The Nigerian foreign exchange (FX) rate has been on life supports since the last economic recession which was orchestrated by the fall in crude oil price. The Central Bank of Nigeria (CBN) gave this life support through the creation of a Form Q for the importation of goods by SMEs with a maximum of $20,000 per quarter which is aimed at getting them to buy their FX from banks instead of the Bureau De Change. In addition to this, the CBN also initiated a technical prohibition of over 40 items that were declared as being non-valid for foreign exchange.
Unfortunately for the CBN, these measures have not reduced the volume of importation into the country. The trade report of the National Bureau of Statistics (NBS) has consistently shown an increase in the volume of importation from $31.5billion in 2016 to $55.2billion in 2019. The question we should be asking now is that, for how long can this life support carry the pressure being mounted on Naira by the rapidly increasing volume of importation and slowly increasing volume of exportation? This is surely not a sustainable measure and this is showing right now with the current pressure being mounted on the FX by the reducing oil prices again.
The last NBS report also showed that Nigeria can avoid a repeat of the current situation of undue pressure on the Naira if the government can just do the needful by the implementation of policies that ensure that items that Nigeria can produce locally (which is also consuming a good chunk of the country's FX) are not allow for import into the country. This type of policy can be implemented over a period of time through the use of quota and licensing so as to ensure that the country is self-sufficient before a total ban is placed on them. If this can be done for products like Premium Motor Spirit ($5.79billion), Gas Oil ($1.31billion), Durum Wheat ($0.95billion) and Cane Sugar ($0.54billion) alone, Nigeria will be saving about $8.6billion of the forex exchange spent on import bills and this comes to about 15% of the total volume of importation done in the year 2019.
As the nation is implementing this policy on reduced utilisation of foreign exchange on one hand, there is a need to also increase the generation of foreign exchange on the other hand. If this is not done, then we will be back here in another few years from now if this crude oil price plummet again just the way it happened after the implementation of reduced foreign exchange utilisation policy (form Q and 43 non-valid for fx items) of 2016. The African Continental Free Trade Agreement (AfCFTA) has created a great and unique opportunity for Nigerians to start exporting its manufactured goods to other African countries and thereby not just increasing its export volume but also diversifying the sources of foreign exchange generation for the country. Thereby building enough shock absorbers to withstand any decline in the crude oil prices in the future.
Finally, I will like to appeal to the government of the day to hasten action on all that needs to be done in terms of ratification and depositing the required trade instrument of Nigeria with the AU secretariat in order for Nigeria to become a state party that can fully participate under the AfCFTA. This is to ensure that, when trading begins in July 2020, Nigeria can effectively start trading with other African countries under this largest free trade area in the world.
For the love of Nigeria, Africa and Mankind.
Bamidele Ayemibo (bayemibo@3timpex.com)
Lead Consultant at 3T Impex Trade Academy
