As the celebration of Eid Mubarak ended, the Federal Government of Nigeria (FGN) decided to suggest a drastic step to encourage the consumption of locally sourced foods. This was as President Muhammed Buhari gave his opinion to the Central Bank of Nigeria, stating the need to restrict FX sales for food importation. The rationale behind the statement is that foreign reserve will be conserved, utilised strictly for diversification of the economy, and ultimately reduce dependence on food imports.
From the CBN’s perspective, if this move is considered at all, it could come across as an avenue to suppress demand for FX and take pressures off the external reserves. However, of the top ten goods imported in Nigeria as at Q1-19, Food & Agricultural items accounted for a meagre 3.6%. This puts to question if the decision was directed towards the right goods, with Pharmaceuticals (13.9%) and Oil related imports (7.6%) being a major need for FX sales. Although it is unclear for now, as to which categories of the Agricultural food chain will be impacted (raw materials or processed goods), the statement raised dust on the approach used by the FG to promote local content, as well as the questionable independence of the CBN.
In our opinion, this is a wake-up call for FMCGs to continue investing in backward integration programmes and increase the composition of locally sourced inputs in their
products. On the other hand, juxtaposing the demographics of the country which points at a sustained increase in demand for food products and relatively less developed agriculture food value chain, implementation of a policy such as this could fuel smuggling. Hence, the
need for the FGN to focus o n the task o f spearheading policies that will drive development across the agro-value chain and improve low-cost local content sourcing.
United Capital Plc Research