Tag: Forex scarcity

The lingering forex crisis has continued to have adverse effects on the value of the naira. Worried by this development, a forum in Lagos recently, gave useful suggestions on how best to address the unprecedented fall of the naira, reports Ibrahim Apekhade Yusuf 

To say the naira is no longer worth the paper in which it’s been printed upon, is simply stating the obvious.  What is also true is that the run on the naira is partly due to the regulatory headwinds which have put the local currency at the mercy of the market forces, a development, many economic and financial watchers have argued, does not bode well for the health and stability of the legal tender.

Genesis of the forex crisis

With the benefit of hindsight, the view of analysts is that the policy pronouncement by the apex regulatory authority in the banking subsector, Central Bank of Nigeria (CBN), which excluded 41items from accessing forex led to the spiking of the local currency against the greenback.

Lamentably so, the CBN forex embargo on the importation of some commodities which could be produced within Nigeria, meant that importers of these items including: rice, cement, palm kernel/palm oil products/vegetables oils, meat and processed meat products, vegetables and processed vegetable products, poultry chicken, eggs, turkey, Indian incense, tinned fish in sauce(Geisha)/sardines, cold rolled steel sheets, kitchen utensils, tableware, tiles-vitrified and ceramic, textiles, woven fabrics, clothes, plastic and rubber products, polypropylene granules, cellophane wrappers, soap and cosmetics tomatoes/tomato pastes, to mention just a few, are no longer qualified to get foreign exchange from the CBN or go to the official market. To buy these items from overseas, they must resort to Bureau de Change, a development, which led to what has been largely denounced as unprecedented speculation of the naira beyond unimaginable limits in the history of the country.

Rippled adverse effects of forex scarcity

The implication is that with the inability of most manufacturers to source forex at the official exchange rate, most businesses have been incapacitated with many cutting off their production lines, downsizing and scaling down substantially, while the few ones who have managed to stay afloat do so at enormously great cost.

Roundtable discussion to tackle forex crisis

Interestingly, a roundtable discussion on how to tackle the protracted foreign exchange crisis formed the subject-matter of a forum organised by the Nigeria Economic Summit Group (NESG) in partnership with the British High Commission and DFID Nigeria’s Policy Development Facility.

The event, which held in Lagos, had in attendance stakeholders in the private sector, renowned economists, policy formulators, representatives of the Lagos Chamber of Commerce and Industry (LCCI), Small and Medium Scale Entrepreneurs Association of Nigeria (SMEDAN), government representatives and top officials of the CBN.

The interface and discussion session comes nearly six months after the CBN announced (in May 2016) that it would be abandoning the official exchange rate of $1/N199, for a freer, market-determined exchange rate (the parallel market had valued the naira at between N305–N380).

Firing the first salvo, Dr Ayo Teriba, an economist, who sits atop as the CEO of Economic Associates, said there was need for the Federal Government to put in place intervention programmes and social security schemes for the poor during the recession.

Raising some posers, one of the panelists said it was very expedient to know whose interest a strong currency will serve as well as the possible impact on the economy.

On his part, Bismarck Rewane, CEO, Financial Derivatives Ltd, sought for a transparent monetary policy regime from the CBN and Federal Government.

It is the view of Rewane that the liquidity crisis in the country is been exacerbated by the CBN’s policy choice.

Lamenting the parlous state of the economy, Rewane said, the parallel market rate was N395/dollar until nine banks were shot out from the forex market. “Until recently, the CBN accounted for over 90% of the forex market whereas they used to provide just 40% in the past.”

Government, he said, has to initiate and sustain a good policy just as he urged the CBN to as a matter of urgency consider granting concessions to the exporters to have access to their proceeds, even if it’s a certain percentage.

While commenting on the forex crisis, Emmanuel Ukeje, Special Adviser to the CBN Governor Godwin Emefiele, said it is an illusion to want to stop speculation on the currency because it’s the same everywhere and Nigeria cannot be an exception.

“There is no country that runs a completely free market economy.”

According to Dr. Eniola Ajayi, a representative of SMEDAN, corruption is at the centre of the crisis as to why the value of the naira has remained low.

For Muda Yusuf, the LCCI boss, the forex crisis is not a bad idea after all because “Entrepreneurs respond to opportunities when you have a weak currency. It offers a lot of benefits.”

In the view of Nneka Okekearu, Deputy Director, Enterprise Development Centre (EDC) of the Pan Atlantic University, restrictions on forex is sustaining the parallel market and the major challenge actually for the government is that of supply- which currently is outside its control.

Fielding questions from journalists, Mr. Olusegun Awolowo, Executive Secretary/CEO, Nigeria Export Promotion Council (NEPC), while lauding the organisers of the forum, said the interface and discussion session was really timely.

“One thing I think we have not emphasised on is the fact that we talk about importing too much, I brought out some data earlier on. China, America and Germany, in fact a lot of the developing nations apart from China most of them import more than they export. So it is not the import/export ratio that is the problem, it’s along what value chain are we importing and exporting. So we are exporting raw materials and importing processed goods. And the China for example are exporting processed goods and importing raw materials, now when you import processed goods, you are ruining your GDP, you are destroying job’s and destroying consumer income. And that is something we haven’t discussed along the line of market efficiency, and it’s not just about the FX. The FX is good and every country needs FX. But the question is, are we optimising our production capacity?”

“It would be recalled that the National Bureau of Statistics said our production capacity is somewhere around 40% and I think that is even exaggerated. We are importing what I call wasted goods, what we can actually produce here locally. In 2014, 30% of our imports were foods and fuel.

“With 30% we can process crude oil, we can grow food. But we have not talked about reducing the imports of the things we imported in 2013. We imported a 150 million units of toothbrushes from China. So when you look at some of these things, there are a lot of things we are importing, like I said 30% of our imports are fuel and food. Look at the 41 banned items, we try to control it under monetary policy instead of fiscal policy, that I think was a fundamental error. But unfortunately the CBN did what it thought was the best thing at the time.”

In the view of Laoye Jaiyeola, DG of NESG, “Foreign investors are not interested in the things you are planning if there is not a concrete base and that concrete base is data. For example, if you tell the whole world you are going to create a sinking fund, and that every foreign investment is going to be registered digitally to create a sinking fund to ensure that on your exit there will be dollars. If you do that and gather the data, you don’t need to ask foreign investors to come in, they will see your plan, they can quantify the risk and take it.”