How FG’s Forex Policy is Boosting Reserves, Local Manufacturing 


CBN’s policy that restricts access to foreign exchange for importation of 41 items is forcing manufacturers to look inwards, thereby boosting local manufacturing and conserving reserves, writes Obinna Chima

The saying, “Necessity is the mother of invention,” which means difficult situations inspire ingenious solutions, can be fittingly used to describe the outcome of the Central Bank of Nigeria’s decision about two years ago to restrict access to foreign exchange for the importation of 41 items. The CBN was heavily criticised when the policy was announced. But the banking sector regulator maintained then that it was basically borne out of the need to conserve scarce forex, and make firms in the country to look inwards in line with its drive to support the federal government’s import-substitution strategy.


Restricted Items  

The CBN had in June 2015 classified 41 items as “Not Valid for Foreign Exchange”, on the grounds that they could be produced in Nigeria and there was no rationale for depleting the country’s reserves on their importation. Some of the affected items were rice, cement, margarine, palm kernel, palm oil products, vegetable oils, meat and processed meat products, vegetables and process vegetable products, poultry, tomatoes/tomato paste, soap and cosmetics, and clothes.

Others included Indian incense, tinned fish in sauce, cold rolled steel sheets, galvanised steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes/containers, enamelware, steel drums and pipes, wire mesh, steel nails, wood particle boards and panels.

The action was taken at a time the economy was confronted with falling Gross Domestic Product growth rate, rising inflation, persistently high interest rates, falling foreign reserves, and depreciating exchange rate.


Foreign Reserve Accretion 

 The dogged implementation of the forex restriction policy has led to a 65 per cent drop in the country’s monthly import bill, from an average of $5.5 billion to $1.9 billion as of half year 2017. In 2016, the first year of implementation of the policy, the country’s import bill fell to $2.1 billion. 

This has helped the accretion of the country’s foreign reserves, which currently is at its 40-month high of $38.2 per cent. In January 2014, Nigeria’s reserves were about $40 billion and by October 2016, it had dropped to $23 billion, all because of the haemorrhaging of foreign exchange. The present value shows a significant improvement.

In fact, in 2016, which was the first full year of implementation of the policy, rice exports to Nigeria fell by 99 per cent to only 784 metric tonnes. The significant reduction in imports of rice from Thailand saved over US$600 million to Nigeria in 2016 alone. 

Interestingly, the fall in imports has been largely filled by a boost in local rice production. For example, employees at Labana Rice Mills in Kebbi State are trying to keep pace with demand, processing 320 tonnes of rice a day, a 250 per cent increase from the previous year. From Kano, UMZA rice has expanded its milling capacity substantially to the extent that with the recent bumper paddy harvest, the company today takes delivery of over 100 trucks of paddy rice daily. 

Clearly, the reliance on imported items had led to a huge demand of forex and significant depreciation of the naira through the years. The country’s external reserves, which have been used to defend the naira from spiralling out of control, had also been under pressure as a result of the country’s huge import bills.

Besides negatively impacting the country’s exchange rate and external reserves level, excessive importation had led to a near decimation of the country’s manufacturing industry. The comatose state of manufacturing was reflected in the country’s high unemployment and underemployment numbers.

In order to curtail Nigeria’s reliance on imports as well as reduce the deleterious effects of excessive importation, the CBN has continued to stress the need  to pursue import-substitution strategy that on the one hand, limits access to forex, which then makes it difficult to import, and on the other hand, supports the country’s manufacturing sector.

According to analysts at Financial Derivatives Company Limited, import-substitution has many benefits, including improved employment and forex preservation.


The Unilever Story 

As part of the gains of the CBN foreign exchange restriction policy, Unilever Nigeria last week inaugurated its new Blue Band Factory in Agbara, Ogun State. The establishment of the factory was fallout of the policy that restricted 41 items from accessing FX from the interbank market.

CBN Governor, Mr. Godwin Emefiele, who inaugurated the new factory, stressed the need for the country to focus on job creation to cater for Nigeria’s rising population and create job opportunities for the country’s youth. He also emphasised on the need for private sector support, saying government alone cannot create jobs.

Emefiele recalled how Unilever was encouraged to establish the Blue Band margarine factory after it was faced with the ban on the 41 items that included margarine.

