Forex restrictions on 43 items resulted in $1.4 billion revenue drop — Cardoso

Nigeria’s central bank governor, Olayemi Cardoso, on Friday, said the country recorded a revenue drop of $1.4 billion between 2015 and 2019 after imposing forex restrictions for import of 43 items.

The apex bank governor made this known on Friday while delivering his keynote address at the 58th Annual Dinner of the Chartered Institute of Bankers of Nigeria in Lagos.

“Studies have shown that during the period when the 43 items were restricted, there was a 51.0 per cent increase in trade evasion by importers accessing the foreign exchange market, resulting in a revenue drop of approximately US$1.4 billion, or US$275 million annually, between 2015 and 2019,” he said.

In October, the CBN announced that it had restored the 43 items prohibited from access to the foreign exchange (FX) window in 2015.

The decision came about eight years after the bank on 23 June 2015 restricted those who deal in the items from accessing forex at the authorised FX window.

The aim of the policy at the time was to reduce pressure on the demand for dollars for importation and to encourage local production of these items.

Some of the affected items included rice, cement, margarine, palm kernel, palm oil products, vegetable oils, meat and processed meat products, vegetables and processed vegetable products, poultry, tomatoes/tomato paste, soap and cosmetics, and clothes.

Other items included private aeroplanes/jets, Indian incense, tinned fish in sauce, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes/containers, enamelware, steel drums and pipes, wire mesh, steel nails, wood particle boards, and panels.

Also affected were security and razor wire, wood particle and fibre boards and panels, wooden doors, furniture, toothpicks, glass/glassware, kitchen utensils, tableware, tiles (vitrified, ceramics), textiles, wooden fabrics, plastic/rubber products, polypropylene granules, and cellophane wrappers.

Subsequently, amidst efforts to achieve its backward integration policy on key items, the central bank added fertiliser and maize/corn to the list of items.

The policy drove importers to source forex in the parallel market for transactions, resulting in additional pressure and demand for FX at the unauthorised window.

Within the period, prices of the food commodities among the restricted items, which are major staple foods among Nigerians, skyrocketed by over 100 per cent.

The upward trend in the prices of the commodities has had a negative impact on the purchasing power of many citizens.

Impact on the economy

Speaking on the 43 items on Friday, Mr Cardoso emphasised that the items were never banned by the government but that the CBN only imposed restrictions on access to foreign exchange in the official market.

However, he said the move resulted in increased demand for foreign exchange in the parallel market, leading to the depreciation of the exchange rate in that segment of the Nigerian Foreign Exchange Market (NFEM) and widening the premium between the parallel and official market.

As a result of this, the CBN governor said revenue from tariffs on goods decreased from a high of approximately $920 million in 2011 to about $250 million in 2017.

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

Mr Cardoso said evidence has shown that foreign exchange restrictions had an adverse impact on Nigerian households and contributed to inflationary pressures.

He noted that the reduction in trade restrictions and levies on rice, sugar, and wheat by 50.0 per cent had only a minimal impact on welfare, with a 0.8 per cent improvement, and a mere 0.4 per cent reduction in extreme poverty.

The CBN boss said the benefits of trade gains for the general population were negligible, as the average industry in Nigeria pays 13.7 per cent more for its inputs.

“Lastly, it is important to note that trade policy is primarily the responsibility of the fiscal authorities, and delving into such matters fall outside the purview of the CBN,” he said.