THE decision of the Central Bank of Nigeria (CBN) to restrict importers of milk from accessing foreign exchange (forex) from official market will save the country $1.5 billion yearly, a new report on the policy shift has shown.
The report by Financial Derivates Company Limited (FDC) managed by Economic Advisory Council (EAC) member, Bismarck Rewane, said the rationale behind forex restriction policy on diary products was to increase the domestic production of milk and other dairy products, thereby forcing manufacturing companies to look inwards and invest more in back- ward integration.
However, the new policy is expected to lead to immediate supply shortage of milk and dairy products while also boosting Nigeria’s foreign exchange reserves.
Also, the CBN, in its circular dated February 11, 2020 limited the importation of milk and other dairy products to just six companies- FrieslandCampina Wamco, Chi Limited, Nestle Nigeria, Promasidor and two others. These companies are mostly international companies. This decision comes roughly seven months after the CBN indicated its intention to add milk and other dairy imports to its forex restriction list.
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According to the report, the restriction to only six companies – the “select few”- is a symptom of a problem more fundamental. “This is not the first time that the government would attempt to implement import substitution measures to wean the country off its huge import dependency. Has it always worked? In some cases yes, like the rice production and other commodities under the Anchors Borrowers programme. Nonetheless, there are still major challenges the economy faces,” it said.
“The forex restriction policy will reduce the demand pressure on Nigeria’s foreign exchange earnings. Nigeria spends approximately $1.2 billion to $1.5 billion annually on milk and dairy importation, 3.21 per cent to 4.01 per cent of the current external reserves level of $37.37 billion. According to the CBN, this figure is too high especially as the country can make domestic milk production a viable economic proposition. Increased focus on domestic production will also generate more jobs,” the report said.
The gross external reserves declined steadily by 1.53 per cent to close the month at $38.01billion from $38.60billion at the end of December.
Meanwhile, there was a temporary accretion for two days; the reserves level rose slightly to $38.34 billion on January 15 from $38.31billion on January 13 before falling further. The continuous depletion of the reserves level was partly due to lower oil prices and dwindling portfolio investments.
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