CBN Forex Restrictions: Relevance, Implications | Independent Newspapers Limited
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CBN Forex Restrictions: Relevance, Implications

Posted: Jul 24, 2015 at 12:40 am   /   by   /   comments (0)

The restricted 41 items from having access to foreign exchange by the Central Bank of Nigeria (CBN) has generated heated comments from stakeholders in recent times. In this Special Report, of last parts, Andrew Airahuobhor, Bamidele Ogunwusi, Sola Alabadan, Oyeniran Apata, Ikechi Nzeako, Nkasiobi Uluikpe examines the policy in more detail.

Impact of Forex Restriction on Built Environment, Agric Sector

As the controversy generated by the new policy of the CBN, which restricts foreign exchange on some products rages, members of the built environment, both in the field and academia have lent their voices on what they feel is going to be the import of the policy on the building sector.

The CBN through its Director of Monetary Policy, Moses Tule, justified the action of the apex bank by saying that the country cannot afford to continually import products that she can produce locally.  Tule said Nigeria does not need to create jobs for the Asian countries, when in actual fact, the country needs to create job for itself.

He beckoned on the manufacturing industries to rise to the occasion, knowing that there is an already existing market for their products.

He debunked complaints that the policy which is meant to help the manufacturing industry is killing them, by saying: “The policy will not kill them! If a woman when she is in labour to say because of the pain, then you will not have a baby, you must have the pains in order to have the baby alive, if you don’t have the pains, then you will not have the baby.  That is important.

While some of the stakeholders in the built environment are of the views that the policy is a good development, variously, they expressed their misgivings.

Prof Timothy Nubi of the Faculty of Environmental Sciences, Department of Estate Management, University of Lagos was quick to state that if the formulation of the policy is based on research, then it is good. But if it’s about somebody waking up and telling Mr. President, we need to do this or that, invariably, it is going to be a wasted effort.

“A nation that is governing itself on guess and no data, how will they progress? If you ban textile products and make sure that the existing textile industry is revived, good and okay. If there are no alternatives and you say you are banning, people will always smuggle it in. You will find the products in the market here and there. That is the country that we are running, there is a disconnection between the research community and administration.

“The problem with us is this; we just take our decisions like the military. We don’t look at the total picture. If you are banning something and putting restrictions, what are the alternatives that you are putting in place? That is the nation for us, all these banning, they are just creating wealth for other nations.”

That notwithstanding, the Don clearly states that the policy is okay. Citing India as an example, he asks, for how long shall we be begging America to sell us building materials and at the same time beg them to sell us ammunitions to fight Boko Haram?

But Prof. Nubi countered the idea of the policy being implemented gradually as according to him; gradualism is part of why the country is where it is today. “Gradualism is what is killing us. If you have cancer, it is not treated gradually; you put the knife there and cut off the sick part. For how long can we be doing this gradual, gradual process, we are so preoccupied with this foreign products at the expense of our local industry.

“In fact, they should ban everything. This idea of let’s remove two today and bring in two tomorrow can never work since after independence, we can’t feed ourselves. We import the chicken we eat, the Tokunbo cars we drive, let them ban everything so that everybody will sit up.”

“What led to the revolution in India that India today happens to be the biggest textile producer in the world? Ghandhi told them, if India could not clothe their selves let them go naked on the streets. There was a day they set aside for all foreign clothes to be gathered and burnt all over India. They started sewing their clothes and today they are giants in the textile industry.

“For how long are we going to be importing doors, WCs, ceramics, etc. that can be produced at Abeokuta, for how long. Every building material in Nigeria today, from the roof to the doors to the wall could be done through PVC which is a by-product of our petroleum. What are we doing with our petroleum that we are importing PVC from overseas?”

However, former Lagos State chapter chairman of the Nigeria Institute of Quantity Surveyors (NIQS), Olayemi Shonubi is of the views that though the CBN does not have the power to ban any product; it has succeeded in creating a bottleneck that is tantamount to banning.

He said, if the importers of those products cannot get forex from the official market, they will get it from other avenues. It will open opportunities for those into illegal activities such as drug peddlers, 419ners and looters. These set of people, he said are the ones that will be having excess of the forex and looking for ways of repatriating them through an official route, which is to bring in those items.

Another dimension to it, according to Shonubi, is that the policy is going to increase construction cost, create opportunity for unscrupulous developers and contractors to create further problems in terms of incidents of building collapse.

“If the prices of these things go up, developers want to make profit, so also is the contractor, they will end up cutting corners to minimize their cost, subjecting the structural integrity of buildings to certain risks, which will end up in building collapse. There is also a possibility that we might experience an increase in building collapse. These are likely to be the immediate side effects.

Shedding more lights on the implication of the policy on the sector, Olayemi indicated that the steel rod local industry (where they exist) may not even have the capacity for local consumption. Beyond that he said the average structural engineer, for justifiable reasons, might not want to recommend the use of the local steel rods for construction.

“The reason is not farfetched. Most of the steels manufactured in this country sometimes fail the test in terms of consistency, from the same batch, you get different test results and because the structural design is based on finite constant, that is, factor of safety.

If the material you are using does not conform to that factor of safety, you want to run away from it because it might lead to building collapse. If the contractor uses them without going back to the engineer to redesign, taking into cognizance the constant result gotten from the test certificate, you will find out you might have the structural integrity of that particular structure threatened. You might not get exactly the same thing that is being designed as the end product.”

