Central Bank of Nigeria
The decision by the CBN to restrict 41 items including triple concentrate tomato paste, has generated a debate with many experts calling on the central bank to rescind the decision, Raheem Akingbolu reports
In a bid to defend the naira and salvage Nigeria’s dwindling foreign exchange earnings, the Central Bank of Nigeria had earlier in 2015, restricted 41 items including triple concentrate tomato paste from accessing foreign exchange from its official window.
According to a report in a national newspaper, not THISDAY, on September 10, 2015, the apex bank had explained that the move became necessary to “encourage local production of these items.” The implementation of the policy, according to the report, “will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”
As part of a plan to conserve dwindling foreign exchange reserves, CBN stopped the use of foreign exchange from the local market for importers seeking to purchase certain goods, including ‘raw materials’ such as triple concentrate tomato paste. The Government through the policy intends to encourage manufacturers to develop a local supply chain. Meanwhile, as at the time of writing this, record shows that triple concentrate tomato paste imports are estimated to be in range of USD50 million per annum.
Looking at the government policy, the federal government may have to do more to convince Nigerians and key stakeholders that its economic policies are not crafted to sink the country’s manufacturing sector as not all stakeholders appear to be on the same page with the government as far as this is concerned. Many observers believe that there are more negatives than positives. If we look at the outcomes we have had in the past months, they are quite drastic on the negative side. Gross Domestic Product (GDP) is declining; underemployment and unemployment are on the increase, the general level of economic activities is getting weaker by the day and also the capital market is quite unstable. Considering the position the nation was able to attain after the elections, there came a heightened level of goodwill from both the local and international arena which we had all the opportunity to tap into. Unfortunately, foreign investment has stayed flat from the level it was last year.
Import prohibition
In using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry. Against these postulated positive outcomes must be set several possible negative consequences of import prohibition, including raising the domestic prices of CBN restricted products, disrupting other sectors which use the CBN restricted products as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.
Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import restrictions. In any case, it seems clear that protection of domestic producers is the real force behind the use of this policy instrument. But there is little evidence that it has produced the desired result here either. For instance, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria does not support the view that the level of capacity utilisation was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.
There appears to be recognition both within government and among producers that the CBN led import restriction policy is rendered virtually impotent by large-scale smuggling and that this has continued in spite of stiff penalties imposed on those involved with the importation, transportation, storage, display or sale of prohibited items. This recognition has not, however, led to the abandonment of the policy; rather, pressure has mounted to enhance its stricter implementation.
For example, the tomato paste Industry has a total market of 150,000 MT of tomato paste per annum (GTIS 2014) as triple concentrate is not produced in Nigeria, these have to be imported as raw materials to meet the market demand.
Data analysis
Presently, the total value of this imported tomato paste is 170 million USD. Out of this, the imported triple concentrate of Tomato paste which is used as raw material by the packers is around 50 million USD (as per Industry source); as there are no company as of now producing triple concentrate in the country. Hence this raw material is not available at all in Nigeria and there is a huge vacuum of 150, 000 MT which will take years to fill in a progressive and sustainable manner.
The consumption of Tomato paste in Nigeria is huge and Nigerians love tomatoes! Fresh tomatoes and tomato paste form a major component in almost every Nigerian dish - from delicious red stew to spicy jollof rice and spaghetti. Majority of the farmers in Nigeria specialised in the plantation of fresh pepper; tomatoes etc face a tough time nurturing & growing this farm produce to a ready-for-consumption stage. However, the effort to effectively preserve the harvests while preventing colossal wastage in the absence of the triple concentrate Tomato paste poses a serious economic challenge never to be ignored. It is important to realise that this is an area where Nigeria has little or no strength in preservation of tomato without the use of concentrate.
As enormously blessed as the country Nigeria in the area of adequate fertile land bringing forth healthy agricultural produce; however, there still lies a huge gap in the area of processing the fresh produce into a finished product to meet the culinary needs of the end consumers. A typical example in the tomato paste industry is the unavailability of the triple concentrate tomato paste in Nigeria, which is the major composition essential in the production of a tomato paste asides the use of fresh tomatoes which can easily sourced locally.
As a result of the unavailability of this major component (triple concentrate Tomato paste), manufacturers are left with no other choice than resorting to importation in order to fill the gap.
Experts’ views
Presenting an impact assessment report on CBN forex policies, LCCI President, Remi Bello, noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss. According to him, the policy has negatively affected the financial services sector, manufacturing sector, tyre and rubber industry, pharmaceutical sector, the free trade zones, and furniture and foam manufacturers, among others.
