Update on Nigerian Foreign Exchange Market and the Economy by Anayo Nwosu.

Discussion in 'General Forum' started by izu, Jul 20, 2016.

  1. Izu

    Izu Admin Staff Member

    Recall that CBN had rolled out FX policies effective June 20,2016 aimed at stabilizing the foreign exchange market after many months of "strategic thinking".
    To the layman, naira was to be floated and the price or the rate shall be determined by the forces of Demand and Supply. This caused a sharp official depreciation from N197.5/$ to N280/$ on June 20 and now N292/$ as at July 15.
    CBN has put in place a good framework for demand side but has not been able to get a good response from supply side of dollar.
    While the control of the demand side is within CBN's influence, the supply side is outside its ambits.

    FX is supplied into Nigerian economy when we export our crude oil being that the product is owned by the FG, the sales proceeds are received into FG's account with the CBN and it is from this pool that CBN provides FX for importation through the banks to users.
    Also, FX enters the Nigeria's system when our private exporters are paid and they repatriate their export proceeds through their banks and sell them to Nigerian banks who in turn sell to other users.
    The third route is when foreigners bring in their own funds into Nigeria either to establish a business or to buy shares or bonds and treasury bills. These funds regarded as foreign direct investments (FDI) are exchanged at the Nigerian banks for naira and the FX sold to importers.

    Despite the spirited efforts of the CBN, the supply side has refused to measure up because of the following:
    1. The militancy in the Niger Delta has reduced FG's FX revenue hence decreased amount of FX provided to importers by CBN
    2. Private exporters of other commodities have either reduced their capacity to produce enough for export or have refused to repatriate proceeds into Nigeria.
    3. Investors are surprisingly foot dragging in coming to do business in Nigeria despite the enormous good will of this government.

    The CBN alone can't solve this problem as they can't influence the supply of FX to the economy beyond what they have already done. The government should do the following:
    1. Quickly restore normalcy to the Niger Delta as the area is critical to Oil revenue, electricity generation, and other investments. The area is actually the target destination of foreign investors. They will not endanger lives or investment to please Nigeria.
    2. FG should meet with all coys with export records and find out their problems are and resolve them to facilitate increase in non-oil exports and revenues.
    3. The government should calm all secessionist movements in the country by genuine negotiation and implementation of recommended panacea to already identified problems of the country.
    The large population of the country is actually the enticement to the investors. They may decide to wait and see what happens.
    4. Above all PMB should learn from English Premier League on how to hire and fire coaches.

    I reasonably foresee a continuation of increased difficulty in obtaining enough foreign exchange by importers or other users. This will increase inflation rate and a massive migration of our citizens to other countries especially Canada that beckons skilled labour.
    Things will stabilize after a while as Nigerians may have to learn how to live with the situation as does a man with Scrotal Elephantiasis. It is a surgical case.
    I suspect that PMB might succumb to public pressure to bring on board, some of the people he does not like presently but who have the capacity to turn things around. Unfortunately, many of them are Igbo. He has no other options.
    An aircraft is not piloted with muscle or passion but with more of brain and skills. Economy too!

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