More Import Restrictions on Food Items in Nigeria, but is the Economy Ready?

It is perhaps too early to say whether the recent widening of Nigeria’s import restrictions on food items will have the intended benefit of stimulating local agricultural production, yet precedent paints a less than optimistic picture.[1] While President Muhammadu Buhari believes in favouring Nigerian products wherever possible, the approach has been questioned, not least because of structural problems within supply chains.

Situation Report

In August, Nigeria’s central bank (CBN) said it would set foreign exchange restrictions on food imports as directed by President Muhammadu Buhari, who warned the CBN: "[not to] give a cent to anybody to import food into the country...”[2] The president’s rationale is to see “full food security” for Nigeria and conserve foreign exchange for activity that will ensure economic diversification, rather than spending it on imports of goods which can be produced locally. Already, since 2015, Nigeria has banned access to foreign exchange on imports for 41 items and this latest announcement comes two weeks after milk importers were confronted with a similar embargo. Rather than provide milk importers with lines of credit, the CBN announced that low-interest loans will be made available to milk producers instead. 

The recent prohibitions are part of a trend to curb the dollar scarcity that occurred in the country in 2015 after oil prices fell and foreign reserves declined by 20% within a year. In response, firms such as Unilever have ramped up sourcing raw materials locally.[3]

The authorities are intensifying the campaign to compel the local production of goods where “technically and commercially possible,” and some Nigerian producers are gearing up for the change. Textile importers have also been faced with prohibitions. The head of a textile manufacturing association in Lagos told us that his association is now in talks with importers who are looking to invest in producing locally, adapting to the central bank restrictions. But structural problems and poor governance keep costs high and local products uncompetitive. The textile executive said, “We sell units of certain prints for NGN4,000 when importers can sell their own brands for as low as NGN1,000. We want to be able to compete, but that’s difficult because we spend a lot generating power and transporting our goods.”

Cross-border smuggling and corruption at the ports are another headache. Manufacturers we spoke to in both Nigeria and Ghana shared with us how collusion between importers and customs officials means that importers able to bring in products and pay fees lower than what they should.[4] One senior manager of a major beverage manufacturer in Ghana shared that due to the “tax fraud by importers from Indonesia, [his company is] increasingly going outside of Ghana…this is because [the foreign importers] can afford to undercut the local players.” 

Nigeria prohibits the import of a long list of products from bags to fruit juice, but it exempts imports of the same products made in West Africa due to the ECOWAS Trade Liberalization Scheme (ETLS), which is a regional deal promoting free trade. At times, importers bring such prohibited products into the country through neighbouring countries by presenting them for ETLS status —even if the products really originated from outside of ECOWAS.[5]

In August, the Nigerian government partly closed the western border with Benin in August in order to curb food smuggling—and retail prices spiked. The price of a 1kg piece of frozen chicken rose by 50%, reminiscent of 2015 when forex restrictions were placed on rice imports, and the price of a 50kg bag of rice increased from USD24 to USD82.[6]

Now that Nigeria has become one of the last signatories of the African Continental Free Trade Agreement (AfCFTA), producers and manufacturers will be seeking to understand how to interpret these restrictions within a broader, regional narrative of integration.[7] Policymakers have not expressed how the prohibitions will affect AfCFTA. 

Outlook

The central bank and government will likely maintain current interventions and target more products for prohibition, given the central bank’s tendency to defer to the political administration. This will be backed by proposed support to manufacturers (e.g. credit). 

While that is going on, there will be some government investment in power, port and transport reform. For instance, we have observed on the ground that there is significant activity to expand rail networks. But efforts will be constrained by revenue deficits and debt commitments. Nigeria currently spends two-thirds of its revenue on repaying debts.

We also anticipate further efforts to improve monitoring and minimize corruption at the country’s entry points. However, the required political will and planning to deal with these deep-seated problems are not being demonstrated—exemplified by a 2017 executive order that ports should immediately begin operating 24 hours a day despite lacking the resources to do so. 

It is not yet clear how the import restrictions in view will affect imports from African countries under AfCFTA. Nigerian policymakers are still devising ways to effectively combine protectionism with free trade. On one hand the country wants to curtail the import of a growing list of items. On the other hand, it wants to trade in those same items with other countries in the region and on the rest of the continent. The loopholes that have consequently emerged (e.g. with ETLS) may be further exploited in form of smuggling, undermining local competitiveness. 

If you are interested in learning more about the topics discussed here, please do get in touch: questions@songhaiadvisory.com

[1]https://www.ft.com/content/e09f8c92-beac-11e9-b350-db00d509634e

[2]https://punchng.com/dont-give-a-cent-to-anybody-to-import-food-into-the-country-buhari-orders-cbn/

[3]https://guardian.ng/business-services/unilever-nigeria-intensifies-local-raw-materials-sourcing-2/

[4]https://www.bloomberg.com/news/articles/2018-11-13/bribes-beatings-and-gridlock-at-ports-choke-nigeria-s-economy

[5]https://businessandmaritimewestafrica.com/how-ecowas-trade-pact-undermines-nigerias-economy/

[6]https://www.bbc.com/news/world-africa-49367968

[7]https://punchng.com/afcfta-may-increase-nigerias-imports-by-251-report/