Monday, April 19, 2021  / 10:52AM / By FunshoIdowu, Proshare Research / Header Image Credit: CBN

The Central Bank of Nigeria onFriday, April 16^th, 2021, announced via its Twitter handle, that itwould no longer provide foreign currency for importers of sugar and wheat, asthe country tries to conserve national dollar reserves and promote localproduction.

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 itwould ban access to FX for dairy purchases to support local production,However, in February 2020, CBN granted import waivers to six companies whohad keyed into the Bank's backward integration program (BIP) to enhance theircapacity and improve local milk production.

Nigeria's food inflationincreased sharply to 22.95% in March. Food inflation remains the major culprit ofrising inflation, as the rise in the food index was caused by increases inprices of bread and cereals amongst other commodities. (see chart 1 below).

Chart 1: Composite Food Indexes

Source: NBS, Proshare Research

With annual imports of $337.3million in 2018, Nigeria is one of sub-Saharan Africa's largest importers ofsugar, second only to South Africa. A closer look at consumption, however,shows that of the three largest importers, Nigeria's sugar consumption percapita ranks lowest at 7 kg a year. Raw sugar is provided by imports fromcountries such as Brazil and India. According to the Nigerian Sugar DevelopmentCouncil(NSDC), Nigeria's total annual production from domestically grown rawsugar stood at 14,918 metric tonnes in 2017. This accounts for just 1% of totalproduction. Sugar is primarily grown in Northern Nigeria where the weather andsoil condition is most conducive.

For Wheat, Nigeria's trade reportshows that wheat was the country's second most imported item in the second andthird quarters of 2020.

Data from the United StatesDepartment of Agriculture shows that while Nigeria produced 60 tonnes of wheatin each of 2018, 2019, 2020, the domestic consumption of the commodity in thoseyears stood at 4,760 tonnes, 4,900 tonnes, and 4,319 tonnes respectively.

Good Policy, BadTiming

The goal of the restriction ofimporters to foreign exchange for sugar and wheat import as claimed by the CBNwas to conserve foreign reserves and encourage local production. Analysts havenoted that from a policy standpoint, these are good decisions but the timingmay be inappropriate and indeed counterproductive at a time of rising foodinflation. The policy would likely smother poor households and increase thenumber of people suffering from extreme poverty as food prices spiral further.A few analysts have recalled the French revolution when Mary Antionette wastold that people were rioting on the streets for lack of bread and sheresponded that they should eat cake. As well-intentioned as the CBN's policyappears, however,  asking poor people to pay more for food that has becomea staple part of their diet could cause foreseeable but avoidable socialdisruption.

Related News

1.     CBN'sFX Interventions; Good Cheer But How Sustainable?

2.    CBN Restricts FX ForMilk and Dairy Products Importation; Exempts Nestle and 5 Others

3.     CBN ClarifiesProposed Policy On FX Restriction to Importers Of Milk

4.     FX RestrictionOn Food Import May Raise Inflation Rate In Q4 2019

5.     FX Restrictionson Food Imports: Experts, Economists Share Their Perspective

6.     CBN To ExpandList Of FX Restrictions On Imported Items

7.     CBN PlacesAccess to FX for All Forms of Textile Materials on the FX Restriction List

8.     Emefiele ListsGains of FX Restriction on 41 Items; Outlines Projections for 2018

9.     FX FoodRestrictions: CBI Calls on CBN To Explore Broad Stakeholder Engagement

10.  CBN ProhibitsThe Registration Of Forms M For The Importation Of Fertilizers