CBN Promotes Myth of Import Dependence, Asks Nigerians to Consume Less of Foreign Goods
Contrary to the CBN’s claim, imports are low relative to the size of Nigeria’s economy. The country has an import to gross domestic product (GDP) ratio of 17.5% compared to Angola (25.5%), South Africa (29.4%), Rwanda (34.6%), Botswana (40.5%), Mauritius (53.6%), and Djibouti (143%).”
The Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele has claimed that the only way for the naira to catch up with major foreign currencies, as was in the past, was for Nigerians to depend less on the consumption of foreign goods.
He maintained that Nigeria must return to the “golden era age” when the country produced goods and services to grow the economy, stressing that no nation in the world depends on the consumption of foreign goods and grow its economy.
Emefiele spoke through CBN’s Assistant Director, Corporate Communication, Sam Okogbue, at a one-day North-West Zonal Stakeholders’ Interactive Enlightenment Session with the apex bank on its five-year policy thrust, in Kaduna on Saturday.
While insisting that Nigeria must learn to be a producing nation than a consuming one, he said, “What we are saying is that Nigerians should go back to production and that we should also abridge our insatiable taste for foreign goods so that we can stabilise our exchange rates.
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“Nigerians should moderate their consumption of foreign goods. If we do so, it will help the government to stabilise the economy. The more lasting sustainable measure is to produce what we eat.”
Contrary to the CBN’s claim, however, data shows that imports are low relative to the size of Nigeria’s economy. The country is not “import-dependent” and has an import to gross domestic product (GDP) ratio of 17.5%, according to World Bank data, compared to Angola (25.5%), South Africa (29.4%), Rwanda (34.6%), Botswana (40.5%), Mauritius (53.6%), and Djibouti (143%).
In reality, the central bank’s policies have enabled a minority of the population to consume imports while deterring investment in local manufacturing – many countries develop local manufacturing by making their exchange rates low and hence imports expensive.
The Exchange Rate and Nigerian Industry, a Very Misunderstood History
According to Emefiele, Nigeria must “return to the golden era age when the country produced goods and services to grow the economy”. A look at history however proves that the country never actually ‘produced’ goods.
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When oil prices were high, Nigeria spent huge foreign exchange to import a lot of foreign inputs to assembly locally with very low-value addition, that is, the net output of the manufacturing sector after adding up all outputs and subtracting intermediate inputs.
As of 2019, Nigeria’s value-added in manufacturing as a percentage of GDP was reported at 11.52%. Its highest value over the past three decades plus was 21.10% in 1983, compared to Eswatini’s 35% peak in 2007.
Nigeria has always converted vast dollar income into an array of imported goods through high exchange rates, weakening the incentives for local industries to develop domestic raw materials. So even in the 1970s when oil prices were consistently high, manufacturing was not sustainable as industry players were at the mercy of global commodity prices.
During oil price crashes, dollar inflows fall as wells the value of the local currency, which creates an economic crisis as local manufacturers cannot find dollars to import, leading to a plunge in output followed by retrenchment.
On the other hand, when countries with manufacturing bases rooted in local value chains experience a fall in the value of their currencies, there is usually a rise in exports as they become more affordable in foreign markets.
