President Muhammadu Buhari in August ordered the Central Bank of Nigeria (CBN) to implement a forex ban on food products. In a statement, Buhari directed the central bank: “Don’t give a cent to anybody to import food into the country.” The directive is in line with the government’s efforts to ensure full food security.
AgroNigeria Managing Director Mr. Richard-Mark Mbaram allayed initial concerns about the ban, noting that President Buhari’s order is only meant to protect local producers of agro commodities. “There are particularly wide-ranging implications for agricultural productivity and development…” explained Mbaram in August. “The most striking implication is a positive one in that it basically creates a situation where hurdles are placed on the path of importers of food and other agro commodities.”
Is the forex ban working?
It’s too early to tell if the ban is working or not. But on the surface, it looks problematic. A Nairametrics op-ed about the forex ban identifies three potential concerns:
1. A shortage of local food
2. Food prices might rise
3. Monetary policies may not fix the first two problems
Milk and rice supplies are reportedly not enough to meet countrywide demands, and the longer the forex ban continues the likelier it is that food shortages will arise. Once that happens the direct consequence is food inflation. In such a case, fiscal policies like forex bans are unlikely to either bridge the resulting food shortages or control rising food prices.
But the measure is well-intentioned, as it aims to make Nigeria self-sufficient. This is why the Nigerian government is prepared for some short-term pains, notably price increases on food. But the long-term trade-off, explains President Buhari spokesperson Garba Shehu, will be worth it. “These restrictions are temporary,” he notes. “They will last until our farmers and manufacturers… are competing on an even footing.”
The other benefit: replenishing foreign reserves
An added benefit is replenishing Nigeria’s depleted foreign reserves. Ventures Africa reports that the foreign reserves of the country fell from $45 billion (₦16.3 trillion) in July to $40.7 billion (₦14.7 trillion) in October.
Failure to conserve and replenish foreign reserves will result in dire consequences for the naira. Of note, it may lose significant value against other currencies, notably the US dollar. Already the exchange rate now, which has stayed between ₦360–₦364 to $1, is markedly lower as opposed to 4 years ago (between ₦450–₦500 to $1).
This is particularly worrisome given the US dollar’s standing as one of the world‘s most powerful currencies. FXCM details how the US dollar is one of the most traded currencies on the foreign exchange, as it is the currency that dictates the market. Conserving and replenishing Nigeria’s foreign reserves, particularly dollars, is just as imperative as promoting self-sufficiency in food production (which is why the forex ban was implemented in the first place).
A question for the long-term
The question as to whether or not the forex ban is working will only be answered three to six months from now. After all, it has been only three months since President Buhari’s directive. The forex ban is a long-term fix to make Nigeria self-sufficient (and conserve its foreign reserves at the same time). A more accurate evaluation, therefore, can come only in the long-term as well. Rest assured that NNN will monitor the situation closely in the coming months.