Since the announcement of the new policy, a few have wondered why triple concentrate tomato paste was included in the list while many commentators have also passionately intoned on why the country continues to import concentrate when our vast quantities of tomato produced by our hardworking farmers across the belts of the country are being wasted or simply ignored.
Nigerian farmers are believed to be working hard to meet up the consumption and raw material demands of tomatoes but the major issue is the fresh tomato yield in Nigeria. The yield presently is about 5.7 MT/Hectare which is too low compared to China’s 51 MT/Hectare and USA’s 80 MT/Hectare. It is pertinent to note that because of increased costs of farmer, primarily driven by low yields, costs of fresh tomatoes remain high as farmers expect better returns because of inefficiency in the farming process. This is going to remain the biggest challenge for any out-growers scheme even in a normal scenario. Just imagine how much increased pressure will come when there are restrictions for tomato paste in Nigeria. The shortage will increase market prices for fresh, creating further gap and upward pressure on out growers selling price. Ultimately consumers will suffer and inflation will go up.
According to the President of Lagos Chambers of Commerce and Industry (LCCI), Bello, expressed concern that many of the products on the list of the 41 products are intermediate goods for example triple Concentrate tomato paste which is a critical input for tomato manufacturing firms as well as other raw materials critical for other sectors of the economy.
For importers of some raw materials needed for the production of some of the prohibited commodities, the apex bank’s decision is believed to be prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.
Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the country’s industrial image.
For now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. There should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term. This shall motivate serious and organized manufactures who have got impacted by CBN policy to survive and create more employment in times to come. Government should let tomato paste manufacturers to survive and bring about fiscal changes to motivate the industry to participate in backward industry in a structured manner.
During a recent interactive session with the media, Director, African Department of International Monetary Fund, (IMF), Ms Antoinette Sayer, advised the country to consider all factors before ratifying the issue.
She said: “The central bank has introduced administrative measures that limit access to foreign exchange and ban certain imports as a way of restricting the demand for foreign exchange. Those are measures that are quite detrimental, we think. It has certainly led to a lot of unhappiness in the private sector, as far as we’ve been aware, and understands that private investors see this as very detrimental to their economic activities.
“It is not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust. Forex is required for the enhancement of the nation's capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country,” she said.
To this end, many experts believe that for now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. They observe that there should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term. When this is done, it is believed that it shall motivate serious and organised manufacturers who have got impacted by CBN policy to survive and create more employment in times to come.
The decision by the CBN to restrict 41 items including triple concentrate tomato paste, has generated a debate with many experts calling on the central bank to rescind the decision, Raheem Akingbolu reports
In a bid to defend the naira and salvage Nigeria’s dwindling foreign exchange earnings, the Central Bank of Nigeria had earlier in 2015, restricted 41 items including triple concentrate tomato paste from accessing foreign exchange from its official window.
According to a report in a national newspaper, not THISDAY, on September 10, 2015, the apex bank had explained that the move became necessary to “encourage local production of these items.” The implementation of the policy, according to the report, “will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”
As part of a plan to conserve dwindling foreign exchange reserves, CBN stopped the use of foreign exchange from the local market for importers seeking to purchase certain goods, including ‘raw materials’ such as triple concentrate tomato paste. The Government through the policy intends to encourage manufacturers to develop a local supply chain. Meanwhile, as at the time of writing this, record shows that triple concentrate tomato paste imports are estimated to be in range of USD50 million per annum.
Looking at the government policy, the federal government may have to do more to convince Nigerians and key stakeholders that its economic policies are not crafted to sink the country’s manufacturing sector as not all stakeholders appear to be on the same page with the government as far as this is concerned. Many observers believe that there are more negatives than positives. If we look at the outcomes we have had in the past months, they are quite drastic on the negative side. Gross Domestic Product (GDP) is declining; underemployment and unemployment are on the increase, the general level of economic activities is getting weaker by the day and also the capital market is quite unstable. Considering the position the nation was able to attain after the elections, there came a heightened level of goodwill from both the local and international arena which we had all the opportunity to tap into. Unfortunately, foreign investment has stayed flat from the level it was last year.
Import prohibition
In using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry. Against these postulated positive outcomes must be set several possible negative consequences of import prohibition, including raising the domestic prices of CBN restricted products, disrupting other sectors which use the CBN restricted products as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.
Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import restrictions. In any case, it seems clear that protection of domestic producers is the real force behind the use of this policy instrument. But there is little evidence that it has produced the desired result here either. For instance, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria does not support the view that the level of capacity utilisation was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.
There appears to be recognition both within government and among producers that the CBN led import restriction policy is rendered virtually impotent by large-scale smuggling and that this has continued in spite of stiff penalties imposed on those involved with the importation, transportation, storage, display or sale of prohibited items. This recognition has not, however, led to the abandonment of the policy; rather, pressure has mounted to enhance its stricter implementation.
