- Seek export-driven economy
Central Bank of Nigeria, CBN has been told that the guidelines of the new flexible policy on foreign exchange market introduced by the apex bank needs to be adhered to strictly by operators if the impact on the economy would be achieved.
Although most analysts believe that the option is what the economy requires now given the continued shortage of foreign exchange earnings as a result of fall of crude oil in the international market, however, they argued that the exercise would be futile without corresponding checks and balances in the market.
Speaking to Nigerian Pilot a financial analyst Mr. John Waya Iwuofor said that the option will be a welcome development if foreign exchange can be made available for importers it. He said that the efforts by the CBN to conserve the foreign exchange since the beginning of oil glut in the international market has only created brisk business for black market sector of the market and Burean de Change, however the policy will curtail the activities of black market if well monitored.
According to him, “before now, the CBN official rate was N197/$1, compared to N360/$1 obtained in the black market, that it is a good business for them. And because of the scarcity of dollar from authorised dealers, importers are forced to patronise them. I believe that the flexible policy would tackle that issue, if well monitored by the responsible authority.”
Mr Iwuofor also argued that the flexible policy is a temporary measure to save the country over the shortage of foreign exchange and it is time for government to take the issue of economic diversification serious in order to achieve strong economy that would not rely solely on oil.
“Nigeria needs to diversify economy in order to expand other sources of foreign exchange earnings other than oil.”
“As it is now, Nigeria operates import dependent economy; this puts a lot of pressure on the foreign reserve whenever there is reduction in price of oil in the international market. So the only permanent panacea to the current foreign exchange crises is to expand the economy and reduce penchant for foreign goods.” He said.
Also Managing Director of the Cowry Asset Management, Mr Johnson Chukwu, said in statement issued by the company in Lagos that the bank’s decision would allow the forex market rates to be determined by the forces of demand and supply.
While commending the step taken by CBN, he added that the decision would attract investors from outside to make the foreign exchange market more robust. According to him, “Foreign exchange market will henceforth operate as a market participant where it will either buy or sell at the prevailing market rate. These should now be attractive to investors as their earlier fears of foreign exchange illiquidity or scarcity and likely devaluation would have been mitigated.”
Chukwu further stated that the introduction of derivatives such as customised forward contracts should help investors’ further hedge against foreign exchange volatility. He also added that it would simultaneously be a major step towards developing an important alternative asset market.
“Furthermore, forex primary dealers will be registered to deal directly with the CBN for large ticket transactions which could favour large manufacturers as well as foreign direct investors.” He observed.
Another stakeholder who supported the flexible foreign exchange policy unveiled by the CBN is Airline Operators of Nigeria AON President of AON Capt. Nogie Meggison who in chat with journalist said that the development is a step in the right direction. Meggison explained that the flexible policy would enable airlines access to forex easier as it constitutes the bulk of their operational cost. “Foreign exchange is 70 per cent of our direct operating costs through areas like buying spare parts, insurance, training of pilots and other expenses.” He said.
It would be recalled that while unveiling the flexible policy, Governor of CBN Godwin Emefiele said that the apex bank introduced a number of countervailing policy actions over the years to avoid further depletion of the reserves anchored on the prioritization of the most critical needs for foreign exchange as well as maintaining stability in the exchange rate. Some of the measures by the apex bank are; Matured Letters of Credit from Commercial Banks, Importation of Raw Materials, Plants, and Equipment, Importation of Petroleum Products, and Payments for School Fees, BTA, PTA, and related expenses.
“Having allowed two adjustments from August 2014 to February 2015, we decided to manage the Naira-Dollar Exchange Rate at about N197/US$1 over the last 16 months, and then provide the available but highly limited foreign exchange to meet the needs.” Emefiele said.