By Anayo Ezugwu

With the ongoing trade war between China and United States, the Central Bank of Nigeria, CBN, appears determined to protect Nigeria’s economy from being a dumping ground. To achieve that, the CBN has placed restriction on foreign exchange for importation of 41 items and other complementary policies.

Speaking at the 26th Seminar for Finance Correspondents and Business Editors, in Lokoja, Kogi State, Godwin Emefiele, the governor of CBN, said the policy was effective in bringing Nigeria’s economy out of recession in 2017. He said the policy was well thought out as it assisted greatly in boosting the country’s foreign exchange reserves, which currently stand at about $42.46 billion.

The CBN had on June 23, 2015, placed a restriction on accessing forex in the official forex market for the importation of some goods and services. The aim, it said then, was to encourage local production of the items, conserve the foreign reserves, resuscitate domestic industries and boost employment creation.

Some of the items barred from accessing forex at the official market are rice, cement, poultry, tinned fish, furniture, toothpicks, kitchen utensils, table wares, textiles, clothes, tomato pastes, soap and cosmetics. Also affected were private jets, roofing sheets, metal boxes, wire rods, steel nails, security and razor nails, ceramic tiles, glassware, cellophane, plastic and rubber products.

Emefiele, who was represented by Moses Tule, director, Monetary Policy Department, CBN, said in today’s world, countries had used trade protection repeatedly as a policy to resolve negative perceptions and shocks in their respective countries. “In other words, should Nigeria with insatiable taste for foreign goods to the detriment of the domestic economic realities (unemployment and imported inflation) throw its borders open to indiscriminate importation of goods and services?

“This was the prevailing condition in Nigeria before the introduction of restriction of official foreign exchange for the importation of 41 items. It was an eclectic policy carefully crafted with a view to reversing the multiple challenges of dwindling foreign reserves, contracting GDP-recession and an embarrassing rise in the level of unemployment confronting the economy. The implementation of the 41 items, in addition to the other complementary macroeconomic policies, no doubt, was effective in lifting the Nigerian economy out of recession.

“Given these salutary effects on the economy; it can be argued that the stance of classical economists argued that trade protectionism notwithstanding, to override the utility of selective protection in form of the 41 items to resolve the challenges facing the economy can hardly be overemphasized. Pragmatic economic nationalism therefore, would ordinarily vote in favour of protecting the domestic economy, as long as it does not infringe upon the tenets of ‘beggar-thy-neighbour’ policies,” he said.

Despite the appreciable achievements made with the CBN policies in protecting local economy, experts believe that the ongoing trade protectionism has implications on Nigerian economy. Michael Izunacho, economist, said as China and US increasingly impose new tariffs on their import commodities, exporters from the two countries will begin to think farther away from the affected countries.

He said exporters from both China and the US will look for alternative markets and Nigeria, with a population nearing 200 million people, is a perfect destination for such exports. “You saw the demand President Trump made to President Buhari the last time he visited the US. Trump wants US farmers to export raw agricultural commodities to Nigeria. That was Trump looking for an alternative export destination for US goods and China shuts its doors with tariffs,” he said.

The US total exports of agricultural products to Nigeria totalled $370 million in 2016, with wheat accounting for $265 million, corn amounting to $26 million, prepared food amounting to $23 million, condiments and sauces totalling $12 million and processed vegetables translating to $10 million. The US trade balance with Nigeria shifted from a goods trade surplus of $1.5 billion in 2015 to a goods trade deficit of $2.3 billion in 2016.

Izunacho said already China floods Nigeria with goods from the country and that its trade war with the US will likely further worsen the situation. He said: “Already, there exist trade imbalance between Nigeria and China largely due to the poor state of Nigeria’s manufacturing sector.”

Data obtained from the NBS showed that Nigeria had a trade deficit of about N6 trillion with China between 2013 and 2016. Analysis showed that out of Nigeria’s total import bill of N29.91 trillion between 2013 and 2016, China accounted for N6.41 trillion. “This is a huge gap when compared with N714.97 billion worth of goods Nigeria exported to China within the four-year period. A subtraction of Nigeria’s exports from imports from China will show a trade deficit of N5.70 trillion, in favour of China,” Izunacho said.

On his part, Muda Yusuf, the director general, the Lagos Chamber of Commerce and Industry, LCCI, said the trade war has numerous implications for the Nigerian economy, some negative and others positive. He said a trade war between these two economies is a war between two global economic giants, which is why such a war would impact the global economy negatively.

“Within the context of the African Growth and Opportunities Act, this situation presents new opportunities for Nigerian export in the United States market. It remains for us to as a country develop the capacity to take advantage of this opportunity. The current scenario would trigger migration of investment from China to countries not affected by the US import tariff hike.

“Currently, China is a major hub for export to the United States of America. With the trade war, many investors in China, whose main export market is United States may begin to seek new locations for their investments. This offers new opportunities for such countries to offer alternative destinations for such investors. However, our ability to take this advantage depends on the quality of our investment environment,” he said.

– Nov. 2, 2018 @ 15:05 GMT |