…Experts predict further devaluation
By FELIX OLOYEDE
The Central Bank of Nigeria has deployed measures to ensure that the local currency, the Naira does not slide or devalue as projected by stakeholder. The apex bank has also made it clear that it made no changes to its naira policies which prompted speculation that it was ending a system of multiple exchange rates.
The international publication, Bloomberg had alarmed the financial public that the bank of last resort was musing on devaluing the Naira due to strong pressure on the local currency and the move to harmonize rates. While the CBN has been applauded for achieving stability in the management of the Naira despite the buffeting of the economy, some industry analysts have observed a renewed pressure on the Nigeria’s foreign exchange market, despite oil prices staying above the $60 per barrel benchmark set for the country’s 2019 budget. The CBN has always assured that it will leave no stone unturned to pursue the right policies at all times to enable the economy grow.
Experts believe the local currency which exchanged $/N360.51 at the Investors’ and Exporters’ forex window on Friday, could depreciate significantly as the country continues to rely heavily on crude oil for its foreign exchange earnings.
This follows that crude oil contributed 74.45 per cent of the country’s N4,535.3 billion total export in the three months of this year, which is 1.78 per cent higher than what it generated in the fourth quarter of 2018.
Dr. Adi Bongo, an economist and faculty member, Lagos Business School, who has always been a strong advocate for the defense of the Naira, told Business Hallmark that the Central Bank should allow the local currency to find its equilibrium because the managed float system seemed to have failed.
He noted that the current forex regime in the country has promoted double standards and racketeering, which the apex has not been able to resolve.
“Because corruption has evaporated whatever gain the managed system would have brought, there should be a harmonization of the multiple exchange rate in the country,” he suggested.
Dr. Bongo said, “Using the purchasing power parity, estimate what the exchange rate should be. And when last I did that it came to about N430 against the Dollar. If you allow the Naira to find its equilibrium using the purchasing power parity, we should have $/N430-N450.”
Meanwhile, the Central Bank had to clear the air that it had no plans to float the local currency and vowed to continue to intervene in the country’s forex market from time to time.
The apex bank injected almost $40 billion into the forex market last year and it had subsidized the Naira with $11.81 billion as at March.
The partnership the $2.4 billion currency swap deal the CBN secured last year was yet to insignificantly aid the strengthening the Naira as Nigeria’s balance of trade with China is currently skewed against the country.
Analysts also argued that another signal that the local currency was undergoing a fresh pressure was the recent inclusion of palm oil to the 41 items that the Central Bank has tagged not valid for forex.
Mustafa Chike-Obi, Executive Vice Chairman, Alpha African Advisory and former Managing Director, Asset Management Corporation of Nigeria (AMCON) argued recently that there was need to further devalue the Naira to make imported goods expensive and increase local productivity.
He advocated that the country must seek alternative sources of forex instead of depending majorly on crude oil.
In the same vein, Johnson Chukwu, Managing Director, Cowry Asset Management Company posited that the Central Bank should focus more on unifying the country’s multiple exchange rates.
“It is in the cause of harmonizing the exchange rates that we will arrive at an equilibrium rate. I won’t know if that will devalue the Naira,” he added.
Nigeria’s source of foreign exchange remains very limited, which will continue to mount pressure on the country’s forex market, argued Dr. Vincent Nwani, an economist and business and investment consultant.
“The government has been talking more about diversification of the economy in the country more than doing it,” he asserted.
He mentioned the Central Bank was just postponing the evil day through its intermittent interventions; “even if you devalue to about $/N1,000, it looks as if the Naira does not have a floor, because we don’t have what we can exchange with other parts of the world to get foreign exchange.”
Although crude oil has appreciated 13 per cent this year, the Naira has depreciated -0.34 per cent at the official forex window and appreciated 1.07 per cent at the Investors’ window during this period.
The dip in Nigeria’s Foreign Direct Investment (FDI) has been helped by the misfortunes of the local currency as United Nations report released last week revealed a decline of the country’s FDI by 43 per cent to $2 billion.
Foreign portfolio investors have maintained a negative sentiment towards Nigerian equity market, plunging -4.40 per cent this year. As the debate continues experts believe the downtrend might persist as investors are concerned about the country’s economic position.
On the contrary, the Governor of the CBN, Godwin Emefiele had told an audience recently that, ‘’the outcomes of the recent CBN forex policy has led to stable exchange rate, forex liquidity, vibrancy in the capital market, improved supply of forex impact on
, PMI , improved forex supply expected to impact positively on Gross Domestic Product, GDP growth and more companies declaring profit and offering rights issue
‘’There has been a boost in local production of the items of 43 items banned, adding that the policy has created domestic demand for the items concerned, employment generation, substantial forex owing to the reduction in the import bills of the country and improved domestic capacity. The CBN intervention in the area of agriculture, manufacturing, Micro, Small and Medium Enterprises (MSMEs) and infrastructure has yielded multiplier effect on the economy’’.
A former top banker who pleaded anonymity told BH that all over the world managing forex has always been the headache of countries that do not have strong productive base. He explained that the CBN has done well in the prevailing circumstances where there is not much support from the fiscal authorities.
‘’People should remember when the Naira exchanged for the dollar at over N500.00 not long ago’’ he said.