Knocks for CBN forex policy

Businessmen have rejected the recently- announced Central Bank of Nigeria (CBN) foreign exchange (forex) policy. The Lagos Chamber of Commerce and Industry (LCCI) said the CBN approach to the management of the foreign exchange market, especially the directive on the exclusion of 41 products, was worrisome. LCCI President Remi Bello said yesterday that the directive, with its multidimensional implications, would result in major disruptions, dislocations and panic among investors. He said many of the products on the list of the 41 are intermediate goods, which are critical inputs for many manufacturing firms and other critical sectors of the economy. “This development will put several investments at risk with implications for job losses, quality of loan assets in the banking system and the welfare of citizens,” he said. He listed some of the goods as iron rods, Cold Rolled sheets, wire rods, reinforcing Bars, Polypropylene granules, glass and glass ware. Construction, real estate, fabrications, housing, etc will be adversely affected, he added. He said: “A painstaking gap analysis to determine the domestic capacity for production vis a vis the demand should have preceded the policy decision by the CBN. “The list is prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation. “This discretionary interpretation would create room for corruption.” Yusuf said the alternative forex markets or the parallel market and the Bureaux de Change (BDCs) are not deep enough to meet the demand of the essential intermediate products on the exclusion list. Bello said the exclusion of the items from the forex market is as good as import prohibition. He alleged that the policy measure would lead to the widening of exchange differentials between the interbank markets and the parallel markets. The immediate consequence, he argued would be rampant round tripping of foreign exchange, which the CBN has limited capacity to curb. The LCCI boss said the CBN approach to forex allocation “appears administrative in nature, a system prone to abuse and considerable corruption. It could only be likened to the import licensing era of the early eighties,” he said. He added that the policy has far reaching implications for investors in fabrication, construction and real estate sectors. On the way forward, Bello suggested putting the policy on hold pending a proper study of the demand and supply gaps in the various sectors affected by this policy. He urged the CBN to focus more on the market fundamentals and as much as possible allow market mechanism to drive the allocation of foreign exchange. The closer the rate is to equilibrium, the better for the economy and less disruptive for investors, he said.