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How CBN measures could raise local production, reduce forex depletion

The country’s heavy import dependence has contributed majorly to the high forex outflow and the perennial weakness suffered by the naira over the years According…

The country’s heavy import dependence has contributed majorly to the high forex outflow and the perennial weakness suffered by the naira over the years

According to the federal Ministry of Agricultural and Rural Development (FMARD) in 2011, Nigeria spent ₦635 billion importing wheat, and ₦356bn on rice in 2010 alone. This is tantamount to spending about ₦1.0bn per day, ₦217bn on sugar and ₦97bn on fish in spite of all the endowed marine resources, rivers, lakes and creeks of the nation.

Food remains the most critical need for human survival. The Food and Agriculture (FAO) motto “Fiat panis” literally meaning “Food comes first”, supports this assertion.

Nations, therefore, strive to meet the food needs of their citizens in a food security sense by promoting food production within borders and complementing as necessary with importation across borders.

“The two components have definite planning options and outcomes. When a nation proactively plans its food security goals, the preponderance of the food consumed will be locally produced by her farmers.” Analysts have argued.

To Steam this tide, the Central Bank of Nigeria (CBN) about four years ago started a policy to encourage backward integration to conserve foreign exchange and create jobs.

The CBN doled out several intervention funding to encourage production of food but chiefly in that policy strategy was the restriction of some items from accessing forex from the central bank’s regulated forex windows.

Presently, the number of items on the CBN’s ‘Not Valid for Import,’ has risen to 44, in the bid to boost domestic production and encourage import substitution.

It did not take too long before the benefits began rearing its head. The Central Bank Governor, Godwin Emefiele, said that Nigeria’s monthly food import bill fell from $665.4m in January 2015 to $160.4m as of October 2018.

He said the reductions in food import were recorded on rice, fish, milk, sugar and wheat, adding that the policy would be maintained.

He said, “Noticeable declines were steadily recorded in our monthly food import bill from $665.4m in January 2015 to $160.4m as at October 2018; A cumulative fall of 75.9 per cent and an implied savings of over $21bn on food imports alone over that period.

“Most evident were the 97.3 per cent cumulative reduction in monthly rice import bills, 99.6 per cent in fish, 81.3 per cent in milk, 63.7 per cent in sugar, and 60.5 per cent in wheat.”

The central bank had explained that the forex restriction policy was carefully crafted with a view to reversing the multiple challenges of dwindling foreign reserves, contracting Gross Domestic Product (GDP) and what was described as an embarrassing rise in the level of unemployment confronting the Nigerian economy.

A former President, Chartered Institute of Bankers of Nigeria (CIBN), and Professor of Economics, Babcock University, Prof. Segun Ajibola, argued that the restriction of forex for the importation of some items would conserve scarce forex and protect the local producers from unfair competition.

According to him, this would ultimately increase local value addition, generate employment, and increase the nation’s Gross Domestic Product (GDP).

Prior to the latest forex restriction policy, the CBN had last year also taken steps to enhance domestic production of milk so as to conserve forex. Then, import of milk annually stood at $1.2-$1.5bn.

CBN Governor, Mr. Godwin Emefiele, had said the bank would sustain its intervention in the agriculture sector through its development finance mandate.

In line with the vision of President Muhammadu Buhari, the CBN had created several lending programmes and provided hundreds of billions to smallholder farmers and industrial processors in several key agricultural products.

These policies are aimed at positioning Nigeria to become a self-sufficient food producer, creating millions of jobs, supplying key markets across the country and dampening the effects of exchange rate movements on local prices.

The CBN governor explained that through schemes such as the Anchor Borrowers’ Programme, the Commercial Agriculture Credit Scheme and the Bankers Committee Agric-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS), the apex bank has improved access to markets for farmers by facilitating a greater partnership with agro-processors and manufacturing firms in the sourcing of raw materials.

“As a result, manufacturers have integrated local options in sourcing their raw materials. Partnerships forged through contracts between farmer cooperatives and agro-processors have also helped to support improved production of agricultural commodities such as rice, cotton and maize.

“In order to address some of the challenges faced by local farmers and manufacturers, we embarked on measures to discourage smuggling and dumping of restricted items into the country, by imposing restrictions on the use of financial institutions in Nigeria by identified smugglers, as their activities undermined the growth of our local industries.

“These measures are aiding our efforts to support local cultivation in rice, cotton and fish, etc.,” he had stated.

He added that at some point in Nigeria’s history, the economy was heavily reliant on agriculture, with increased cultivation and exports of primary products such as cocoa, palm oil, cotton and groundnut.

He, therefore, urged the country, in view of current challenges in the global economy, to return to the era, when the growth of the agricultural and manufacturing sectors was used to bring about growth and employment.
Emefiele believed the Bank’s on-going interventions, especially in agriculture, would, “help to boost not only our domestic outputs but also improve our annual non-oil exports receipts from $2bn in 2018 to $12bn by 2023.”

Buhari recently decried the huge sums spent by the country importing food items that could be produced locally.

He added: “The importance of agriculture in the economy cannot be over emphasized. Prior to the advent of oil, our country survived on agriculture production. During this period, the economy was built on agricultural activities and our gross domestic product grew steadily.

“Economic diversification is no longer an option for us, it is the only way for economic momentum and the drive to prosperity.”

According to him, the only way to do this was to go back to the land and develop agriculture.
These measures are expected to help the country address some of the challenges in the external sector and help conserve the much-needed forex revenue for the country.