For example, the tomato paste Industry has a total market of 150,000 MT of tomato paste per annum (GTIS 2014) as triple concentrate is not produced in Nigeria, these have to be imported as raw materials to meet the market demand.
Data analysis
Presently, the total value of this imported tomato paste is 170 million USD. Out of this, the imported triple concentrate of Tomato paste which is used as raw material by the packers is around 50 million USD (as per Industry source); as there are no company as of now producing triple concentrate in the country. Hence this raw material is not available at all in Nigeria and there is a huge vacuum of 150, 000 MT which will take years to fill in a progressive and sustainable manner.
The consumption of Tomato paste in Nigeria is huge and Nigerians love tomatoes! Fresh tomatoes and tomato paste form a major component in almost every Nigerian dish - from delicious red stew to spicy jollof rice and spaghetti. Majority of the farmers in Nigeria specialised in the plantation of fresh pepper; tomatoes etc face a tough time nurturing & growing this farm produce to a ready-for-consumption stage. However, the effort to effectively preserve the harvests while preventing colossal wastage in the absence of the triple concentrate Tomato paste poses a serious economic challenge never to be ignored. It is important to realise that this is an area where Nigeria has little or no strength in preservation of tomato without the use of concentrate.
As enormously blessed as the country Nigeria in the area of adequate fertile land bringing forth healthy agricultural produce; however, there still lies a huge gap in the area of processing the fresh produce into a finished product to meet the culinary needs of the end consumers. A typical example in the tomato paste industry is the unavailability of the triple concentrate tomato paste in Nigeria, which is the major composition essential in the production of a tomato paste asides the use of fresh tomatoes which can easily sourced locally.
As a result of the unavailability of this major component (triple concentrate Tomato paste), manufacturers are left with no other choice than resorting to importation in order to fill the gap.
Experts’ views
Presenting an impact assessment report on CBN forex policies, LCCI President, Remi Bello, noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss. According to him, the policy has negatively affected the financial services sector, manufacturing sector, tyre and rubber industry, pharmaceutical sector, the free trade zones, and furniture and foam manufacturers, among others.
Since the announcement of the new policy, a few have wondered why triple concentrate tomato paste was included in the list while many commentators have also passionately intoned on why the country continues to import concentrate when our vast quantities of tomato produced by our hardworking farmers across the belts of the country are being wasted or simply ignored.
Nigerian farmers are believed to be working hard to meet up the consumption and raw material demands of tomatoes but the major issue is the fresh tomato yield in Nigeria. The yield presently is about 5.7 MT/Hectare which is too low compared to China’s 51 MT/Hectare and USA’s 80 MT/Hectare. It is pertinent to note that because of increased costs of farmer, primarily driven by low yields, costs of fresh tomatoes remain high as farmers expect better returns because of inefficiency in the farming process. This is going to remain the biggest challenge for any out-growers scheme even in a normal scenario. Just imagine how much increased pressure will come when there are restrictions for tomato paste in Nigeria. The shortage will increase market prices for fresh, creating further gap and upward pressure on out growers selling price. Ultimately consumers will suffer and inflation will go up.
According to the President of Lagos Chambers of Commerce and Industry (LCCI), Bello, expressed concern that many of the products on the list of the 41 products are intermediate goods for example triple Concentrate tomato paste which is a critical input for tomato manufacturing firms as well as other raw materials critical for other sectors of the economy.
For importers of some raw materials needed for the production of some of the prohibited commodities, the apex bank’s decision is believed to be prone to multiple definitions and discretionary interpretations by agencies and institutions responsible for implementation.
Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the country’s industrial image.
For now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. There should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term. This shall motivate serious and organized manufactures who have got impacted by CBN policy to survive and create more employment in times to come. Government should let tomato paste manufacturers to survive and bring about fiscal changes to motivate the industry to participate in backward industry in a structured manner.
During a recent interactive session with the media, Director, African Department of International Monetary Fund, (IMF), Ms Antoinette Sayer, advised the country to consider all factors before ratifying the issue.
She said: “The central bank has introduced administrative measures that limit access to foreign exchange and ban certain imports as a way of restricting the demand for foreign exchange. Those are measures that are quite detrimental, we think. It has certainly led to a lot of unhappiness in the private sector, as far as we’ve been aware, and understands that private investors see this as very detrimental to their economic activities.
“It is not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust. Forex is required for the enhancement of the nation's capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country,” she said.
To this end, many experts believe that for now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. They observe that there should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term. When this is done, it is believed that it shall motivate serious and organised manufacturers who have got impacted by CBN policy to survive and create more employment in times to come.
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