CBN: Forex is available for milk producers, not importers
The foreign exchange (forex) restriction on milk importation by the Central Bank of Nigeria (CBN) has been greeted with so much criticism as though the measure is intended to promote foreign business interests.
At the end of its last Monetary Policy Committee (MPC) meeting, the apex bank’s Governor, Godwin Emefiele, announced that importers of milk, a widely-consumed item, like rice, will no longer receive forex allocation from the CBN. Simply put, importers of milk, without exception, have been asked to look beyond the CBN for the forex to import the commodity. The measure did not imply that milk importation is banned as was initially perceived in some quarters.
The CBN, consistent with its avowed determination to keep the public abreast of its policies, wasted no time in clarifying the underlying principle that informed the decision. It pointed out that the bank has not banned milk importation: neither does it have the power to do so.
It said: “For the avoidance of doubt, milk importation is not banned. Indeed, the CBN has no such power. All we will do is to restrict sale of forex for the importation of milk from the foreign exchange market. “We wish to reiterate that we remain ready and able to provide the needed finance to enable investors who genuinely want to engage in milk production.”
Emefiele said arising from the success of the restriction policy which the bank placed on about 43 items earlier, it approached “some milk importers, like we did for rice, tomato and starch and asked them to take advantage of CBN’s low-interest loans to begin local milk production instead of relying endlessly on milk imports,”saying “although there have been some successful attempts at producing milk locally, the vast majority of the importers still treat this national aspiration with imperial contempt.”
Emefiele hinged the bank’s dogged determination on pursuing the various intervention policies on the need to diversify the economy and reduce, over time, Nigeria’s dependence on crude oil as the major source (over 86 per cent) of government’s revenue.
That Emefiele has not changed his narrative about his vision and commitment to pursuing these policies, nor been swayed by the powers that be, even across two regimes birthed by two ideologically different political parties, is indicative of his conviction that diversification is the way to go.
“Being an apolitical organisation, we do not wish to be dragged into politics,” he said, arguing that the focus remained ensuring forex savings, job creation and investments in the local production of milk.
The national food security implications of this can easily be imagined, particularly when it is technically and commercially possible to breed the cows that produce milk in Nigeria.
Emefiel said it was sadening that between $1.2 billion and $1.5 billion was being spent annually to import milk into the country, saying Nigeria can no longer continue to spend that much on importing milk into the country, “a product we can produce,” he added.
Emefiele said the CBN held several meetings with milk importers about three years ago, after the introduction of forex restrictions on over 40 items.
As he put it: “About three and half years ago, when the policy on restriction of forex started, we considered including milk on the list of items under restriction from forex, but we conjectured that based on sentiment some people are bound to express, that we should be very careful.
“We called on the management of the oldest milk importer into Nigeria, WAMCO into Central Bank office in Lagos. We held at least three meetings with them and we told them this would have happened but we decided not to allow it to happen, that we are trying to use the opportunity to appeal to them to do backward integration. Integrate backward and begin the process of development and produce your milk in Nigeria.”
He said he told the importers they could support the pastoralists, get them concentrated in one place instead of moving around and provide them facilities like water, hospitals, schools.” He said if milk importers had started “this journey three years ago with us, perhaps the herders farmers conflict that we see today would not have been as intense as it is this time. We would need your help at this time because we can no longer wait for you to continue to be importing this product into Nigeria because we are convinced it can be produced in Nigeria. That is our story.”
The CBN governor suggested to the milk importers that they can acquire land and begin to graze their own cows and fatten them and get the milk, and then they can also be complemented by pastoralists who own their own small holder cows under a small farming holder arrangement, they can also get milk from them.
Emefiele said it appeared the milk importers ignored the CBN’s advice, since they did nothing along the line of the bank’s advise.
He said: “Nigeria belongs to us; when we have a policy, we want people to respect the policy. The amount we spend importing milk is too high. We are saying, by doing backward integration, help us to reduce or limit herders and farmers conflict in Nigeria and we are determined to make milk production in Nigeria a viable economic proposition.
“By the time we restrict you, if you need loan to acquire land we will give you; if you need loan to grow your grass, we will give you; to produce water, we will give you loan. But that you will continue to import milk into the country, I think we are getting to the end of the road.” He stressed that the era of releasing forex for importation is coming to an end.
