What Import Restriction Did to Nigeria’s Economy
Yemi Cardoso, Governor of the Central Bank of Nigeria (CBN) has recently revealed the negative impacts of the immediate past administration’s import restriction on the economy.
The decision to ban the importation of some goods was to support local industry which found it much easier to transfer higher costs borne out of their respective inefficiency to customers.
According to a slew of analysts, this is just one of many failed protectionism policies that ruined Nigeria’s economic prosperity for eight years straight. Border close in 2019 triggered inflation which monetary tightening has failed to resolve. Nigeria depends largely on imports for industrial and individual survival.
In part, a poor country’s comparative cost advantage contributes to a large extent of inflation pressure facing the nation. Without an industrial policy revamp, Nigeria will continue to import, and the Naira will continue to suffer from an unhealthy inflation rate. Nigeria’s budget spending ritual would be useless unless there is a policy that drives productivity uptrend at home.
The confession of the policy maker:
“Allow me to provide further clarification on the issue of the 43 items. Firstly, it is important to note that these items were never outright banned by the government. The CBN had imposed restrictions on their access to foreign exchange in the official market.
“However, these restrictions resulted in increased demand for foreign exchange in the parallel market, leading to the depreciation of the exchange rate in that segment of the Nigerian Foreign Exchange Market (NFEM) and widening the premium between the parallel and official market.
“Studies have shown that during the period when the 43 items were restricted, there was a 51.0% increase in trade evasion by importers accessing the foreign exchange market, resulting in a revenue drop of approximately US$1.4 billion, or US$275 million annually, between 2015 and 2019. 51.
“Additionally, revenue from tariffs on goods decreased from a high of approximately US$920 million in 2011 to about US$250 million in 2017. In 2019, the actual tariff on goods stood at US$320 million, but counterfactual evidence suggests that as much as US$680 million could have been earned in the same year.
“Furthermore, evidence has shown that foreign exchange restrictions had an adverse impact on Nigerian households and contributed to inflationary pressures.
“The reduction in trade restrictions and levies on rice, sugar, and wheat by 50.0% had only a minimal impact on welfare, with a 0.8% improvement, and a mere 0.4% reduction in extreme poverty.
“Moreover, the benefits of trade gains for the general population were negligible, as the average industry in Nigeria pays 13.7% more for its inputs.
“Lastly, it is important to note that trade policy is primarily the responsibility of the fiscal authorities, and delving into such matters falls outside the purview of the CBN”, according to the speech. Naira Devaluation Deepens Economic Crisis in Nigeria
Speech by CBN Governor