Nigeria: No Forex for Textile Importers

14 March 2019

The Central Bank of Nigeria (CBN) recently stopped the sale of foreign exchange through the official window to importers of textiles and clothing materials into the country. CBN said the measure was taken in order to reposition the textile, cotton and garment industry for job creation and development of the economy. Addressing industry stakeholders in Abuja, CBN's Governor Godwin Emefiele said the measure is intended to restore the sector to its hitherto enviable position in the national economy.

Accordingly, banks and other forex dealers were prohibited from selling forex to any person seeking to import textiles and other clothing into the country. In addition to the forex ban, CBN would provide financial support at single digit interest rates to the textile sector to enable operators rejuvenate their capacities through refitting, retooling and upgrading of their factories. With these initiatives, the textiles manufacturing sector should bounce back to service domestic market and export needs.

Other areas of expected support from CBN include the provision of high yield cotton seedlings and the development of textile industrial areas where stable electricity supply would be guaranteed. In this respect, CBN is already discussing with the Kaduna and Kano state governments in order to facilitate the provision of stable electricity in such areas. Emefiele said these measures would save $4 billion annually which this country spends in importing textiles and clothing.

With respect to the huge stock of forex claimed by textile imports annually, CBN deserves commendation for this initiative of restricting access to it by textile importers. To say that this country's textile industry has been reduced to a shadow of itself is an understatement. With its first factory being the Kaduna Textile Mill established in 1956, the Nigerian textile industry had by the 1970s and 1980s ranked as the third largest in Africa. By 1987 the country had 37 textile firms operating 716,000 spindles and 17,541 looms. Between 1985 and 1991 it recorded an annual average growth rate of 67% and was employing about 25% of the work force in the country's entire industrial sector.

Its misfortune can therefore be easily appreciated by its present prostrate state as the country now depends on imports from all over the world. The only hope for its revival is the development of a fresh supply chain even as the demand and hence market for textile products in the country is ever growing. With the collapse of the local productive capacity and the absence of a viable local supply chain, the country is at the mercy of all sorts of textile stuff, including the now ubiquitous markets for old and disused, second as well as third hand clothes. In addition to economic loses, these also pose a health hazard.

Still, CBN's initiative could in the short term prove to be shocking to the textiles and garment market. The measures are expected to span the entire gamut of production activity in the textile supply chain from cotton growers to the ginneries, to the market, in a country that has developed fastidiousness for imported textile products. A wide cross section of Nigerian textile consumers has developed inelastic taste for foreign textiles and fabrics and may likely be encouraged to patronize a growing market for smuggled foreign textiles and fabrics. This is especially because it is not likely that local operators would be able to match the imported textiles in quantity and quality, at least in the short run. The most likely thing to happen will be an upsurge in smuggling of textile operators. It is important therefore for the Nigeria Customs Service to anticipate this challenge and rise up to meet it, otherwise CBN's efforts will be in vain.

The plight of the textile sector actually applies to the entire industrial sector in Nigeria. We might not be able to extend the same intervention to all of it for now, but reviving the textile sector will be a very good first step.

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