Commodities, CBN and Forex in Nigeria
First, there is one policy which I admire all the guys in the Central Bank of Nigeria for: the reduction of treasury bills return rate. That policy has unlocked so much liquidity in the angel investing ecosystem in Nigeria. They should maintain it.; it is a good policy.
Now, there is something that is brewing: what happens to some restrictions imposed on the use of forex in light of the current perturbations from ENDSARS? Is this the time to open and relax things to get into a new equilibrium point so that you do not have too much demand when supply is low? The price of rice will likely keep rising if supply remains restricted even as demand rises.
John Mc Keown, a big member in our Tekedia Mini-MBA, looks into these elements and simply asks: What impact (if any) do you think a CBN relaxation on Forex for certain commodities will have on the average Nigerian?
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Hi Prof, that was a very valid question. Firstly, we need to understand if the commodity has only been banned from accessing forex Or placed under import prohibition list. Reversing the 2 scenarios require different approach.
In the case of rice, I want to believe its a total ban (Rice importation is not allowed) and it doesn't matter where you are sourcing the forex from. Why do I believe its a total ban? No need looking up the tariff to buy into this, the level of enforcement by men of Nigeria Customs Service speak volume that no foreign rice is allowed. At the time this policy was implemented, enforcement level was as high as going to traders shops to pack imported rice "for confiscation". They wouldn't do that if it was just a forex ban. Most building materials are on forex ban and they are still being imported and sold in the market.
However, If there is one food commodity largely consumed by most Nigerians on a daily basis, it is arguably "RICE". The skyrocketed cost of this commodity since the local farmers took charge has only reduced the quantity consumed per person but no much impact on the number of persons that consume it because no matter how hard things appear to be "Man must chop".
The looming hardship will not be funny should there be shutdown of rice mills as being speculated. A genuinely concerned government should think about 2 things straight away,
1. To provide as a matter of urgency bailout funds for the mills about to shutdown
2. To lift the ban on importation of rice under some certain regulations which may include granting import licenses to some companies interested in bringing in rice under certain specifications laid down by the government and for a period of time to avert the looming food crises and at the same time support the local farmers in the background so they can rise to the required capacity that can meet the demands of the entire country.