In his reaction, the Director-General , Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said the addition of milk to restricted items would have a negative impact on the economy that might lead to downsizing, reduction in government revenues and the manufacturing sector’s contribution to GDP.
He lamented that CBN’s decision was taken unilaterally without consultation with operators in the dairy industry, but nonetheless agreed that backward integration is the way to grow an economy.
He said MAN has always been at the forefront of resource-based industrialisation, saying that is the reason why many manufacturers are exploring local sourcing of raw materials. Ajayi-Kadir expressed fear that the measure would trigger more smuggling activities into the country.
The Lagos Chamber of Commerce and Industry (LCCI), accused the CBN of employing monetary policies to address fiscal issues. Its Chairman, Agric Sector Group, Mogaji, is of the opinion that Nigeria currently lacks the structure, infrastructure and capacity to effectively bridge the gap that would arise from the restriction.
“We do not have enough cows, grasses, vaccines and veterinary facility to make this policy work. We do not need milk to be added to the banned list especially now that the country is facing herders/farmers clash,” Mogaji said, urging government to increase the timeline for manufacturers to make appropriate preparation, especially as the country’s national dairy output was 700,000 metric tons, as against the1.3 million metric tons required.
He said the 600,000 metric tons supply gap would lead to artificial scarcity, increase cost of milk, and increase smuggling of substandard milk into the country. He said government should strengthen the capacity of manufacturers by boosting their competitiveness through infrastructural development, as well as invest in existing dairy sector.
The essence of the push by the Emefiele’s led CBN is to do exactly what Mogaji is pushing, which is to support continued growth and development of the economy.
None of these measures, however is a stand-alone policy. They are an integral part of a web, designed to leap-frog the growth of the nation’s economy and ensure its growth across all sectors, especially in the agric and manufacturing production chain. In addition, the apex bank’s initiatives are informed by the desire of its leadership to expand the productive capacity of the economy and pull it out of its unhealthy reliance on crude oil export and earnings. Emefiele said this much when he unveiled his five-year agenda.
He said: “Given Nigeria’s dependence on crude oil revenues for close to 86 per cent of our foreign exchange earnings and over 60 per cent of government expenditure, the drop-in prices led to heightened inflationary pressures, depreciation of our exchange rate, significant drop in our external reserves, and eventually, a recession set in during the second Quarter of 2016.”
He said in order to reduce reliance on the importation of items which could be produced in-country, the CBN restricted access to foreign exchange on 43 items, while deploying the intervention funds to support growth and productivity in the agricultural and manufacturing sectors.
“Furthermore, our development finance efforts were driven by the need to reduce our reliance on revenues from crude oil,” he said. Emefiele underscored the need to push for a greater diversification of the economy beacuse history was on the side of growing the non-oil sector.
He said: “At a point in our nation’s history, Nigeria survived on revenues from the non-oil sector, to the extent that we were a dominant exporter of agricultural produce into the global market. Some of these products include, cocoa, groundnuts, cotton and palm-oil. Our focus in agriculture is support the raw material needs of our industrial sector and create employment opportunities for millions of Nigerians.”
He lamented that the discovery of crude oil and the increasing reliance on crude oil revenues led to a severe downturn in the agriculture and manufacturing sectors, while also exposing our economy to the vulnerabilities that normally accompany an increased dependence on a single commodity for survival.
Emefiele said if Nigeria had “maintained its market dominance in the palm oil industry, which stood at 40 per cent in the 70s, we would be earning above $20 billion annually from cultivation and processing of palm oil today.” He said that would have provided sufficient buffer for our nation following the drop in crude oil prices.
Emefiele insisted that as fellow Nigerians, “we have a responsibility to reverse the current ugly trend where any external shock affecting oil producing countries bring us to our knees”.
Arguments of employing monetary measures to address fiscal issues, will not sway Emefiele’s resolve to push through these policies.
“We will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up our reserves, saying while the dynamics of global trade continues to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial.
“Our inability to address these challenges only served to reinforce our view that the CBN must continue to play an active role in supporting the growth of our economy, and redirect our emphasis on sectors that have the ability to support improved wealth and job creation for Nigerians such as the agricultural and manufacturing sectors,” he said.