“Every structural engineer wants to ensure safety upon completion, want to ensure that every material that is incorporated into the building is of the highest standard.  The UAC used to have a company that produces plywood in Sapele, I think that company is moribund and I don’t know of any other company that produces plywood, I know that most of the plywood that are used today in Nigeria are got from Ghana.

For cement, Olayemi said its ban is quite justified and the country has enough for domestic consumption even though, according to him, government did not just wake up and ban cement. It took a gradual process.

Also, immediate past chairman of the Nigeria Institute of Architects, Ladi Lewis, corroborated the views of Shonubi as he indicated that the cost of the materials will rise if the cost of importing them becomes more expensive. If there are local alternatives, he said, the country might not experience the escalation of development cost.

“The Government needs to look at the availability of local alternatives and the quantity that will meet the industry requirements; we cannot downplay the law of supply and demand and its attendant consequences on the construction industry.”

On his part, former national president of the Nigeria Institute of Estate Surveyors and Valuers (NIESV), Emeka Eleh said that they are not comfortable with anything that will make housing delivery more expensive or create more impediments for housing delivery. He expressed hopes that the apex bank reviews the policy so as to remove some crucial items from the list.

“You know, we have been talking about diversifying the economy to be able to increase our export. Even if you don’t increase your export, you should be able to produce the ones you consume locally. Whereas I share the CBN’s general view, I am also of the view that the list should be tinkered with so that it doesn’t become a disincentive to the very vital sector of the economy.”


Agric Sector

Reacting to the development, a past President of the Ogun State Council of Chambers of Commerce and Industries, Mines and Agriculture (OGUNCCIMA), Alhaji Sakirudeen Labode, said that any step to promote local industry would be a welcome development to any sensible local business man, but said that such should not be done in a hurry.

“The sudden wake of the CBN to this development is worrisome and is giving us a lot of concern. The Agric sector had been suffering as a result of the laxity of those who are supposed to do their job properly beginning from the Nigerian Customs, Immigration, and banks too.

“The Custom has the mandate to police the borders. If these items are actually banned, why are they still making ways illegally into the country? We have been told that rice is on the prohibited list, but rice still find ways into the Nigerian markets through the borders where the customs are supposed to put all of these under checks,” he said.

He added that the agricultural products that found ways into the Nigerian markets are cheaper to import because governments in the countries where they are brought into the country subsidise their production.

“Thus, they have converted Nigeria into a dumping ground in order to keep their own factories in operation all year round.  As for the poultry and chicken and turkey, they still come into the country while those whose duty it is to checkmate it influx and smuggling turned off their eyes,” he said.

The entrepreneur, who observed that many of the items on the list were long overdue for prohibition, added that government’s negligence had led to the death of many industries like the Bata, Lernards among other agric companies.

“Government should now wake up because they must be seen to have fulfilled their own part of the drive to shore up local production before leaving the rest to the private sector.

“They should increase import tariffs on some of the items that still find their ways into the country, to make it unattractive, as a drastic measure to encourage local production of agricultural goods.”

However, he said by announcing restrictions on foreign exchange, the government had only succeeded in creating  a market for the speculators where those who don’t need the foreign exchange will now start buying by making themselves available to people who actually need the forex.

He added, “It will be the surrogates of bankers who will now hold the forex and be ready to sell at higher prices”.

Labode called on the CBN as it is creating challenges for the local production to also not shy away from creating opportunities, contending that many local fabricators of spare parts for agro industries should be encouraged and not allowed to fold up like many others in the past.

“Nigeria is already fabricating some local agric machines with the listing of some metals in the items it will also pose a challenge to fabrication for the Agric sector. So many local fabricators have gone under because of lack of patronage.

The action is belated but it will help in the long run. When this type of situation comes, some people will still take up the challenge and in fairness to the immediate past regime the agriculture sector was built up to a level that we have the hope that the country was at a stage of exporting food items.

“Farmers that delved into the cassava business are now gnashing their teeth in regret. They invested so much planting cassava and they could not find buyers. Their farm produce were left to rot away. If government is sincere to encourage local production of some of the agric items on the list, government must be ready to finance the construction of storage facilities across the country in areas where they are most needed and not for political spread like we have had in the past.

The stock agents of the federal government must also be put on alert and be ready to work round the clock so that when the period of bountiful harvest comes, farmers’ investment and labour will not turn to be a waste at the end of the day where buyers are not available.

He identified storage as a major challenge facing farm produce and farmers in this part of the world. Citing the example of Ketu Mile 12 market where tons of food items rot away daily, he advised government to create and establish storage facilities in areas where they are needed most.

Speaking with Daily Independent on how the new directives by the CBN would affect the business of Agric produce buyers and exporters, the National Publicity Secretary, National Cashew Association of Nigeria (NCAN), Mr Sotonye Anga, said government’s move is absolutely good because it will reduce the stress on the local currency.

Addressing the disparity in the exchange rate, Mr. Anga wondered why the federal government would want to use the sweat and investments of Nigerian exporters to finance the luxury of importers that bring all kinds of items into the country.

He said, “In Nigeria, the average commodity exporter does not enjoy the least incentive from the government. When such disparity in exchange rate regime in the official market is N198 or N199 and the open market dollars is sold at 240.

The NCAN spokesman pleaded that exporters should not be made to suffer unduly for the wrongs perpetrated in some quarters that had almost brought the economy to a comatose.

“That position of the CBN is not helpful because it is a simple way to tell people to cut corners. That directive is a disincentive to exporters. When people begin to cut corners it will not help or augur well for the country.