10 Reasons President Buhari Should Reconsider His Directive To Stop Allocating FX For Food Imports

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Thursday, August 15 2019  12:33 PM / by Taiwo Oyedele*/ Header Image Credit: Guardian.ng


President Buhari probably means well in issuing the directive for the CBN to stop allocating fx to importers of food products. He wants Nigeria to be self sufficient in food, encourage more local food production, create employment and conserve foreign exchange reserve. Unfortunately the directive could have bigger unintended consequences:


1. Nigeria is not food sufficient, available data suggests the contrary. Stopping fx allocation to importers of foods will aggravate an already bad situation 


2. Every country imports food. Our focus should be on producing what we are best able to produce, export some and import the rest


3. The CBN is meant to be independent, it should not be told what to do by the president especially when the decision is not evidence based 


4. Restricting fx for food import will increase smuggling as importers seek to moderate their import bills by avoiding duties and port levies. This will in turn push sub-standard imported food items under the radar


5. The policy will push fx demand to the parallel market and restore multiple exchange rate margin leading to manipulation and arbitrage. This is capable of undoing the stability gains of the foreign exchange market over the past couple of years 


6. High fx rate in the alternative market will increase cost of imported foodstuffs leading to high food inflation. There will also be upward price pressures on locally manufactured products that use imported food items as inputs 


7. Less food at higher prices means more hunger especially for poor people. Hungry people are angry people, and angry people are violent people so higher risk of insecurity 


8. Increased smuggling will result in less revenue from import duties leading to higher budget deficits 


9. Self sufficiency in food production cuts across the entire value chain including logistics, transportation, storage, etc. Restricting fx without first addressing these related problems is putting the cart before the horse


10. Trying to fix all economic problems using monetary policy is like a carpenter trying to fix all broken furniture with a hammer and a nail, it doesn't always work. A holistic approach should be adopted.


*Taiwo Oyedele Is A Public Policy Analyst.


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