Border closure and ‘FX43’: A strategic combination

26

THE dual policies of border closure and the earlier exclusion of 43 items (FX43) from the Interbank Foreign Exchange Market by the Central Bank of Nigeria, CBN, are a strategic combination aimed at plugging leakages and helping the economy by checkmating smuggling and unbridled importation.

The strategies also seek to conserve foreign reserves and boost local production. These are necessary for food sufficiency and the long march towards the country’s industrialisation. Though some analysts have noted the down side of the policy, but the advantages are also obvious.

It is believed that whatever pain the policy will inflict on citizens in the short term will turn to gain in the long run, all things being equal. As they say: no pain, no gain. Smuggling is destructive to the economy.

It results in loss of revenue, impedes local production, competition and economic growth which in turn lead to lay-offs, bankruptcies and aggravation of poverty. Prior to the border closure, I had in an article titled, “CBN: Battling Smuggling and Economic Sabotage,” published in Vanguard newspaper of Tuesday, June 11, 2019, highlighted  the damage smuggling, especially through the Benin Republic flank inflicts on the Nigerian economy, and how CBN threatened to wage war against smugglers.

CBN had threatened to investigate the account of any company suspected to be involved in smuggling to determine their source of foreign exchange, with those found guilty being charged for money laundering. It further threatened to tag such companies illegal importers of foreign exchange into Nigeria and to write to all Nigerian banks with instruction to close all the accounts of such companies in Nigeria.

CBN had indicated that it would stop the operation of accounts of top management officials of the companies in Nigeria so that people could learn to obey and respect economic policies of the country. Furthermore, I noted that smuggling is one of the serious problems facing the Nigerian economy, and that it contributed to the country’s stunted growth.

The article also noted that the World Bank in a report had noted that N750 billion worth of different goods were smuggled into Nigeria through the Benin Republic alone each year, with uncollected taxes and customs duties which hindered economic growth. The World Bank report further noted that: “$400 million, representing 25 per cent of the total current annual revenue collected by the Customs, is lost through smuggling across borders.”

True to the report, the Customs Service, in a recent press report, collected N1.002 trillion in nine months after the border closure. Immediately after the closure, the Service reportedly collected N115.6bn in September, which was N6.1 billion more than in August before the closure. But for the border closure, the huge revenue would have leaked out of the economy. In a paper entitled: “Towards an Industrialised Economy for Sustainable Growth: A Case for Infant Industries”, the Chief Consultant B. Adedipe Associates Limited, Biodun Adedipe, had noted that “no industrialised nation ever emerged with open borders.

Each of them had protective strategies that allowed their industries mature before they were open to international competition. Let us start to actively protect infant industries, creatively deploying both tariff and non-tariff barriers.” In the 1970s America used the Import Substitution Industrialisation, ISI, policy to promote the “Buy America Campaign”.

Sri Lanka also used the ISI to improve local food production, including rice. They achieved success in several commodities, but rice was the most spectacular success and Sri Lanka has been able to feed its 21 million population with rice. Rice is one of the most imported items in Nigeria which drain foreign exchange with an import bill of $2 billion annually.

It is also the most smuggled and most consumed food in Nigeria. It is a staple food of over 70 per cent of the population as a result of which the demand is greater than supply. Rice consumption in Nigeria is estimated at 6.5 million tonnes per annum out of which about 3.7 million tonnes are produced locally. PwC had predicted that with increased mechanisation local production could increase to 7.2 million tonnes.

Adedipe Associates Limited, Biodun Adedipe, had noted that “no industrialised nation ever emerged with open borders. Each of them had protective strategies that allowed their industries mature before they were open to international competition.

Let us start to actively protect infant industries, creatively deploying both tariff and non-tariff barriers.” In the 1970s America used the Import Substitution Industrialisation, ISI, policy to promote the “Buy America Campaign”. Sri Lanka also used the ISI to improve local food production, including rice. They achieved success in several commodities, but rice was the most spectacular success and Sri Lanka has been able to feed its 21 million population with rice.

Rice is one of the most imported items in Nigeria which drain foreign exchange with an import bill of $2 billion annually. It is also the most smuggled and most consumed food in Nigeria.

It is a staple food of over 70 per cent of the population as a result of which the demand is greater than supply. Rice consumption in Nigeria is estimated at 6.5 million tonnes per annum out of which about 3.7 million tonnes are produced locally. PwC had predicted that with increased mechanisation local production could increase to 7.2 million tonnes.

Central Bank of Nigeria had initiated the Anchor Borrowers Programme, ABP, and other development finance initiatives to boost local rice production and the results are becoming glaring.

Dangote Group of Companies had inaugurated the Dangote Rice Out Growers Scheme in Goronyo Local Government Area, Sokoto. Recently, Coscharis Group of Companies launched a $35 million Rice Mill in Anambra State. The launch, which was attended by CBN Governor, Godwin Emefiele and some state governors, was for the first phase of 40,000 metric tonnes per annum.

The total capacity is 120,000 metric tonnes to be completed in 2020. The Food and Agriculture Organisation, FAO, had noted that rice generates more income for Nigerian farmers than any other cash crop.

SOURCE: VANGUARD

Leave A Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.