The Central Bank of Nigeria (CBN) is considering halting the sale of dollars for imported goods that are already manufactured in the country as it seeks to reduce pressure on the naira hit by a drop in oil prices.
“The only thing that will reduce pressure on our currency is by producing those things we are importing today,” CBN Governor Godwin Emefiele was quoted by Bloomberg during an interactive session with the private sector on Tuesday in Lagos.
“We will try as much as possible not to hurt your business, but we need to be able to work together,” he added.
Africa’s largest economy is struggling to deal with a decline in crude prices near the lowest in six years, sales of which bring in more than two-thirds of government revenue.
The central bank devalued the naira in November and raised the benchmark interest rate to a record 13 per cent.
The central bank that month also banned the use of dollars purchased at its twice-weekly auctions for the importation of items including electronics, telecommunication equipment and generators.
The regulator “will meet legitimate demand, but we will not be concerned about illegitimate demand,” Emefiele said. If the central bank allowed the naira to trade more freely (free float) then “it will lead to a major depreciation” as Nigeria is not yet an export-driven economy, he said.
According to Emefiele, the speculative demand for the greenback observed in the foreign exchange market may compel the central bank to stop allocating dollars for the importation of certain category of items, such as rice, that can be produced in the country.
“We are not going to ban the importation of rice, but we are going to say we would no longer provide foreign exchange if you want to import rice into this country. If you want to use your dollars that you got from somewhere else to import rice, no problem!
“But with the way we are going, we would not allocate foreign exchange for you to import rice. The same way we would graduate it to other products.
“We have seen the pressure in the forex market arising mostly for the lopsided dependent on imports. Today in Nigeria, toothpick, tomato paste, furniture, rice, sugar, fish, petroleum products are all being imported into Nigeria.
“Perhaps, I want all of us to know that if we import one cent worth of toothpick, it impacts on the external reserves. So why should we be seen to be importing items that can be produced locally?
“I must give credit to the cement industry. The lesson from that sector is that if we are committed to a course, we can improve our economy. Some years ago, we were importing cement and on the list of items of import in Nigeria, cement used to rank among the highest.
“But today, we are not only producing cement for our local production, we have started to export cement and Alhaji Aliko Dangote is at the forefront of that.
“So what I am saying is that it is not rocket science to start producing locally! Take something as simple as fish, what does it take to develop the aquaculture? Can you imagine the kind of output and improvement in gross domestic product (GDP) that will be recorded as a result of such an effort.
“I am saying if we can do it in cement, what is the difficulty in producing fish locally? What does it take to grow rice locally?” he asked.
The naira has slumped 16 per cent against the dollar on the interbank market in the past six months, the most among 24 African countries tracked by Bloomberg. It traded at N192.45 at of 12.43 pm yesterday in Lagos, its lowest on record.
Emefiele, however, reiterated that the central bank has no plans to further devalue the currency.
“We will continue to take all measures to defend the currency at the current exchange rate,” he said in an interview with Bloomberg TV Africa.
The governor also told the conference that the central bank had intensified its vigilance on the foreign exchange market in order to curb speculation and also to determine when to intervene.
Emefiele further advised foreign banks not to shut down their credit lines to Nigerian banks, even as he maintained that the Nigerian market was liquid, assuring his audience that the CBN would continue to meet all legitimate dollar demands.
“Renewing your trade lines is normal. There is no need for the correspondent banks not to renew the credit line. If they don’t do so, it creates panic. Deutsche Bank, Stanbic, Standard Chartered Bank, Citi, please tell your people abroad to renew your lines and let’s continue to do business,” he told representatives of the international banks present at the meeting.
The CBN governor also urged investors not to panic as a result of the volatility in the foreign exchange market due to the drop in oil prices, “We have $34 billion in reserves, and in the year 2000, we had about $10 billion in reserves, and we survived. Yes, I know economic activities have improved, but all I am saying is that $34 billion can support this economy.
“There is no need for anybody to panic and there is no need for you to be nervous. I appeal with those of us that are speculating on the currency to please stop. You will lose money and I can assure you about that,” he said.