In a revelation that reverberated through the financial corridors, Governor Olayemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that Nigeria incurred a staggering loss of $1.4 billion over eight years due to the CBN’s ban on 43 items.
This revelation unfolded at the 58th Annual Bankers’ Dinner, a distinguished event organized by the Chartered Institute of Bankers of Nigeria (CIBN) held in Lagos.
Governor Cardoso clarified that while these 43 items were never explicitly prohibited from importation or sale in Nigeria, the CBN had implemented restrictions on accessing foreign exchange for their importation.
The distinction between outright ban and foreign exchange restrictions is pivotal, as Cardoso emphasized that trade policy matters, specifically the importation and sale of these items, fall within the purview of fiscal authorities rather than the CBN.
This distinction is crucial as it underscores that the CBN’s decision to lift foreign exchange restrictions did not encroach upon the responsibilities of other government agencies.
The genesis of this financial saga dates back to June 2015 when the CBN published a circular listing goods and services ineligible for foreign exchange in the Nigerian market. Originally, the list comprised 41 items, but it was expanded to include two more.
However, on October 12, 2023, the CBN made a landmark announcement, lifting the ban on the issuance of foreign exchange for the importation of 43 items, including rice, vegetable oil, and poultry products.
Governor Cardoso delved into the repercussions of the foreign exchange restrictions, highlighting a significant increase in trade evasion by importers accessing the parallel market.
This surge in evasion led to a substantial depreciation of the exchange rate in the parallel market, creating a noticeable disparity between the parallel and official markets.
Studies conducted during the period of these restrictions revealed a 51.0% increase in trade evasion, resulting in an approximate annual revenue drop of $275 million, cumulatively amounting to $1.4 billion between 2015 and 2019.
The adverse impact extended beyond revenue loss, affecting tariff earnings on goods. Revenue from tariffs, which stood at approximately $920 million in 2011, dwindled to about $250 million in 2017.
Even in 2019, with tariffs reaching $320 million, counterfactual evidence suggested that as much as $680 million could have been earned in the same year.
Governor Cardoso underscored that the foreign exchange restrictions had broader ramifications, contributing to inflationary pressures and adversely affecting Nigerian households.
To contextualize the impact, he pointed out that the reduction in trade restrictions and levies on essential commodities like rice, sugar, and wheat had minimal effects on welfare, with a meager 0.8% improvement and a marginal 0.4% reduction in extreme poverty.
As the CBN aims to boost liquidity in the Nigerian foreign exchange market, Governor Cardoso assured that interventions would decrease as liquidity improves.
The complexities of these policy decisions highlight the delicate balance required to steer Nigeria’s economic ship towards stability and prosperity.
