President Muhammadu Buhari has asked the Central Bank of Nigeria to stop providing funds for food imports. It follows July’s announcement that the bank would ban access to foreign exchange for the importation of milk and is part of a wider trend that has major ramifications for FMCG companies.
A key plank of Buhari’s economic growth programme is to diversify Nigeria’s economy, reduce its dependence on oil and stimulate local manufacturing, food processing and agriculture. In 2015, the Central Bank of Nigeria banned access to foreign currency for 41 items it said could be manufactured in Nigeria, including rice and poultry.
Now, the Nigerian president has taken a more hardline stance:
“Don’t give a cent to anybody to import food into the country.”
According to Nigeria’s National Bureau of Statistics, imports of agricultural products were valued at about ₦236bn ($640m) in Q1 2019.
It isn’t clear how a proposed ban on fx use to import food tallies with Nigeria’s commitments to tariff-free trading as part of the African Continental Free Trade Agreement (AfCFTA) it signed in July. Nor is it clear whether Nigerian farmers, food manufacturers and processors are able to get anything like close to meeting rising demand.
More likely, if the ban does come into place, the net result will be an increase in smuggling via Benin and mislabelling of products, as has happened with rice.
Even so, we believe the announcement has major ramifications for FMCG manufacturers. The Nigerian government approach is driven by its knowledge that Africa’s largest market continues to hold appeal for FMCG companies. Already, in a bid to cut the financial impact of currency devaluation, manufacturers such as Guinness Nigeria (Diageo) and Cadbury’s Nigeria (Mondelēz ) have sought to reshape their supply chains and, if necessary, innovate with new products to include more locally sourced raw materials.
We think an fx ban on food imports is unworkable. Nigeria simply doesn’t have the capacity domestically, and even if it did the result would drive up food prices to unsustainable levels in the short term. But combined with a protectionist tariff regime that appears to be crafted around the investment priorities of local businesses such as Dangote Group, it potentially adds an incentive for foreign investment in local manufacturing. But the problem is that large FMCG manufacturers like P&G keep having problems with factories that are costly, inefficient and serving demand that is too volatile.
Update: The Central Bank of Nigeria (CBN) has issued a new directive to commercial banks to stop providing loan facilities to milk importers in the country. This means that milk imports will no longer be eligible under payment terms known as “bills for collection”. These permit an importer to buy on credit. The move means milk importers would need to fund their naira accounts and open letters of credit.
