As cost of imported goods and services rise over persistent forex scarcity, manufacturers and consumers are reviewing import and purchasing options.
Many manufacturers are resorting to homegrown substitutes for imported raw materials to keep product cost within the reach of consumers.
With inflation at 25.8 per cent in August, additional cost from forex scarcity are becoming too much burden for consumers to bear.
The Central Bank of Nigeria (CBN) economic data showed that Nigeria spends average of $4 billion monthly on importation of raw materials and machineries, manufactured products, minerals, food products, oil, transport, among others, majority of which can be produced locally.
At the Ladipo Market, in Lagos, motorists now buy locally fabricated vehicle shock absorbers, brake pads, and even engine oil as prices of imported versions go out of reach.
Managing Director, Bendock Limited, Steven Kalu, said demand for foreign goods have dropped as prices soared with many Nigerians looking inwards for the closest substitutes of products and services.
He said: “The naira exchange rate at the parallel market is now N1007/$1. With that, goods and services linked to the dollar are becoming unaffordable for anyone with a legitimate cause. Importers have run out of options even as consumers now prefer local substitutes at lower cost.”
Analysts at Afrinvest West Africa, said naira will continue trading within a similar range across market segments, as the foreign exchange imbalance persists due to weakened forex reserves and sustained high demand in the parallel market.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said dollar scarcity has created stronger incentives for manufacturers and importers to look inwards now than ever before.
He said it was becoming increasingly very, very difficult to import things whether products or services.
“So, if we are talking about a silver lining in this current foreign exchange crisis, that is the silver lining. This is a challenge to our entrepreneurs, to work more in the direction of import substitution. We need to be a lot more creative and embrace import substitution across all sectors. Wherever we can substitute import, we should do that,” he said.
Yusuf called on research institutes to rise up to the occasion and government roll out policies, to support those initiatives.
He said: “Both medical tourism and schooling abroad, is changing. People are now looking inwards, and looking at schools and medical institutions with capacity, domestically, and a good number of them are coming up now. We need to localise these services.”
Continuing, Yusuf said: “It is a good incentive to look inwards, and government should support companies that are looking inwards to support import substitution. Our research institutes should also look into the situation and develop local substitutes for imported goods and services. That is better than looking at ongoing exchange rate crisis, while we try to solve bigger macroeconomic issues.”
Yusuf said that developing the non-oil export sector is absolutely an imperative, given that this holds vast potential for generating a significant amount of foreign exchange earnings.
An economist and Managing Director, Financial Derivatives company Limited, Bismark Rewane, explained why the naira’s fortune has continued to decline and dollar inflows on decline.
“As oil prices dipped, dollar inflows have also dropped. The CBN has prioritised stability of exchange rate in the official market. It has drawn an exclusion list of avoidable imports from being funded in the official market. With the forex demand for the items transferred to the parallel market, rates in that market have soared,” he said.
Nigeria operates a managed float exchange rate regime, and should support the development of homegrown solutions to fix its exchange rate challenges.
While the CBN is working on achieving price rate stability, something should be done to address the rising dollar demand and ensure that those things can be produced locally, are not imported.
This will reduce demand for foreign exchange, and that will ensure that prices do not rise beyond expectations of Nigerians.
