The Big Redesigns in Nigeria’s Commodity Sector and Forex Withdrawal on Milk

The Big Redesigns in Nigeria’s Commodity Sector and Forex Withdrawal on Milk

In 1958, the Chinese Government led by Mao Zendong ordered the killing of all Sparrows because they were eating from crops. As the killing started and Sparrows were nearly driven to extinction in China, there was a sudden surge in the number of locusts, and crops were devastated.

Nigeria is playing the Mao Zendong game, killing the Sparrows keeping our crops because of the little they are eating. Sooner or later there will be locusts invasion, and without the Sparrows, crops will be devastated.

The number of banned imported goods and services in Nigeria is rising daily at an alarming rate. From household items to wears, drugs and machines. The only explanation rendered each time there is such a ban or restriction of forex access to certain product or service is: “we need to encourage local production.”

In July, when the Central Bank of Nigeria (CBN) announced that milk has been added to the ever increasing list of banned or restricted items, the reaction of most Nigerians to the news was of criticism. Not because they don’t want local production of consumable goods, but because time has taught them that it’s a ‘window dressing’ that the masses will pay for however. Although the CBN issued a clarification statement saying that milk was not banned, in fact, the CBN has no such powers to ban milk. Nigerians know better.

Since 2015, the CBN has systematically brought the entire forex market under its control. This means that any item that is restricted from the ‘forex import access’ is as good as banned. It’s based on this knowledge that Nigerians are protesting the decision citing several other banned or restricted items that have not yield anything but economic hardship and consequently, hunger.

So far, there have been 43 items on the list of commodities restricted from accessing the Nigerian Foreign Exchange. The latest on the list, milk, speaks with voluminous concern. (Banned items count in hundreds) Although the Government has been partnering with local producers to encourage backward integration and conserve foreign exchange, only one company, frieslandCampina WAMCO has been able to implement its pilot Dairy Development Programme (DDP) across 90 communities in the South West.

There are other Farmers in the DDP programme, but they all have been able to contribute only 24, 045 litres of milk daily. A situation the Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, attributed to wrong cow breed and open grazing. He said that an average cow in Nigeria produces less than a liter of milk per day, whereas in other countries, milk cows produce 100 liters per day. He explained that the movement of cows from one place to the other is minimizing their production capabilities.

So it is apparent that the backward integration policy of the CBN is not going to yield good results anytime soon. Although it is a ten year programme, the indices are showing that it may take longer than that to materialize. And that means, the timing of the ban on milk importation is wrong. The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, captured it well when he said that the CBN shouldn’t use Monetary Policy to address fiscal issues when the environment is not conducive for businesses. He stated:

“The starting point is to strengthen the capacity of domestic industries, enhance their competitiveness, and reduce their import dependence rather than using the same approach for all industries. The CBN’s approach is also affecting investments in the country. Farming is not the responsibility of the companies.”

Mr. Yusuf stated what many Nigerians already know. These bans and restrictions are doing more than killing competitiveness which is the backbone of any thriving economy. The CBN, through this policy is forcing milk producing companies to go into farming which is not their field. Raw milk production comes from Ranches, so it’s Farmers and Herders job. The processing companies should only collect the raw produce and process them for consumption. But when there is little raw milk to collect, and there is none coming from other countries due to the import restrictions, the demand gap widens, and the Nigerian people are at the receiving end.

The decision of the CBN to restrict forex access for milk importation has been widely criticized. Dr. kunle Hamilton, the Chief Executive Officer of Virgin Consulting Uk and a Consultant to a dairy multinational, described it as “using politics to make economic decisions.” He said:

“We need to consider that the manufacturers have always supported the decision to backwardly integrate, and that is why our members are exploring local sourcing of raw materials. However, stakeholders have to agree on the right step to take. The effects of such a decision need to be considered to ensure that artificial scarcity does not occur due to the inability to meet local demands.” He added

“There should be the right mix of measures and the right timing. There should be fair hearing from the stakeholders. The CBN should not carry out the action without adequately carrying manufacturers along.”

Unfortunately, the CBN didn’t do any of the above. However you look at it, it seems more reckless and political than economic. Not even the encouragement by the Apex Bank through soft loans can fill the loopholes. It’s a good economic intention aimed wrongly. Although the CBN claimed that the $1.2 billion being spent annually on milk importation is no longer sustainable, it’s just a minor fraction compared to oil. In the first 8 months of 2018, Nigeria spent N395 billion on fuel subsidy alone, and there is no discussion or policy in place to ban or restrict the forex for fuel importation just to encourage local production of oil.

The Dangote Factor

In 2017, the African richest man, Aliko Dangote, disclosed his intention to invest in milk production in Nigeria through the breed of 50, 000 cows. The plan was muted until two days ago when he announced his readiness to invest N288 billion in dairy products for the next three years. His aim is to produce 500 million liters of milk per year.

The news triggered scorning reaction from Nigerians. Many said it couldn’t have been a coincidence that the CBN is announcing the restriction on milk at the same time that Dangote is announcing his readiness to pump money into dairy production. Since 1999, Aliko Dangote has enjoyed monopoly from successive Governments in Nigeria. Stripping licenses off competitor importers or banning the importation of any goods that he is producing.

The N288 billion is a great deal of investment in dairy, but history has shown that monopoly is the bane of good economy. The monopolized treatment that Dangote has been enjoying has eliminated competition and made the cost of his products in Nigeria higher than other countries.

Economies don’t thrive by banning the importation of everything they produce. Economies don’t thrive by the elimination of competition through monopoly. The businesses that Nigeria is killing through her banning policy are the supporting pillars of the economy.

So before we kill all the Sparrows, let’s remember that there will be locusts.

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2 thoughts on “The Big Redesigns in Nigeria’s Commodity Sector and Forex Withdrawal on Milk

  1. The first question to ask is who did CBN consult/listen to, before coming up with withdrawal of forex for milk? I have listened and read several arguments on how our climate and environment isn’t really great for milk production at scale. So how did Dangote arrive at 50k cows being able to produce 500 million litres per annum, with just less than a billion dollars; where do we get our numbers from?

    This constant overlap between monetary and fiscal policies, who’s really in charge, or we somehow believe that the fellas in CBN have all the answers to our economic woes? It’s either we have bunch of people who believe they know so much (another layer of arrogance) and therefore no need to consult widely, with hard data to support each position, or they are simply uninformed and clueless, with respect to problems they are trying to address.

    We really care so much about forex cost and somehow still avoid looking in the direction of perhaps the biggest culprit: petrol importation. The other day we increased the import quota of starch, because we felt local production was insufficient, not minding the consequences on cassava growers. And now we felt we have what it takes to produce milk locally…

    Strange land, ruled by strangers.

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  2. I must agree that numbers don’t just add up and not counting the non productive environment. And like he said, it seems more like a reckless political move than economical.

    In a country where policies are made on a whim without proper consultation, is more likely prone to an economic downfall.

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