The Effect of the CBN’s Move to Lift Forex Restrictions on Food Items

by Ikem Emmanuel
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The Central Bank of Nigeria (CBN) made a significant decision that has sparked a lively debate among financial experts. The CBN lifted foreign exchange restrictions on 43 items, including 11 food products, a policy that had been in place since June 2015. The aim of these restrictions was to conserve foreign exchange reserves and promote the local production of certain goods. However, over the years, this policy has faced criticism for contributing to rising food prices and increased food inflation.

The CBN’s circular, which was updated to include two additional items, stated that “importers of all the 43 items previously restricted…are now allowed to purchase foreign exchange in the Nigerian foreign exchange market.” This decision came in response to the escalating food inflation crisis in Nigeria, which has taken a toll on the economy and the purchasing power of consumers.

Food inflation has been a growing concern, with Nigeria’s inflation rate reaching 26.72% in September 2023. This surge in food prices can be attributed to several factors, including the removal of fuel subsidies in May, which further strained the economic situation. The food inflation rate in September 2023 was a staggering 30.64% yearly, representing a 7.30% increase from the previous year.

The impact of this decision to lift foreign exchange restrictions on food items on food inflation has ignited a spirited debate among financial experts. Mr. Olatunde Amolegbe, the former President and Chairman governing council of the Chartered Institute of Stockbrokers, expressed skepticism about the immediate impact of this move. He highlighted the challenge of high exchange rates, which might make it difficult for importers to bring foreign products into the country profitably. The exchange rate, a significant component of their costs, is already prohibitively high.

Amolegbe suggested that the CBN’s goal might be to harmonize all items in the foreign exchange market to understand the true aggregate demand. He believed that not capturing all market participants in official demand assessments had created discrepancies, pushing some demands into the parallel market. In essence, the CBN’s move might be aimed at improving the accuracy of data on actual aggregate demand.

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He also noted that food items with no local alternatives wouldn’t be affected, but those with locally produced alternatives would struggle to regain their market share. To address this, he called on the government to tackle the issue of insecurity, which is hampering local production and contributing to the challenge of food inflation.

On the other hand, Mr. David Adonri, the Executive Vice Chairman of Hicap Securities Limited, held a more optimistic view. He believed that the lifting of restrictions would have a positive impact on food inflation. Adonri pointed out that the scarcity of food in the country was primarily driving food inflation, as insecurity was preventing farmers from accessing their fields.

With the reopening of borders and increased food imports, Adonri anticipated a reduction in food inflation. He acknowledged the difficulties in the forex exchange market but argued that importing food items, regardless of exchange rate conditions, was essential to bridge the supply gap caused by security challenges.

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