THE PROS AND CONS OF THE CBN BAN
- Other Apps
In my days as Chairman of the Manufacturer's Association of Nigeria, Ikeja, I would jump and applaud the recent ban of importers of 41 Products from accessing foreign exchange market for the importation of the said products into our Country. These products include food items like Rice, vegetable oil, tomato purée, Margarine,sardines, fish,& meat products; tools like wheel barrows, head pans, toothpicks, plastic materials;Cement and luxury items like Furniture & Private Jets. As a manufacturer or significant investor in local manufacturing, I will always want to support any ban or restriction on importation,with the general belief that all bans of importation will naturally result in increased demand for locally produced goods. And this view is fully supported by many of my colleagues who are currently active in MAN or indeed who are involved in some local production activities. Not them alone , many Nigerians believe that we are too import dependent and will want the Nation to do all it can to discourage importation and encourage local production, though many still prefer foreign made goods when they shop.
But in the Nigerian Economic Summit Group( NESG), I learnt that first, bans do not always result in increased local production. This is because Nigeria has proved chronically incapable of enforcing bans. Most times, bans only create opportunities for smugglers and their custom collaborators. I know many Nigerian Businessmen who are excited anytime a ban is announced by Nigerian authorities. When budget speeches are being read, they keep no damn on the issue of economic indices, they are not interested in knowing how much the Country wants to spend or which Ministry will spend more than the other, their only interest is to hear which products have been banned or restricted. For them that portends good business. They are sure of having a good year.
The second thing I learnt is that Bans or import restrictions can precipitate product scarcity. If local productive capacity can not meet demand or can not be ranched up speedily, then prices of locally produced goods rise, fueling inflation, and causing additional hardship on the citizens. This lesson was learnt in 1984-1986 period during which certain products were banned out rightly or whose importation were restricted either through import licensing or through the concept of "NOT VALID FOR FOREIGN EXCHANGE", similar to what the CBN has just done. Those who lived through that period will remember the distress of queuing for certain essential commodities ( Essenco) or the pain of going without some of these products because they had become unaffordable.
The third lesson, I have learnt is that Bans can promote inefficiencies and subsidies. Because of limited competition, local producers can be "over protected" to adopt inefficient production methods without much care for cost and may not have the motivation to improve quality, thereby short changing consumers who may be compelled to pay higher prices for lower quality . Fourthly, and from a broader economic perspective, Bans can lead to inefficient allocation of resources since the concept of the free working of the laws of demand and supply and free choice are constrained, a concept which the World Trade Organization( WTO)promotes. Fifthly, it has been shown, that what is a finished product for one may be a raw material or intermediate material for another. Already the Lagos Chamber of Commerce & Industry ( LCCI) has raised issues on the impact of the restriction on some of their members.
As a Nationalist who is scandalized that Nigeria is over dependent on Importation and has become a destination for all kinds of spurious goods, including toothpicks and plastic toys, I should support any move to restrict importation of certain items. I am more supportive of such moves when it is realized that the importation of some of these items are consuming our scarce foreign reserves putting a lot of pressure on the foreign exchange rate. Furthermore, when I realize that unemployment is worsened by higher levels of importation of finished goods, which often displace local alternatives, bringing down local production capacity and causing job losses, I will naturally vote for import restriction by all means, especially for those commonly used products for which we have local capability and capacity.
But in supporting the policy of restricting importation either out rightly or indirectly as done by CBN, I have a couple of worries. First is, did CBN undertake detailed studies to determine the level of local capacity and capability to avoid creating shortages that will cause citizen discontent and subsequent resistance. This is part of the dilemma the Greek are facing now with the austerity measures which have led to protests & change of Government and may cause further changes. Second is, how will CBN enforce this Ban? It will not be easy with monitoring the commercial Banks, not to talk of export proceeds and the Bureau De change (BDC). Nigerian Business men can easily walk round the restrictions, if the matter is to provide invoices. That is the easiest thing for any cub importer. Third, is how will the CBN manage the rapid depreciation of the Naira at the parallel market? Since the announcement of this policy a few days ago the Naira has gone on free fall going from around 215 to around 235 Naira to I USD. On this score my worry is heightened by the fact that President Buhari promised Nigerians that he would restore the value of Naira to equal the USD. This policy is certainly in contradiction with that aspiration,at least in the short to medium time.
But my greatest worry is, how long will this policy last? Under normal circumstances, this ban should spur additional investment in the affected sectors. Those who are already in the various sectors will expand their production, distribution and marketing capabilities and capacities. New investors who see opportunities arising from this ban or restriction may decide to build plants and set up manufacturing facilities. Others will expand their acreage of farms, employ more labour and install additional mechanized capabilities. This will be the normal economic response. Sequel to this, new jobs will be created, local suppliers of raw materials will scale up their businesses and there will be overall increase in economic activities. So, in addition to saving our foreign reserves, we can stimulate increased local productive activities which should be salutary to the economic health of Nigeria, especially at this period of our economic history where income from crude oil is on the decline, devastating our economy.
My real worry arises from our well known history of policy somersaults, flip-flops and inconsistencies. Severally in the past, we have banned importation of several things- Rice, wheat, Poultry, drugs, furniture, autos etc. This has attracted investors to go and borrow money to set up local production facilities, only for the government to turn around and lift the ban, leaving the investors high and dry. The debacle of the NERFUND era arose largely from this kind of Behaviour. Carcasses of failed industries and the bones of some of the dead bank borrowers bear testimony. Therefore, many People who have lived in Nigeria, long enough, especially those who have had their fingers burnt, do not hurry to make investments any more when such 'pyrrhic' opportunities present. Rather, many will work to subvert the policy or wait for the inevitable reversal. Because nobody is sure that some important people ( Obas, Emirs & Ezes inclusive) or misguided Trade Unions will not make a courtesy call or a protest March on the President tomorrow to complain of the hardship the ban or restriction is having on them or on their business interests and without bating an eyelid, the President could reverse the policy throwing many eager investors into huge debts,business atrophy and may be to early death.
Now you can see why I have not jumped up to applaud CBN for taking what you may call a sensible course of action. If the money in your pocket is short, all you can do, is to decide what you must pay for in cash, what you can get on credit( if you are credit worthy )and what you must forgo. But when it comes to managing Nigerian Economy, it is never as simple or straight forward and that is why I have many worries. If the CBN and the Government can take care of these worries, then on the balance our support for this new policy will be justified.
Mazi Sam Ohuabunwa OFR