One outcome of the Buhari administration’s decisions to restrict access to official foreign exchange markets for imports of certain goods, is the extensive debate that these stir around the usefulness of this manoeuvre as a policy tool. With the 41 items which first came up against this restriction, the central question was around how the affected items were arrived at. Much ado was made about how the import of toothpicks betokened how unserious the Nigerian is as an end-consumer.
For milk imports, the worry was both with the facts — in marshalling its arguments for restricting domestic importers of milk products’ access to the official foreign exchange market, the central bank looks to have exaggerated the nation’s milk import bill — and with the health implications for a country with low infant mortality rates. The decision to ban food importers from sourcing hard currency at the official markets has not fared better.
The questions this admission raises are plenty. But the most immediate are by how much is each importer subsidised by government?; and why? Both these questions, incidentally, are related. But first the latter. To use up scarce government resources in aid of any economic activity, there must be clear gains to the people therefrom, especially, when a large portion of the benefits arising from the operations to which these subsidies are extended are appropriated as profit by private entities.
Without the subsidies, the prices of the products that the foreign exchange is spent on will go up. Demand will fall. Ideally, businesses should then seek more efficient ways of delivering the same goods to the markets. Or they will fail. Both a contraction in domestic demand and failed businesses doubtless hurt domestic production. But the solution is not to keep inefficient businesses running.
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