Monday, April 19, 2021 / 10:52AM / By Funsho
Idowu, Proshare Research / Header Image Credit: CBN
The Central Bank of Nigeria on Friday, April 16th, 2021, announced via its Twitter handle, that it would no longer provide foreign currency for importers of sugar and wheat, as the country tries to conserve national dollar reserves and promote local production.
According to the CBN Governor, Godwin Emefiele, the decision of the bank to halt foreign currency for sugar, wheat imports was because the country spends $600m to $1bn importing sugar annually.
In August 2019, CBN told lenders to stop offering credit to importers of milk after saying it would ban access to FX for dairy purchases to support local production, However, in February 2020, CBN granted import waivers to six companies who had keyed into the Bank's backward integration program (BIP) to enhance their capacity and improve local milk production.
Nigeria's food inflation increased sharply to 22.95% in March. Food inflation remains the major culprit of rising inflation, as the rise in the food index was caused by increases in prices of bread and cereals amongst other commodities. (see chart 1 below).
Chart 1: Composite Food Indexes
Source: NBS, Proshare Research
With annual imports of $337.3 million in 2018, Nigeria is one of sub-Saharan Africa's largest importers of sugar, second only to South Africa. A closer look at consumption, however, shows that of the three largest importers, Nigeria's sugar consumption per capita ranks lowest at 7 kg a year. Raw sugar is provided by imports from countries such as Brazil and India. According to the Nigerian Sugar Development Council(NSDC), Nigeria's total annual production from domestically grown raw sugar stood at 14,918 metric tonnes in 2017. This accounts for just 1% of total production. Sugar is primarily grown in Northern Nigeria where the weather and soil condition is most conducive.
For Wheat, Nigeria's trade report shows that wheat was the country's second most imported item in the second and third quarters of 2020.
Data from the United States Department of Agriculture shows that while Nigeria produced 60 tonnes of wheat in each of 2018, 2019, 2020, the domestic consumption of the commodity in those years stood at 4,760 tonnes, 4,900 tonnes, and 4,319 tonnes respectively.
Good Policy, Bad Timing
The goal of the restriction of importers to foreign exchange for sugar and wheat import as claimed by the CBN was to conserve foreign reserves and encourage local production. Analysts have noted that from a policy standpoint, these are good decisions but the timing may be inappropriate and indeed counterproductive at a time of rising food inflation. The policy would likely smother poor households and increase the number of people suffering from extreme poverty as food prices spiral further. A few analysts have recalled the French revolution when Mary Antionette was told that people were rioting on the streets for lack of bread and she responded that they should eat cake. As well-intentioned as the CBN's policy appears, however, asking poor people to pay more for food that has become a staple part of their diet could cause foreseeable but avoidable social disruption.
2. CBN Restricts FX For Milk and Dairy Products Importation; Exempts Nestle and 5 Others