it to N800 at the National Assembly.”
Ndume added, “So, we are selling our crude at about N1400 instead of N800, resulting in a budget surplus of about N600. Therefore, we have more money to spend.
“The budget is essentially in dollars, as our income is in dollars and our expenditure is in naira. We spend naira and earn dollars.”
Regarding the increase in food prices, the lawmaker attributed the hike to Nigerians taking advantage of the foreign exchange volatility.
Ndume added, “The issue we face is with foreign exchange, but most of our food is locally produced. So, the price increase is due to those taking advantage of the foreign exchange.
“For example, we don't import corn, beans, and other food items, so why are their prices rising?”
Economists respond
Segun Ajibola, a professor of Economics at Babcock University in Ogun State, stated that the increase in the dollar will impact both budget revenue and expenditure.
Ajibola mentioned that the budget involves both income and spending. He emphasized that if the government earns dollars, it will use that same exchange rate to spend the money, affecting both income and spending.
He pointed out that about 60% of the government's total income comes from foreign exchange. However, he also mentioned that there might be a deficit in this year's budget.
He explained that it is the government's responsibility to increase the supply of foreign exchange income, not just from crude oil. He also highlighted the importance of stabilizing the economy.
He suggested that the government should quickly find ways to reduce its reliance on foreign exchange, for example, by using local refineries to reduce fuel imports. He also mentioned items like toothpicks that the government should not spend foreign exchange on.
However, he noted that there may be a need to revise the budget later in the year.
Dr. Afolabi Olowookere, the Managing Director/Chief Economist of Analysts’ Data Services and Resources, said that the difference between the projected dollar benchmark in the 2024 budget and the current dollar rate has various effects on the government and the economy.
“Devaluation will benefit the budget because money from abroad will now be converted at the rate of N1,400/dollar or N1,500/dollar.
He also mentioned that the government may also face losses due to the higher cost of imports and contracts being renegotiated at the new exchange rate.
He emphasized that the government would make more money from the conversion rate, but would also have to pay more for imports and other expenses.
Regarding the impact, Olowookere noted that the exchange rate was already affecting the local economy, causing an increase in the price of locally produced items like cement.
He stated that while the government will benefit from devaluation, it will not benefit as much as it could have.
Similarly, the Managing Director at Afrinvest Securities, Ayodeji Ebo, mentioned that the devaluation of the naira would increase government revenue when converted to naira.
“However, it will also increase the cost of government projects. This means the government would need to allocate more funds to complete the planned projects.
Ebo emphasized the need to focus on reducing oil theft, as the revenue from oil exports, when converted to naira, becomes a significant amount of money.
An economist, Dr Elias Aliyu, said that the government fixing the exchange rate at N750 to $1, and later changing it to N800 by the National Assembly, seemed like a very ambitious move.
A professor of Economics at the University of Uyo, Akpan Ekpo, mentioned that the devaluation of the naira made the government's exchange rate peg in the 2024 budget unworkable.
He stated that the government would need to either adjust its spending or create a supplementary budget to offset the negative effects of the current exchange rate on 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.
Ekpo also suggested that the government should consider revising some of its policies to lessen the severe impact the economic reforms have had on the population.
