FX Restriction Places Nigeria on Low Ranking – World Bank

Nigeria ranked 97 out of 153 countries in 2023 on the Competitive Industrial Performance Index, partly because of the government’s foreign exchange (FX) access restrictions and import bans, according to the World Bank.

This was revealed in its latest Nigeria Development Update for December 2023, titled ‘Turning the corner: From reforms & renewed Hope’. The report produced biannually assesses immediate economic developments and prospects in Nigeria.

“While the FX restrictions did not explicitly prohibit importing the 43 categories of goods on the restriction list, they created a significant hurdle. Since importers could not obtain FX through official channels to cover the cost of their imports, they turned to the more expensive parallel markets and resorted to smuggling the imported products into the country,” the report said.

“Partly because of these restrictions, Nigeria ranked 97 out of 153 countries in 2023 on the Competitive Industrial Performance Index, 44 places below South Africa (ranked 53),” it stated.

On 23 June 2015, the CBN prohibited 40 items, later 43, from accessing foreign exchange in the Nigerian market, including rice, cement, etc. In a circular released by the Central Bank of Nigeria, the restrictions pushed importers into the parallel market, increasing demand for foreign exchange and prices.

Additional pressures widened the gap between the parallel market and the official rate and caused the prices of affected goods to rise. The European Union stated that the measure had significant consequences on the economy and people’s standard of living.

Economic analysts speculated that restricting foreign exchange access widened the gap between the parallel market and the investors and exporters window, and reduced the GDP.

“This gap means that investors can’t invest. They have to import capital at an official rate and are forced to operate on market conditions, which erodes their profit and investment. No investment means reduced productivity and reduced disposable income; the GDP suffers, and people’s quality of life drops,” said Fadeelah Abiru, economic analyst at Marble Capital.

The Competitive Industrial Performance Index, produced by the United Nations Industrial Development Organization, ranks about 150 countries and economies according to their performance. It comprises indicators benchmarking countries’ ability to produce and export products competitively.

The three Competitive Industrial Index dimensions are the capacity to produce and export manufactures, technological deepening and upgrading, and world impact. Nigeria dropped two places in 2023 after ranking 95 in 2021.

Experts say that foreign investors will consider other countries with a highly competitive index for their investments.

“This informs that South Africa’s competitive industrial environment allows businesses to thrive than in Nigeria, which may create sentiments for foreign investors as they consider South Africa a safer haven to allocate their resources”, Olayinka Lamidi, Researcher at African Plus Partners, said.

“Moreover, a more competitive industrial environment would create more jobs and spur innovation to drive economic growth. While this is likely to improve the country’s trade balance, it would also help the country negotiate favourable trade agreements”, he added.

The United Nations Industrial Development said that the competitiveness of the manufacturing industry is one of the basic determinants of the long-term sustainable growth of a nation and can be used as a tool to design and assess policies.

Experts remark that the industrial ranking reveals that Nigeria’s restrictions on FX were ineffective.

“For the restriction of FX to be successful, certain conditions should be in place. There was no point in it when local production wasn’t supported. Are people patronizing locally produced goods?” Agiri Ibrahim, economic expert said.

“Restricting FX without putting these measures in place is like building a house without a foundation,” he said.