Controversy Trails CBN’s Forex Policy On Imports, As IMF, Stakeholders Kick

Controversy Trails CBN’s Forex Policy On Imports, As IMF, Stakeholders Kick

Patrick Aigbokhan
There had been worries and controversy recently over the measures put in place by the Central Bank of Nigeria (CBN) to restrict access to foreign exchange in the country.
The initiative seems to be constituting a bottleneck to the operations of importers at the country’s sea ports, as well as hampering business for operators in other related sectors in recent time.
The CBN, according to its policy, had removed 41 items from access to its foreign exchange window on grounds that they could easily be produced in Nigeria rather than spend the country’s reserves on importing them.
According to reports, while CBN forex trading window had exchange rate stabled at N197/US $1 last week, pressure however continued to mount at the parallel market, as the naira depreciated from N224/US $1 to N250/US $1 during the week.
In sustainance of the slide for the third consecutive week, the situation has extended the exchange gap between the CBN official window and the parallel market.
Report from market analysis, however shows that the gap underscores market inefficiency.
In a recent development, Antoinette Sayer, Director, African Department of International Monetary Fund, IMF, called for a review of the CBN’s measure, following the foreign exchange market records’ further widening of the parallel market margin.
Sayer said in in a report that the CBN has introduced administrative measures that limit access to foreign exchange and ban certain imports as a way of restricting the demand for foreign exchange.
The IMF Director said, “Those are measures that are quite detrimental, we think. It has certainly led to a lot of unhappiness in the private sector, as far as we’ve been aware, and understand that private investors see this as very detrimental to their economic activities.
“It is not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust.
“Of course, the exchange rate pressures in Nigeria and other oil producers has been considerable in the course of this past year because of what has happened in terms of, for example, foreign exchange earnings as oil prices have reduced those considerably, and the demand for foreign exchange continues to exert considerable pressure on their exchange rates.
“In the case of Nigeria, of course, a number of other factors have been at play. Those, of course, include in the run up to the elections: some uncertainties about what the possible outcome of those elections would be.
“Since the elections, there has been continued uncertainty about the policy direction that the current administration is going to take, the waiting for a cabinet, and the vision and plans for pursuing the reform effort and what can be expected from that.
“It is certainly the case that there are a number of factors that have led to pressures on the Naira. In response, of course, the exchange rate, being an important instrument of adjustment in countries that have a flexible exchange rate, we think it is appropriate to allow the exchange rate to depreciate, with a view to helping to contain the demand for more foreign exchange and to help contain the level of imports that was not sustainable in light of the shock to the Nigerian economy.
“The exchange rate plays a very important role there. There are countries that do not have the exchange rate and as a result have an even more arduous burden of adjustment on the fiscal side.
“That is what Nigeria and other countries that have an exchange rate can avoid. So we think it is appropriate to have the exchange rate adjust.”
Findings from other reports have also revealed that the high exchange rate of the naira to other major currencies has literally grounded air cargo businesses in the country.
It was reliably gathered that the sub-sector has so far lost a whopping sum of money estimated at N5 billion in business capacity, turnover and profits since March this year as the high exchange rate has crippled importation of goods into the country.
Kingsley Nwokoma, President, Association of Foreign Airlines Representatives in Nigeria, who confirmed the situation, lamented that most businessmen have been discouraged from bringing goods into Nigeria.
Nwokoma said that importers do not have access to the US dollars due to the CBN’s new policy on foreign exchange, saying that the high exchange rate of the naira to the dollar, has impaired the purchasing power of the average Nigerian.
He said, “The situation is very, very bad now because most important importers are no more importing, so they are no more bringing in cargo.
“Most of the airlines that are into cargo import are threatening to stop operating into Nigeria because it is not possible for a 100-ton aircraft to be bringing 10-ton cargo.
“No matter the quantity of the cargo the airline must pay the same charges to the Federal Airports Authority of Nigeria (FAAN) and the Nigerian Airspace Management Agency (NAMA) and it will also pay for fuel.
“So it is not profitable bringing cargo into the country now.”
The AFARN president however expressed hope that the situation may normalise after the appointment of ministers who are expected to drive the policies in the various sectors.
Industry watchdogs have opined that businesses in Nigeria may continue to face difficulties if the naira continues to depreciate against the dollar, because Nigeria is an import dependent country.
It has been reported that Skyway Aviation Handling Company Limited (SAHCOL) and the Nigerian Aviation Handling Company (NAHCO Aviance), have reportedly lost about 35 per cent of their market due to the fall in cargo business.
The affected agencies are however said to be planning to downsize in order to cut cost.
Stakeholders have observed that many companies in the aviation sector may embark on mass sack of their workers, if the situation continues till January 2016.