Confusion over Buhari’s stance on food imports, CBN’s autonomy

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• Nation short on rice, sugar, maize, wheat, others, say experts
• Policy anti-people, ill-timed, PDP declares
• Manufacturers, OPS urge caution, want codes for items
• ‘Why presidency might be compromising apex bank’

TRACKING >>There is confusion over the state of food production in the country and the autonomy of the Central Bank of Nigeria (CBN) amid possible implications for the real sector, foreign investors and consumers.

This followed the recent order by President Muhammadu Buhari, which stopped the CBN from providing foreign exchange for food imports.

Citing investors’ worries, inflation and activities of the real sector, operators in the Organised Private Sector (OPS), analysts and manufacturers have asked the apex bank to identify the HS codes of food items to be thus restricted and provide an updated list of the same.

Besides, the operators expressed reservations about claims of food security when capacity to locally produce wheat flour, sugar, milk and even rice remains low and in some cases, undermined by smuggling.

Specifically, data on wheat production shows that the country consumes four million tonnes yearly through biscuits, bread, noodles etc., yet produces only 100,000 tonnes per year. Also, world rice production and consumption data made available by World Market and Trade, USDA (updated in June), shows that Nigeria produced 3.94 million tonnes in 2016; 4.41 million tonnes in 2017; 4.66 million tonnes in 2018; 4.79 million in 2019, and is expected to produce 4.90 million tonnes by 2020.

The figures indicate that Nigeria consumed 6.40 million tonnes; 6.70 million tonnes; 7.10 million tonnes; 7.20 million tonnes; and 7.30 million tonnes from 2016 to 2020.

The data interpretation implies that Nigeria is rice deficient this year by 3.12 million metric tonnes, while in 2020, it will be deficient by 3.21 million metric tonnes. Africa Rice Centre has also confirmed that Nigeria is not yet rice sufficient, as indicated by the smuggling of foreign brands into the country.

In terms of sugar production, the nation, despite its backward integration policy, accounts for seven per cent of its 1.5 million metric tonnes yearly demand. Recently, the chairman of Dangote Sugar Refinery Plc, Aliko Dangote, stated that the nation loses over 300,000 metric tonnes of local sugar demands to smuggling yearly.

A professor of maize breeding and value chain development at the International Institute of Tropical Agriculture (IITA), Ibadan, Dr Sam Ajala, said Nigeria currently produces about 12 million metric tonnes of maize yearly, while it needs four million tonnes to close the deficiency gap and another four million tonnes to become maize-secure. He added that Buhari’s order could be a public show of undermining the independence of the apex bank.

Maize is categorised both as food and industrial crop. It is used as a staple by millions of households and as raw material in food manufacturing, feed milling and starch production.

The president’s directive came at a time the nation’s reserves, according to CBN figures, dipped by about $2.65 billion in the last one year from $47.3 billion to $44.65 billion, amid declining foreign inflow and a potential to create more panic.

Already, the low yield on the fixed income securities in Nigeria is already impacting on the total foreign portfolio investment through the popular investors’ and exporters’ foreign exchange window, both in absolute number and as a ratio to the total.

The CBN had earlier in the year stated that it would increase the number of items on its forex restriction list to 50 before the end of the year. While the restriction is expected to help the nation conserve foreign exchange, there are worries about the acclaimed local production capacity of some of the food items and others that serve as raw materials for the manufacturing sector.

For instance, latest data from the Manufacturers Association of Nigeria (MAN) shows that only 38 per cent of local producers agreed that local sourcing of raw materials has improved in the country. Even though a large percentage of respondents claimed that the level of local raw materials sourcing increased, greater proportion of those interviewed are still of the view that effort should be intensified to improve the development, sourcing and utilisation of local raw materials.

The Partner/Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, said the CBN is meant to be independent; it should therefore not be told what to do by the president, especially when the decision is not evidence-based.

“Trying to fix all economic problems using monetary policy is like a carpenter trying to fix all broken furniture with a hammer and a nail. It doesn’t always work. Nigeria is not food-sufficient. Available data suggests the contrary. Stopping foreign exchange allocation to importers of foods will have unintended consequences,” he said.

