CBN’s assurance: Mixed reactions trail rise in Naira against Dollar
…BDC Operators advocate floating of Naira
… Nigerian economy suffering lack of productive activities— Chizea .
..FG must fix structural, money, policy issues — Muda Yusuf
By Uthman Salami and Ariemu Ogaga
Following the assurance by the Central Bank of Nigeria (CBN) that it would continue to make deliberate efforts in the foreign exchange sector, there was improvement by Naira against US Dollar over the weekend.
The Naira traded for N680/$1 at the parallel market against the N710/$1 traded a day earlier, which indicated a 4.2 per cent recovery.
This is just as the Association of Bureaux De Change Operators urged the apex bank to float the Naira in order to halt further depreciation.
The Nigerian economy is chronic lack of productivity, policy inconsistencies are major issues stifling the performance of Naira against Dollar, stakeholders who spoke exclusively to Nigerian NewsDirect opined.
Recall that the Apex Bank had attributed the non-remittance of Dollars to foreign reserves by the Nigeria National Petroleum Corporation (NNPC) to free-fall of Naira in the official and parallel markets.
While assuring that it would continue to make deliberate efforts in the foreign exchange sector to avert further downward slide in the value of the Naira, CBN said the depreciation was fuelled by speculative tendencies.
Float Naira to halt further depreciation — BDC Operators to CBN
The President of ABCON, Alhaji Aminu Gwadabe said the Central Bank should abolish the official exchange rate to stem free-fall of the currency at the exchange market.
Gwadabe said that the CBN should do all within its powers to undertake a sustained injection of Dollars in the market to reverse the loss in the value of the naira at the parallel market.
“It might sound counterintuitive but the way out of the current frenzy is to abolish the official fixed exchange rate and allow the Naira to float.
“CBN should contemporaneously undertake a large-scale dollar intervention in the open market that can inspire confidence in the Naira and checkmate the current tailspin.
“Once there is a significant positive movement, the market will react and, in all probability, spur an avalanche of panic selling and further buoy the Naira,” Gwadabe said.
The financial expert said that the CBN could gradually buy back the Dollars used in its intervention from the open market at a lower exchange rate for a decent profit.
He argued that the next phase would be to strengthen the Naira in the medium to long term, adding that both fiscal and monetary policies should be aligned to stimulate the tradable sector.
On CBN’s Monetary Policy Rate (MPR) at 13 per cent, Gwadabe said that the adjusted rate would stifle growth.
He said efforts targeted at reducing Inflation in an underperforming economy should focus on stimulating the supply side.
“Increasing the MPR contracts the supply side, it is the wrong prescription.
“Let’s not copy the Americans who target inflation with FED rates to curb money supply; their factors of production have been fully mobilized, ours is at less than 20 per cent and requires stimulation of the supply side.
“The U.S. per capita GDP is around 66,000 dollars, ours is $1,500 in real terms which underscores the need for a pro supply side monetary policy,” Gwadabe said.
Nigerian economy suffers chronic lack of productivity — Chizea
The Managing Director and Chief Executive Officer, BIC Consultancy Services, Dr. Boniface Chizea said the fundamental problem of the Nigerian Economy is chronic lack of productivity.
In his words, “The basic and fundamental problem of the Nigerian economy is chronic lack of productivity. Recall that not long ago in an attempt to be proactive with this problem, the Central Bank took the policy decision to deny access to 40 odd products to the official foreign exchange market.
“All hell was let loose as everyone jumped on the bandwagon shouting themselves hoarse that demand management was wrong.
“But not too long after positive results were achieved as local capacities were restored in some critical sectors resulting to the creation of badly needed employment opportunities.
“The cry to free float the determination of rate of exchange of the Naira has abetted. What bothers me is that most of these experts have been around for as long as I have been.
“And anyone who has closely tracked policy in this regard must admit that all that have been tried before only for us to beat a quick retreat.
“The basic problem with the exchange rate is that the demand for Dollars is insatiable almost to the point of being inelastic.
“The CBN is on record to say it will attempt liberalization if we stop importation of refined petroleum products which currently consumes approximately 30 per cent of available supply of foreign exchange.
“I thought this is not contestable. The rate of exchange reacts to the supply and demand conditions. If the supply reduces the rate of exchange falls. This is no brainer!
“And we must also recall that the medium of exchange as we continue to perpetrate corruption inducing cash and carry politics that the medium of exchange is Dollars. In fact not long ago it was reported that some delegates were actually paid in fake dollars!
“This is comical if not that it is such a serious matter. Why should anyone be surprised that EFCC was reported to have recently raided the operators of Bureau de Change (BDC)? Afterall what is happening is illegal as it is a direct abuse of the legal tender status of the Naira.
“Another startling recommendation is that the CBN should close the official window for the sale of foreign exchange. Not surprising this recommendation is said to have emanated from the BDC operators intent on enlarging their coast.
“Again as alarmist as this recommendation sounds, it is nothing novel. This is what the CBN did whenever in the past it tried to float the Naira. The CBN will announce that it will stop supplying the market ready to play the role of a swing producer.
“But the precipitous rate of fall of the exchange rate frightens the Bank as it quickly revises the policy thrust. Well may be, the BDC operators would prefer that official dollars be routed through them!
“What capacity do the BDC operators have to deal with the real sectors of the economy; Industry, manufacturers, agriculture, the big trading companies, phermaceuticai companies etc.? We must avoid steps that will complicate our dare situation!
“Everyone is feeling the pinch of a weak rate of exchange but unfortunately the chicken has come home to roost as we are now paying for the mismanagement that was the hallmark of our management of the Nigeria economy all these years.
“I will caution that we must brace up as it is bound to get much worse as there is no quick mend in sight. We should bear in mind our current experience with diesel prices which are no longer affordable.
“I read that for the first time in a long while the bonds which Debt Management Office took to the market was under subscribed. Therefore, it is necessary to remember the Sri Lanka’s experience? It now regrettably beckons on us!!!”, he stated.
FG must fix structural, policy inconsistencies to address depreciation — Muda Yusuf
On his part whilst speaking on the development, an economic analyst and Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf said Nigeria must fix the structural, security and policy inconsistency challenges in order to address Naira depreciation against foreign exchange.
According to him, “It is true that the low accretion to reserves is a major factor in the current forex crisis. Oil output has been very low, falling significantly below budget benchmark and OPEC quota. Massive oil theft was responsible for this.
“The phenomenal growth in petrol subsidy and the huge import bill from petroleum products importation is also a major factor constraining the capacity of the CBN to support the foreign exchange market.
“However, the dysfunctional foreign exchange policy of the CBN had compounded the problem. The fixed exchange rate regime and the multiple forex windows had created serious distortions, disruptions and dislocations in the forex market.
“It has also resulted in transparency problems, perpetuation of roundtripping, deepening of a rent economy and corruption in the forex market, especially in the official window. The forex policy is a major factor.
“Therefore, to fix the problem of the tumbling exchange rate, it is imperative to address the structural, security and policy issues,”he stated.
