Ex-director criticizes exchange rate policy as CBN provides clarification on forex restriction for 43 items

It has been made clear by Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), that the importation or sale of the 43 products was never expressly forbidden in Nigeria.

Cardoso clarified this at the 58th Annual Bankers’ Dinner held in Lagos on Friday, which was hosted by the Chartered Institute of Bankers of Nigeria (CIBN).

But he clarified that in order to facilitate the importing of certain goods, access to foreign exchange had been restricted by the top bank.

Cardoso stressed that the fiscal authorities, not the CBN, were principally responsible for matters of trade policy, specifically the importation and sale of the 43 products.

He stated that this distinction was crucial because it makes it clear that the CBN did not intend to infringe on the authority of other government entities when it decided to remove the foreign exchange limitations on these commodities.

According to the News Agency of Nigeria (NAN), the CBN released a list of imported products and services that are not allowed for foreign exchange on the Nigerian foreign exchange market in a circular that was published in June 2015.

The first 41 items on the list have been revised to include two more.

However, the CBN officially declared on October 12, 2023, that it has lifted the embargo on the issuance of foreign exchange for the importation of forty-three items, including rice, vegetable oil, and chicken products.

“Permit me to offer additional clarification on the matter of the 43 items,” Cardoso stated.

First of all, it’s crucial to remember that the government has never formally outlawed these products.

Their ability to get foreign exchange on the formal market was restricted by the CBN.

But because of these limitations, there was a rise in demand for foreign currency on the black market, which caused the exchange rate in that area of the Nigerian foreign exchange market to decline and the gap between the official and black market to expand.
According to studies, importers using the foreign exchange market increased their trade evasion by 51.0% during the 43-item period of restriction, according to Cardoso.

He claimed that as a result, revenue fell by about $1.4 billion, or $275 million, a year between 2015 and 2019.

Cardoso also mentioned that from a peak of roughly $920 million in 2011 to roughly $250 million in 2017, the amount of money received from goods tariffs fell.

“As much as $680 million could have been earned in the same year, but counterfactual evidence suggests that the actual tariff on goods stood at $320 million in 2019,” he stated.

Evidence, he continued, has demonstrated that foreign exchange restrictions hurt Nigerian households and increased inflationary pressures.

Cardoso claimed that the 50.0% drop in trade barriers and taxes on rice, sugar, and wheat had only a marginal effect on welfare, improving it by 8.8% while reducing extreme poverty by just 0.4%.

Due to the fact that the typical Nigerian industry spends 13.7% more for its inputs than other industries, Cardoso clarified that the benefits of trade gains for the general public were minimal.
The CBN claims that this move will increase liquidity in the Nigerian foreign exchange market and occasionally interfere, with the added caveat that interventions will taper off as liquidity increases.

Prof. Akpan Ekpo, a former director of the CBN, told NAN that the opening of the foreign exchange market by the central bank was a grave mistake.

“It is incorrect because we only receive dollars from the sale of oil. The dollar, pound, and euro are not our money,” he stated.

“We don’t have businesses that produce non-oil goods and services, sell them, and make foreign exchange. Our economy is not productive.

Since the naira is not convertible, all nations that are similar to ours will have managed float.
Therefore, he explained, “the problem is a supply and access problem. When you come and put in more dollars because you have gotten more forex, these are very short term measures, they are not sustainable.”