Nigeria’s foreign exchange (forex) market has been under tremendous pressure from speculators and genuine businesses having difficulty accessing the product hence the Central Bank of Nigeria’s decision to lift restriction on 43 items. However, experts insist the apex bank needs to go beyond just lifting the restriction, BENJAMIN UMUTEME reports.
For some time now, Nigeria’s foreign exchange market has been under tremendous strain. Strain caused on the one hand by speculators who are bent on making so much money from a weak naira, and on another hand by businesses that need foreign exchange for transactions with their foreign counterparts.
Also, there is the health tourism and parents that need the greenback to pay their children’s tuition fees.
Such as been the demand that with a virtually mono revenue base that has been on downward trajectory due to massive oil theft and pipeline vandalism leading to the country’s inability to meet its OPEC quota.
It has become a very dicey situation for the apex bank to meet all the forex need of Nigerians. And with low production comes low revenue.
According to data from the CBN, Nigeria’s foreign reserves presently stand at $33.958 billion.
In a bid to arrest the pressures on the dollar, the CBN in 2015 restricted the availability of foreign exchange to the importation of 43 items that could be produced within the country. Besides that, the apex bank continued to intervene in the market.
Speaking on the situation, former CBN Governor said, “We started with about 41 food and non-food items, because we believe that those items could be produced in the country.
“As we stand today, there are about 43 items on the list and I will say that substantially most of them are food items.
“If we have a food item that could be produced in the country, why should we waste scare foreign exchange importing those?”
Despite these measures, the situation only got worse as many took advantage of the multiple exchange rate to plunder the market, thus worsening an already complicated market.
Reforming the market
In his inauguration speech, President Bola Ahmed Tinubu promised to reform the country’s forex market.
He said, “Monetary policy needs thorough house cleansing. The CBN must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”
And true to his words, the President appointed an acting governor for the apex bank after suspending Godwin Emefiele, who eventually resigned.
Thereafter, the CBN introduced a managed float policy to drive the market but again, it has not yielded the desired result. Thus, the regulator once again, consistent with running of central banks globally, lifted the restriction to forex placed on 43 items.
Ina statement signed by the Director, Corporate Communications, Isa AbdulMumin, the apex bank said, “Importers of all the 43 items previously restricted by the 2015 circular referenced TED/FEM/FPC/GEN/01/010, and its addendums are now allowed to purchase foreign exchange in the Nigerian foreign exchange market,”
The apex bank said it would continue to promote orderliness and professional conduct by all Nigerian foreign exchange market participants to ensure market forces determined exchange rates on a willing buyer – willing seller principle.
“The CBN reiterates that the prevailing foreign exchange rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.
“As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian foreign exchange market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease,” it added.
Concerns
Reacting CBN’s pronouncement, Manufacturers Association of Nigeria (MAN), said noted that removing the restriction on access to 43 items for imports will kill Nigeria’s manufacturing sector that is barely struggling to survive.
MAN’s Vice Chairman of Basic Metal Sector, Mr. Lekan Adewoye, said “For items that can be produced in Nigeria, such manufacturers ought to be encouraged. This directive will further kill the manufacturing industry that is already struggling to survive.
“Some of our members who have outrightly invested in backward integration will now start to regret this move, because everyone who can assess forex will claim to be an importer, forcing sincere manufacturers to close shop and increasing the numbers of jobless persons.
“Maybe we have one or two items on that list that are of national importance, I don’t know but not saying that all the 43 items should be allowed to come into the country. Because those who have invested, what are they going to do with their investment?
“We as manufacturers want the government to do what is necessary because at the end of the day, a lot of manufacturing companies will shut down and when they do, the aftermath effect will be job losses.”
He further noted that Nigerian manufacturers do not have the competitive advantage to compete with their counterparts across West Africa and other continents in the world.
He said, “We know that imported products are relatively cheaper because manufacturers do not have a competitive advantage over those in other developed countries. Even when you come closer to West Africa, we don’t have any competitive advantage, at best what we have is competitive parity.
“And the little incentive government has provided has been removed”
Prof. Uche Uwaleke, the first Nigerian professor of the Capital Market, admitted to Blueprint Weekend that “the readmission of the 43 items to the forex market, it’s immediate impact will be to reduce the premium between the official and the parallel market.
“The official exchange rate will further rise to meet the parallel market rate. But it will have negative implications for import substitution and local manufacturing efforts.”
Long term impact on manufacturing
On his part, political economist, Adefolarin Olamilekan, said the CBN’s action would have a long-term impact on the manufacturing sector.
He told this reporter that, “Critically, the CBN in our view underestimates the forex market challenges and the vulnerability our economy is exposed to.”
Adefolarin said: “Lifting the forex ban on the 43 items would usher in a reduction in price of food and other commodities.”
In the same vein, Financial Analyst, Gabriel Idakolo, told Blueprint Weekend that the major challenge with lifting forex restrictions is the provision of adequate forex to intervene in the market.
According to him, “We have seen more forex requests in the primary market which the CBN does not have sufficient funds to meet.
“This will definitely affect the backward integration policy because it gives room for products that can be manufactured or produced in the country being imported, however because of reduced capacity of producers and manufacturers it has become imperative to allow imports of these goods through the primary market to ease the tension on the Naira.”
Nigerians speak
For financial analyst, Idakolo: “The CBN needs to urgently intervene in the market by ensuring there is enough forex to meet requests and also make sure the demands that are ambiguous are not treated.”
On his part, Felix Olomila, explained that “What this means economically is that those importing these goods can also now get forex directly from the bank which will impact the other source of dollars and in a few months the demand for dollars from the other sources will shrink. If it works the pressure on the dollar will reduce outside the bank.
Similarly, Temitope Ogunyemi, said: “I don’t think it will ease forex crisis because the allocation of forex should be for the importation of raw materials and machinery.
“As a nation, we have to be very careful because forex may be wrongly used for the importation of unnecessary things. I know many non-manufacturers had invested sourced foreign currencies on the importation of gift items.
“I want to charge the government to ensure that manufacturers did not hold the short end of the stick that could lead to factory closure and loss of jobs.”
Also, speaking on the development, a Counselor Psychologist, Christopher Akpomefureno, told Blueprint Weekend that what was happening in the forex market was expected.
According to him, it is normal for this kind of situation at the market.
As on Wednesday, the naira exchanged for as low as N1,100 to a dollar at the parallel market.
“It is normal when a pronunciation is made that you see this kind of reaction. After a while you begin to see the benefits and the market will automatically fall into place,” he explained.
