The recent lifting of foreign exchange restrictions on 43 items by the Central Bank of Nigeria (CBN) has sparked a debate among financial experts on its expected impact on rising food inflation in the country.
The CBN imposed the restrictions in June 2015 to conserve foreign exchange reserves and promote local production of certain goods, including about 11 food items.
However, the policy has been criticized by some experts who argued that it has led to higher prices of imported food items and contributed to food inflation.
The reactions followed the rising food inflation in Nigeria which has significantly impacted the economy and the purchasing power of consumers in the country.
Food inflation: Nigeria’s inflation rate rose to 26.72% in September 2023 amid soaring food prices and harsh economic realities occasioned by the removal of fuel subsidies in May.
The Food inflation rate in September 2023 was 30.64% yearly, 7.30% points higher than the rate recorded in September 2022 (23.34%).
This has led to a decline in the purchasing power of Nigerians, particularly low-income earners, who find it difficult to afford necessities such as food, housing, and healthcare.
Some financial experts have expressed mixed feelings about the impact of the CBN’s decision on food inflation.
A financial consultant, Olatunde Amolegbe said that lifting the foreign exchange restriction placed on the importation of 43 items may not have significant effects on the rising food inflation due to high exchange rate in the country.
“We might not see a significant impact from lifting of the restriction on the items because the exchange rate is very high. I don’t know how importers would sell those foreign products profitably when they are brought into the country at the current high exchange rate.
“I think the impact of lifting the ban on the rising cost of food inflation would be muted. The exchange rate, which is a significant component of their costs, is already so high that I don’t know how they would bring it back profitably. In the medium run, the lifting of the ban would not have significant effects.”
He said, “What the CBN is trying to achieve is to harmonize all the items to determine what aggregate demands look like.
“The truth of the matter is that we have a situation where some products from the FX market cannot determine what aggregate demand. So that we don’t end up in a situation where we push them into a black market that we are not capturing.
Whatever policy the government is crafting would always fall because it is not capturing all the market participants,”
Amolegbe explained that those food items that don’t have import substitution would not be affected, but that those items that have existing local items and couldn’t come in because of the CBN ban and which consumers have already embraced the locally produced goods would struggle to regain their market.
He called on the government to address insecurity in the country which is threatening local production of foods adding that doing that would encourage local production and things would get better.
However, a financial expert, Michael Akinwale said that the lifting of the restriction would have a salutary effect on the rising food inflation notwithstanding the situation in the forex exchange market.
He noted that the domestic supply of foodstuffs has already dried up because of insecurity, adding that what is fueling food inflation is the excruciating scarcity of agricultural produce.
He noted that since security forces have been overwhelmed and cannot recover the rural economy from the strangleholds of terrorists and bandits the only alternative is for food items to be imported irrespective of exchange rate conditions to fill the supply gap.