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Stakeholders faulty CBN Forex exclusion policy on textile materials

 

By Charles Nwaoguji

Textile industry in Nigeria used  to be a large and  flourishing industry and contributed  enormously  to the  country’s employment generation,  Gross  Domestic Product  (GDP),  government revenues and non-export earnings .  Local  textiles  from  Nigeria  constituted  important  exports  to  neighbouring African countries, Europe, the Far East and U.S.

Today, the products are no longer competitive anywhere in these markets.   It is regretable  that inability of the Nigerian textile industry to take advantage of duty free exports to the U.S., encouraged by the U.S. African Growth Opportunity Act  (AGOA).

The  industry used to employ over 300,000 workers when all the textile mills in the country were functioning, but the nation got it wrong by opening the market to cheap textile materials from some foreign countries. This killed the local industry.

The recent pronouncement by the Central Bank of Nigeria (CBN) on the exclusion of all forms of textile materials from the forex market (in both official and unofficial windows) gave grave implications for businesses in the fashion, tailoring, fashion accessories and garment industry in the country.

The textile industry has been a beneficiary of several fiscal incentives and protectionist measures over the years, yet it has remained in stagnation.  Some of them have even gone into receivership as they could not repay their loans.  The lesson is that we should deal with the fundamental issues of production competitiveness in our economy.  The textile industry needs to be saved from the excruciating burden of high operating and production cost.

In a chat with Daily Sun, the Director General Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf says that sector is estimated at N5 trillion, creating about 500,000 jobs.

Yusuf noted that the industry provides significant value addition to fabrics, whether imported or domestically produced, adding that the policy contemplation of the CBN will put all of these at risk.

“Trading in textiles is also a major economic activity in the country, both in the northern and southern part of the country.  It is a market that responds to changing tastes and fashion trends in the country and beyond.  Hundreds of thousands of women and men make a living in the marketing of textiles.  The policy makers cannot afford to ignore this segment of economic players.  The traders are the bridge between the producers and the consumers.  It is therefore very important for policy makers take into account the full ramifications of the consequences of policies and collateral outcomes,” he explained.

He pointed out that today Nigeria is clearly the leader in Africa as far as the fashion industry is concerned.

The DG stated that currently the range of fabrics produced by the Nigerian textile industry cannot support the fashion industry in terms of the quantity and quality.

He said that this vibrant industry should not be sacrificed on the altar of textile industry regeneration.

According to him, this submission is not to diminish the importance of textile industries in any way or the significance of industrialization.  It is to underscore the importance of a strategic approach to industrialization.

He stated that the starting point is to strengthen the capacity of domestic industries, enhance their competitiveness, and reduce their import dependence as espoused in the Nigeria Industrial Revolution Plan (NIRP).

More importantly the power issue needs to be addressed.  It is almost impossible to achieve rapid industrialization without resolving the issue power and the deficit in key infrastructures. The  textile production is energy intensive.  For him, this is a high energy cost environment and it is very difficult for any energy intensive sector to survive.

Made –in – Nigeria Products

Meanwhile, and in the spirit of the executive order of the President, all uniforms of military and paramilitary institutions should be made from Nigeria produced textiles.

If the government is serious about encouraging Nigeria –made- goods, then its needs to encourage the military and paramilitary to get their uniforms locally. They should stop importing their uniforms from aboard.

Supplying of power

More importantly the power issue needs to be addressed.  It is almost impossible to achieve rapid industrialization without resolving the issue power and the deficit in key infrastructures.   Textile production is energy intensive.  This is a high energy cost environment and it is very difficult for any energy intensive sector to survive.

Incentives in textile industry

The textile industry has been a beneficiary of several fiscal incentives and protectionist measures over the years, yet it has remained in stagnation.  Some of them have even gone into receivership as they could not repay their loans.  The lesson is that we should deal with the fundamental issues of production competitiveness in our economy.  The textile industry needs to be saved from the excruciating burden of high operating and production cost.  Meanwhile, and in the spirit of the executive order of the President, all uniforms of military and paramilitary institutions should be made from Nigeria produced textiles.  This is a low hanging fruit that could be explored while the issue of high production cost is being addressed.

Compelling the citizens to pay exorbitantly for systemic inefficiency is not an appropriate policy option.  Such disposition imposes high welfare cost on the citizens, promotes unethical practices in the economy, promotes the growth of underground economy, leads to loss of revenue to government, and results in job losses.  It is an economic management model that is repressive and not sustainable.

The key to sustainable industrialization is to focus on competitiveness, anchored on resource-based industrialization.   Robust incentives and concessions should be made available to our industrialists. The move to create special economic zones in the six geopolitical zones in the country is a step in the right direction.  The bank of Industry has also done a great deal to provide funding for industries, textiles inclusive.  But we need to deal with the fundamentals.

In the meantime, as we progress to the next level of the Buhari administration, policy coordination and collaboration among the economic ministries and agencies is imperative.  There should be collaboration and coordination between the CBN, the Finance Ministry, Budget and Planning and Trade and Investment on trade policy issues.  The boundaries of monetary policy need to be properly defined.  Exclusion of sectors from the forex market is not a monetary policy issue.  It is trade policy matter.

Tariff regime policy

Monetary policy is about managing liquidity [or money supply] to influence the direction of credit, exchange rate and inflation. Trade policy formulation is not within the remit of the CBN.  It is an inter-ministerial responsibility involving the Finance, Budget and Planning, Industry, Trade and Investment Ministries. The fiscal policy document clearly outlines import and export prohibition lists.  The tariff book also defines the various tariff measures applicable across sectors and range of products with relevant HS codes.  An import adjustment tax is imposed on selected products to protect local industries. The tariff regime typically has a life span of seven years to ensure stability and consistency.  The private sector would like to see minimum policy shocks as the administration steps into the next level.

 

 

 

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