CBN’s forex restrictions on Crude Palm Oil: Economic implications
The consumption of palm oil in Nigeria amounts to 1.0 million Metric Tonnes (MT) per annum. 90percent of palm oil is consumed by the food industry and the remaining 10percent is used by the non-food industry.
Foods like noodles, vegetable oil, biscuits, chips, margarines, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Noodle industry alone consumes 72,000 MT of imported palm oil and the leading domestic palm oil producers fail to meet this demand. Saddened by unavailability of sufficient oil palm in the Nigerian market, some industries have proactively announced strategic alliances to invest in oil palm plantations.
Large estate in the palm oil plantations and output in Nigeria which is the only category producing palm oil used by the food industry produced 80,000tons annually which is only 10percent of local production and the overall domestic oil production was 1.35mn tonnes, the consumption demand was 2.25mn tonnes resulting in a shortfall of 900,000 tonnes.
Of course, the Federal Government is striving to sustain the crude palm oil industry of the country but the country needs to have a stable economy and survival in the palm oil industry as the local production is currently unable to meet the quantity as well as quality requirements of the industry which is leading to scarcity of raw materials and inflation.
Also the economy is feeling the impact as there is inadequate supply of palm oil, and desperate food producers’ will use non quality palm oil thereby jeopardising public health and safety. The future industrial growth is being threatened because palm oil was and is still one of the widely used raw materials and migration of industries and investments in Nigeria to other neighboring countries will surely affect the economy.
So why Forex Policy? The Central Bank of Nigeria (CBN) uses foreign exchange policy to achieve certain macroeconomic goals of price stability, low unemployment, reduce inflation among other objectives. These goals are attained by manipulating the money supply and influencing credit conditions in the economy. Because money as a means of exchange is the major lubricant of the nation’s economic activities, the techniques of manipulation of forex policy are often dictated by whether the apex bank wants to pursue an expansionary or contractionary policy.
Recently, however, the application of forex policy by the CBN has drawn the ire and criticisms of stakeholders in the manufacturing and private sector, with some describing the policy measures as emasculating. In a move to promote locally-produced goods not only to build robust foreign reserves, but also to create jobs for the teeming population, the CBN shut out Crude palm Oil with the 41 imported items from the foreign exchange (forex) window.
Though the CBN maintained that its action was necessary for economic stability, members of the organised private sector believe the move may have been wrongly conceived without the apex bank properly appraising domestic capacity for production of some of the excluded items.
The CBN Governor, Godwin Emefiele said, “My personal as well as the bank’s institutional analyses of the situation compelled us to believe that we needed to aggressively begin the process of feeding ourselves by ourselves and producing much of what we need in this country.
“The huge amounts of money the country spends on importing things we can produce locally have become a significant drag on our Foreign Exchange Reserves. Most of you are aware of the often-quoted number of N1.3 trillion, which is what we spend on average importing rice, fish, sugar, and wheat every year,” he said.
Explaining his personal frustration over the development, the bank chief queried why the country should be importing produce when vast amounts of comparable quality produced by poor hardworking local farmers across the belts of Nigeria are being wasted, ignored and depleting huge forex too.
Since the announcement of the new policy, a few have wondered why Crude Palm Oil (CPO) was included in the list while many commentators have also passionately intoned on why the country continues to import CPO, when the vast quantities of palm oil produced by our hardworking farmers across the belts of the country are being wasted or simply ignored.
Renowned Economist, Bismarck Rewane observed that the decision by the apex bank sends a signal that there is a cash flow problem adding that it could however affect the level of inflows and outflows in the country.
Chike Obidigbo, former chairman of the Manufacturers Association of Nigeria (MAN) in Enugu, Ebonyi and Anambra states, was of the opinion that the CBN’s measure was a mere scratch of the problems besetting the real sector of the economy.
Remi Bello, president, Lagos Chambers of Commerce and Industry (LCCI), , expressed concern that many of the products on the list of the 41 products are intermediate goods. An example is Crude palm Oil which is a critical input for many manufacturing firms as well as other critical sectors of the economy.
He revealed that the development will put several investments at risk with implications of job losses, quality of loan access in the banking system and the welfare of citizens.
He said the list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.
He said the alternative foreign exchange markets are not deep enough to meet the demand of the essential intermediate products on the exclusion list, saying the exclusion of the items from the forex market is as good as import prohibition.
He said the policy measure will lead to widening of exchange differentials between the interbank markets and the parallel markets, adding that the immediate consequence will be rampant round tripping of foreign exchange which the apex bank has limited capacity to nip in the bud.
He also said the policy has far reaching implications for investors in fabrication, construction and real sector. He said facilities granted to investors affected by the shock of this policy are also at the risk of going bad.
Besides, in a communiqué issued at the end of an interactive session with the Central Bank of Nigeria in Lagos, the chamber said the new CBN policy is ambiguous as the restricted items are not well-defined and specific, plunging both manufacturers and banks into confusion regarding the intent of the apex bank.
The chamber urged the CBN to immediately amend the policy with full product definition and specification of all restricted items, including HS Codes and excluding any items which are non-substitutable industrial raw materials from the list.
Forex is required for the enhancement of the nation’s capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country.
When these and many more segments of the nation’s economy need the scarce foreign exchange to acquire items and equipment that will result in value creation and a concomitant accelerated growth of the overall Nigerian economy, it is therefore foolhardy to jump to policy making without consultation.
For importers of some raw materials needed for the production of some of the prohibited commodities, the apex bank’s decision is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.
Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the little pride of the country’s industrial image.
For Nigeria to meet the shortfall in local usage of crude palm oil and be self-sufficient, Nigeria needs a total plantation of 300, 000 hectares of land. This no doubt is huge and requires the support of government through ministries of agriculture by providing suitable and adequate land for willing investors to invest in large estate plantations in the country.
Therefore the exclusion of the items from the forex market is as good as import prohibition”, Bello added.
Nigeria now produces a meagre 1.7 percent of total world production which is inadequate for local consumption which is put at about 2.7 percent. The road to being self-sufficient is a long one as a whopping $10billion will be required and a minimum of 20 years of palm tree planting at a very large scale.
And for now, importation of palm oil serves, as the best alternative to the low quantity produced in the country pending the development of large estate plantations.
ADESHOLA OGBODO