“I must thank Unilever for doing what they have done today,” Emefiele said. “The restriction of FX for the 41 items came on board about two years ago. At that time, we were criticised.”

The CBN governor recalled, “Before that time, Unilever had a factory producing Blue Band margarine. But margarine was also part of the 41 items. The managing director and the executive team of Unilever Nigeria visited me in Abuja and said they wanted us to grant them some form of forbearance.

“I said there was not going to be any forbearance and encouraged them to re-establish the factory in Nigeria, because at the time their factory had been dismantled in Nigeria and taken to another country. And he (Unilever managing director) made a promise that between 12 to 18 months the factory would be re-established in Nigeria.”

According to Emefiele, based on the promise by Unilever’s management, the CBN granted the company some form of forbearance that made it easy for them to import margarine into Nigeria for a period. He noted that the CBN kept monitoring the company to ensure that they did not renege on their promise, adding, “I must say that the managing director of Unilever is a man of his word and he kept to the promise that he was going to re-establish that factory.

“The entire essence is to say that by re-establishing that factory here in Nigeria, he is creating direct jobs for Nigerians in this factory and creating indirect jobs for Nigerians by virtue of the fact that he will buy palm oil, which is the key ingredient that he uses in producing margarine.”

He expressed the readiness of the apex bank to support any firm that wanted to establish a factory in Nigeria.

“I keep saying we do not have the foreign exchange to allocate to import products that can be produced in Nigeria. I am happy that Unilever has proved us right that Blue Band margarine can be produced in this country,” Emefiele stated.

He added, “So far, they are doing about 10,000 metric tonnes per annum and he has promised that he is going to ramp it up to 50,000 metric tonnes. By doing so, you create jobs, which is what we are talking about. By creating jobs, you save the country FX that is needed to create jobs.”

Going down memory lane, Emefiele said when he drove past the Agbara industrial estate in Ogun State, he passed some of the companies he had visited as a young credit officer and banker, but they were all closed down.

According to Emefiele, “At that time, Unilever was producing Blue Band margarine. The company that was producing glass has shut down; also the fluorescent companies have closed down. But the promise I am making to everybody, just as I made to Unilever, is that if there is any company that wants to set up shop in any part of this country, we will do all we can to assist it.

“If you want to re-establish your factory and you need our funding assistance, count on us to support you. Like I said, creating jobs is not just the responsibility of the central bank, we need support from the private sector and that is why we are making the promise that if there is an investor that is ready, he should count on us.” 

On his part, Executive Vice President, Unilever Nigeria and Ghana, Mr. Yaw Nsarkoh, restated the commitment of the multinational to Nigeria. According to Nsarkoh, although the company has been in Nigeria for over 90 years, the past few years have been the best.

He said the new plant consumed 50 per cent energy less than the company’s previous plant, but produced a higher output.

Nsarkoh said the toughness of the circumstances his company found itself in during the forex scarcity forced its management team to be innovative and think extremely deeply about the model they were operating in Nigeria.

He also pointed out that owing to the tough times Unilever had made significant improvements in all parts of its business, including improving human capital.

Nsarkoh explained, “Although we have been in Nigeria for 94 years, we can say without fear that the past few years have been some of the best years of Unilever in Nigeria. That is why at a time when many people are having conversation about whether they should continue with Nigeria or not, we were in the forefront of investments, not just in plant or equipment, but also in many other aspects of our business in respect to people, our brands and we now employ thousands of people in our distribution chain.

“That forward thinking approach by Unilever has been rewarded by the market abundantly. The commissioning of the Blue Band factory is, therefore, an example of Unilever’s long-term approach and also our belief in a multi-stakeholder’s approach to business.

“We believe passionately that the growth journey is one that is embarked on with all departments and make sure you not only share a common vision, but also a common desire to improve the market.”

Nsarkoh, however, stressed the need to strengthen Nigeria’s industrial base to completely end the importation of certain raw materials. 

“I believe in the African opportunities, but the African economies must build competitive advantage to ensure prosperity. But to do that, you must build an economically competitive ecosystem,” he said, adding, “Unilever is an example of global business that has been successful in Nigeria.”

He urged other businesses to take advantage of the opportunities in the country. “None of these would have been possible without the help of the governor. In the context of the forex darkness period, he continued to support Unilever Nigeria. We believe that this is the beginning of great stories and not the end. We have great ambition for Nigeria,” Nsarkoh stated.