Oyedele continued: “Every country imports food. Our focus should be on producing what we are best able to produce, export some and import the rest. The move will increase smuggling and push sub-standard imported food items under the radar. Self-sufficiency in food production cuts across the entire value chain, including logistics, transportation and storage. So, any restriction without first addressing these related problems is putting the cart before the horse.”

Reiterating the need for CBN autonomy, Director-General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf noted that policies should be thought through before pronouncements are made to avoid discouraging investors.

According to him, “Many of the food items are already on the prohibition list of the CBN. The CBN needs to identify additional items as well as specify the Harmonised System (HS) codes in details, to avoid a backlash that will affect the real sector. The expatriate community should also be considered when talking about food as they cannot be forced to take local delicacies.”

Also, MAN President Mansur Ahmed urged Nigeria to look at each sector based on its particular merit. Some sectors require heavy investments for backward integration therefore “we should treat those sectors in that context.”

He noted further: “Our suggestion is that there is no reason why those restrictions should not be worked out sector by sector, in full consultation with critical sector stakeholders. We should ensure we develop necessary frameworks and define a timeline to achieve the goal without too much pain to the economy, without loss of jobs and reduction of production capacity.”

Reacting through a statement by its national publicity secretary, Kola Ologbondiyan, the opposition Peoples Democratic Party (PDP) said: “It is indeed appalling that instead of bringing solutions to the depreciating living conditions in our nation, President Buhari is rather imposing more suffering by ordering the removal of subsidy on food even when it is manifestly clear that he has failed on all fronts to achieve any level of food security despite the huge resources available to his administration.

“Instead of removing subsidy on food and putting more suffering on Nigerians, the PDP urges President Buhari to cut the billions of naira being wasted on luxuries in his presidency and free the funds for the welfare of the masses.”

The Lead Director, Centre for Social Justice (CSJ), Eze Onyekpere, on his part, said Buhari’s directive is fraught with danger and appears to be an illegal order for a number of reasons.

“By S.1 (3) of the Central Bank of Nigeria Act 2007, it is provided that ‘in order to facilitate the achievement of its mandate under this Act and the Banks and Other Financial Institutions Act, and in line with the objective of promoting stability and continuity in economic management, the bank shall be an independent body in the discharge of its functions.’

“There are no provisions in the CBN Act or any other existing law empowering the president to run or give directives on foreign exchange management or any other component of monetary policy. This directive erodes the independence and autonomy of the CBN. It presents Nigeria in the image of the Idi Amin fable, who gave directives to the governor of the Ugandan Central Bank to print more currencies when told that the country was running out of money.”

An economist, Ayodele Akinwunmi, said the way the order came might suggest to the financial market that the independence of the apex bank is being compromised in the area of monetary policy administration. “We must also note that the CBN has indicated that it would continue to use monetary policy to stimulate the growth of the Nigerian economy,” he noted.

Jimi Ogbobine, a senior official of Nigeria’s indigenous rating agency, Agusto & Co, thinks the order could increase concerns of political interference with the Central Bank’s independence especially on foreign exchange management. “It could weaken long-term confidence in institutions like CBN, especially in its policy directions. The appointment of a substantive minister of finance in the coming weeks might however help mitigate these risks,” he said.

Furthermore, a financial analyst, Egie Akpata, said that given the implications of the order, he would rather assume it is a general long-term goal. According to him, “It is unlikely to be seen as CBN policy. Of course, import data for sugar and wheat alone suggests that it would be a while before Nigeria is self-sufficient in these two products. In any case, it has not much to do with CBN’s independence.”

In their submissions, the Executive Secretary of Plantation Owners Forum of Nigeria (POFON), Fatai Afolabi, and Emmanuel Ibru, Managing Director, Aden River Estate Ltd, Edo State, told The Guardian that the country has a production gap of about 400,000 metric tonnes of palm oil, a major food item also used for vegetable oil production. It produces about six per cent of the national need and imports between 300 million and 350 million litres of ethanol yearly.

Also, Dr Adeoye Afolayan, Director of Research and Development at the National Horticultural Research Institute (NIHORT), Ibadan, Oyo State, explained that the yearly national production of orange is estimated at 135 million litres of orange juice, while the yearly demand is 550 million litres, indicating a production deficit of 415 million litres.