July 12, 2024
Okwelle Central Filed by Okwelle Market Square Okwelle, Onuimo, Imo State
Forex crisis: Reevaluate the lifting of the restriction on 43 products

Forex crisis: Reevaluate the lifting of the restriction on 43 products

The Central Bank of Nigeria lifted its ban on sourcing foreign dollars from the official market for the purchase of 43 commodities last week, which thrilled the business community but raises some concerns amid a debilitating shortage of the currency. The prime bank declared that it will increase the amount of dollars available in the market and allow importers to buy foreign exchange through the authorised channel. Critics are concerned about a few items on the list, despite the fact that supporters of the movement have compelling reasons for lifting the restriction.

The CBN clarified that the modification to the market policy will increase market liquidity and pledged to periodically step in to ease difficulties till liquidity improves.

The CBN made it clear that the purpose of the prohibition, which it first implemented in June 2015 with regard to 41 commodities, was to preserve limited foreign exchange while promoting exports, home production, and self-sufficiency.

Still, after eight years, the forex scarcity has gotten worse. Since June of this year, when newly elected President Bola Tinubu ordered the unification of the several exchange rates, the naira’s decline has quickened. Over the weekend, the value of the naira was about N1,050 to US$1.

Many companies struggle to get foreign exchange for necessary equipment, parts, and raw supplies. SMEs report layoffs and closures, while large firms have also been impacted.

The OPS has been adamantly advocating for the relaxation of the prohibition on the 43 goods’ direct foreign sales. Rice, cement, items made from palm oil, vegetable oils, processed meat, steel drums and pipes, canned fish, wheelbarrows, vegetables, soap and cosmetics, tomatoes, and tomato paste are some examples of these.

There was no need for the suspension for the OPS. According to the Manufacturers Association of Nigeria, 200 of its members suffered during that time. It claimed that because some of the items are raw materials that are unavailable locally, it was a bad idea. Operators contended that the prohibition exacerbated currency market inefficiencies and was partly responsible for the ongoing rate disparity between the official Importers and Exporters Window and the black market.

The Centre for Promotion of Free Enterprise further stated that because the products were not prohibited from import at the time the restriction was put in place, the blacklisting went against the current trade policy.

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Free trade advocates criticise such restrictions, pointing to advantages including expanded markets, easier access to high-quality goods at reduced costs, and more efficient supply chains and manufacturing. The IMF maintained that these kinds of limitations were useless since the economy had grown more complicated.

“The best way to manage a modern economy is to have fiscal policy lever and monetary policy lever to use to affect the kind of policy outcome you want, rather than saying I don’t like these goods and so I don’t want them to come in,” declared Abebe Selassie, head of the IMF’s Africa Department.

Actually, most arguments crumble in the face of the indisputable advantages of free markets. In addition, working with the OPS is preferable.

But Nigeria is experiencing unheard-of adversity. Therefore, many find it perplexing that producers will have to compete with toothpick importers for foreign exchange during a period of extreme scarcity, when crucial sectors and sub-sectors are dollar-starved!

It is acknowledged that unrestricted market access with tariffs and taxes acting as a cheque is ideal, but Nigeria faces the combined challenges of extreme poverty and weak institutions.

According to the first, only goods that were necessary to prevent hunger and those employed as intermediary goods should have been permitted. However, products like toothpicks, clothes, dinnerware, kitchen equipment, wooden doors, meat, and vegetables should have stayed banned until the economy and the forex crunch recover.

Highly productive sectors that create jobs may face additional disadvantages due to existing institutional shortcomings.

Thus, Tinubu and Yemi Cardoso, the governor of the CBN, should keep a close eye on developments and, if necessary, go over the things on the list again.

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