By Uddin Ifeanyi
OVER the last two weeks, the naira’s external price came under strong downward pressure, giving the lie to the assumption that following the ructions in the markets earlier in the year, the currency’s exchange rate had settled in the US$1:N1,500 range. Such was the intensity of the pressure that over the 24 hours to Thursday, a fortnight ago, the naira depreciated by N20 against the greenback. The Central Bank of Nigeria’s intervention to calm the foreign exchange market was, therefore, inevitable. Calmer market conditions invite enquiry as to the cause of the chaos. In conversation, last week, with a former bank treasurer, he pointed accusatory fingers at the announcement, two Mondays ago, by the Federal Government of initiatives to improve domestic food supplies as complicit in the demand pressures that built up in the foreign exchange market.
Anxious to address the hurt to the economy from implacably high food prices, the Minister of Agriculture and Food Security, Abubakar Kyari, announced on 8 July, a 150-day duty-free import window for food commodities (including maize, husked brown rice, wheat, and cowpeas). Were these commodities to be imported in sufficiently large quantities, then, the now famous “impoverished Nigerian” should see pressure on his pocket from rising food prices ease. Laudable goal. Too many unintended adverse consequences, though.
Given the country’s liking of bureaucratic solutions, businesspersons looking to take advantage of the improved environment for food imports before the 150-day zero-tariff window is battened down, again, would do well to start the process immediately after the announcement or suffer the risk of food rotting away in ships that may no longer berth at subsidised rates. The importation process would, of course, begin with sourcing funds for the imports. We all know that the official markets were barely meeting demand at previous levels, and that this new requests for foreign exchange were going to straiten supply. While these explain the demand pressure on the foreign exchange market, the bigger question is why the Federal Government opted for the combination of zero-tariffs and a soon-to-shutdown window.
At its most basic, the Federal Government’s decision – desirable, though its goals are – is an economic shock (it was not easily predicted by the markets, even though it is within the scope of normal economic transactions). As with most measures of the economy’s welfare, the naira’s fortunes two weeks ago simply reacted to this shock. Thus, we should also expect that the closure of the zero-tariff window at the end of the 150-day period, although predictable, would invite conduct by economic entities designed to leverage advantages from it, not least, by hoarding goods imported through the window in the understanding that food prices will resume their journey upwards once the window closes.
A far better boost to the economy would have been to reduce import tariffs across board. Yes, governments would suffer as the Nigeria Customs Services’ revenue from imports falls off. Farmers, already beset by sheaves of problems, including, but not limited to desertification, the increasingly internecine exchange with travelling pastoralists, and low-intensity warfare in large swathes of the north, will suffer, too. But the loss to government will be businesses and consumers’ gain. And with consumer spending accounting for over two-thirds of domestic output growth, anything that boosts consumer confidence cannot but be in the economy’s better interest. Moreover, although in an increasingly protectionist world it is ever so difficult to make the case that international trade boosts productivity all round, it is still a fact that relative to more walled-off economies, an economy with lower tariff requirements is likely to grow faster.
As for our farmers, increasingly constrained productivity levels in the agriculture sector, rather than competition from food imports is the biggest problem. A government committed to boosting productivity in the agriculture sector, should therefore look to comprehensively de-risk the sector. At the head of the current shopping list of needed reforms to the sector is the malign influence of the low-intensity wars underway in large parts of what used to be the nation’s breadbasket. Pacifying those communities in a way that allows the return by farmers to their fields would be a good place to start. However, our agriculture sector’s problems predate the spate of domestic insurgencies. Arid conditions in the north of the country, as the world gets hotter, have dried up rivers and made planting conditions well-nigh impossible in most places there. Investment in infrastructure support for the agriculture sector would include better rural roads, in aid of rapid evacuation of harvests; improved rural electricity supply, to support post-harvest processing; strengthening of markets, to enhance price signalling; and research that yields cultivars able to thrive in drier and hotter conditions.
Put differently, the “zero-for-150” policy initiative (zero-tariff on food imports for 150 days) is just another instance of government playing to a packed, albeit famished, gallery (at night) by applying light-reflecting band-aid to a cancer.
