The decision by the Central Bank of Nigeria (CBN), to limit the importation of milk and other dairy products to just six companies will save Nigeria approximately N367 billion (N306 x $1.2bn) as the country is said to be spending about $1.2billion annually on milk and dairy importation.
The Financial Derivatives Company (FDC), which made this estimate known in its monthly Economic bulletin, released recently, stated that this amount at CBN official exchange rate is about 3.21 per cent per cent of the current external reserves level of $37.37 billion.
According to the CBN, this figure is too high, especially as the country can make domestic milk production a viable economic
proposition, adding that increased focus on domestic production will also generate more jobs.
The CBN in its circular dated February 11, 2020, limited the importation of milk and
other dairy products to just six companies – FrieslandCampina Wamco, Chi Limited,
Nestle Nigeria, Promasidor and two others. These companies are mostly international companies, but according to the apex bank, the have showed ability to tap into local milk production opportunities.
This decision came roughly seven months after the CBN indicated its intention to add
milk and other dairy imports to its forex restriction list.
According to the FDC, the rationale behind this decision is to increase the domestic production of milk and other dairy products, thereby forcing manufacturing companies to look inwards and invest more in back-ward integration.
This, it further stated, will reduce the demand pressure on Nigeria’s foreign exchange earnings.
This is not the first time that the Nigerian government would attempt to implement
import substitution measures to wean the country off its huge import dependency with some coming out successful and others not.
According to the FDC, the immediate impact could be a supply shortage of milk and
dairy products, while the good news is that these 6 companies are the market leaders and the others are fringe players. Hence, the impact on supply availability will be limited.
However, the cost of products from the “select few” may increase in the short term due to an initial shortage in supply to meet the demand pressure. Nonetheless, the firm noted that increased demand will impact favourably on the performance of these companies who will record growth in their sales revenue.
It also means that the CBN will be able to conserve its forex earnings, which will have a positive impact on the depleting external reserves.
Nigeria’s external imbalances are deteriorating faster by the minute and has been more pronounced on the external reserves level that has predominantly been on a steady descent since July, 2019, FDC observed.
“While the gross external reserves are at $37.37 billion, the net figure after discounting for the external debt of $26.94 billion is $10.43 billion; this amount is just enough for 2.60 months of import cover.
“The CBN, as a result, has had to reduce the frequency of its interventions in the forex market in a bid to shore up the
reserves and still maintain a stable exchange rate,” the stated.
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