Concerns as CBN Lifts Ban on 43 Items to Stabilise Naira Against US Dollar
On Thursday, October 12, 2023, the Central Bank of Nigeria (CBN) announced that it is readmitting importers of 43 items banned by the leadership of Godwin Emefiele into the official forex market.
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The full list of the items can be found here.
Putting the cart before the horse
On the surface, this looks like a step in the right direction as the new CBN management team led by Yemi Cardoso makes efforts to find a solution to the bleeding Naira in the foreign exchange market.
Source: Twitter
However, on closer examination, it is another case of putting the cart before the horse.
Well, this is not the first time our leaders have decided to run before they could walk.
A simple scenario is a now-famous phrase from President Bola Tinubu's inaugural speech on May 29, 2023 "Subsidy is gone."
The message was supposed to renew the hope of Nigerians living in a country where the government spends N97 of its N100 revenue to repay debts.
However, the impact of fuel subsidy removal with no working refineries is currently hitting Nigerian households hard.
Fuel price increased a staggering 224%, while salaries remained stagnant.
Also, the National Bureau of Statistics (NBS) revealed annual food inflation (a key metric to determine how stressed households have become) increased from 24.82% in May 2023, when the subsidy removal was announced, to 29.34% in August 2023.
It was only after the labour unions threatened a strike that the government had to respond by agreeing a six months N35,000 wage reward for civil servants.
The rest of Nigerians working mainly in private organisations and the informal sector are left to their fate, except one can lay their hands on the so-called palliatives.
The CBN's directive on 43 items
Just like the FG, CBN is putting the cart before the horse with its decision to readmit 43 banned items into the official forex market.
It is even more shocking to see that CBN, in an explanatory note on its decision, claimed that the banned items were the reason Naira is under pressure and the widening disparity between official and black market exchange rates.
Part of CBN's note reads:
“In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.”
“Importers of these products rely on the parallel market to source FX for importing these goods. This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market. Removing these restrictions eliminates the need for importers of these products to go to the parallel market, reducing the pressure on the naira.”
Why Naira is suffering
It is clear that Naira's major challenge is not because of the banned items but because of forex supply.
It's simple logic. When demand outweighs supply, items become more expensive.
Nigeria is primarily an import-dependent country, and allowing, for example, importers of toothpicks back into the official market will add more pressure.
The Investors and Exporters window already has an average of $100 million in daily turnover. With the entrants of fresh customers seeking from the limited pool, demands are expected to go even higher.
Also, there are backlogs of trapped funds, which, according to the International Air Transport Association (IATA), amount to $783 million for foreign airlines.
Fitch Ratings believes CBN has over $12 billion pending payments.
Furthermore, the $3 billion crude oil swap loan from Afreximbank, which was greeted with fanfare, is currently experiencing delays.
Way forward
Although the CBN's decision to readmit the 43 items has been applauded by some, especially the International Monetary Fund, it could bring more troubles ahead.
The CBN should have secured enough dollars through more crude oil sales, foreign loans, or use of its reserves to clear up its backlog of forex obligations and then pump more dollars.
According to Paul Alaje, the Senior Partner and Economist at SPM Professionals, the future is worrying.
His words:
“I don’t know who advised us on these 43 items. It’s important we rethink the decision before it is too late. Our issues are around insufficient FX.
“How is demand stimulation policy going to bring us out of the FX crisis? This may further weaken the naira."
Also Micheal Ani, an investor manager with Dangote industries said:
"The next step should be to secure an IMF facility to clear the huge backlog of unmet dollar demand."
Once again, it is the cart before the horse, and Nigerians will now have to wait for the CBN to earn more dollars to keep up with its promise of intervening in the official market to ease demand pressure.
The signs are clear, the new CBN team is determined to get things right.
Only time will reveal the extent of the CBN's success with the promised intervention, especially in light of the dwindling forex reserves, currently at a two-year low.
Yemi Cardoso unveils his plans as CBN Governor, promises shift From Emefiele's Policies
In an earlier report by Legit.ng, Cardoso promised a policy shift in the future direction of the apex bank.
One of Cardoso's plans is to shift CBN's focus away from direct involvement in development finance initiatives, a hallmark of former Godwin Emefiele's leadership.
Source: Legit.ng
