BY EMEKA EJERE
As the Central Bank of Nigeria (CBN) intensifies efforts to address the nation’s worsening foreign exchange liquidity crisis through improved diaspora remittance inflow, economic experts are of the view that creating enabling environment for investment will produce a lasting solution.
Rising dollar demand has been putting pressure on the naira, as importers with obligations scramble for hard currency, while providers of foreign exchange (foreign investors), have exited after the COVID-19 pandemic-triggered oil price crash.
Data from the CBN as at Monday (March 8) showed that Nigeria’s foreign exchange reserves declined 3.93 percent year-on-year to $34.91 billion by March 3, compared with $36.24 billion a year ago. Also, the data showed that the nation’s forex buffer declined 2.04 percent year-to-date from $35.64 billion recorded on January 4, 2021.
Little wonder the CBN in a bid to manage the exchange rate and improve liquidity in the foreign exchange market, has been introducing forex policies targeted at curtailing demand and improving liquidity.
Nigeria hopes to attract more remittances from its diaspora to boost foreign currency liquidity, with the ‘Naira for Dollar’ scheme being the latest policy introduced by the CBN to promote diaspora remittances. The incentive scheme enables the CBN to reward senders and recipients of International Money Transfers (IMT).
According to a CBN circular, the programme, which runs from March 8 till May 8, will see recipients get N5 for every $1 they remit through licensed international money transfer operators (IMTO) and commercial banks.
The CBN governor Godwin Emefiele had explained that reducing the cost of sending remittances is a significant way to boost remittance inflows to Nigeria.
According to him, the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilizing the exchange rate and supporting accretion to external reserves.
The apex bank had taken the first bold step to boost foreign currency liquidity in December when it lifted rules that had restricted inflows in a new diaspora remittances policy.
The new policy which took effect from December 4, allows diaspora remittances to be paid in cash in U.S. dollars or into a domiciliary (foreign-currency) account at market rates. In the past, remittances could be paid in naira and the Central Bank had restricted domiciliary account usage.
Nigeria is the world’s fifth-biggest destination for international remittances, with 5 million of her citizens living abroad sending money back to relatives, according to Western Union.
PricewaterhouseCoopers estimated that diaspora flows into Nigeria totaled $23.63 billion in 2018, representing 6.1% of GDP.
However, market observers are of the view that the CBN incentive to boost diaspora remittances may not have the desired impact due to the hoarding of dollar currency by many Nigerians in search of a store of value.
According to them, many people now prefer to hold their assets in foreign currency due to the rapid increase in inflation and the potential impact of devaluation on naira assets. Nigeria’s inflation rate peaked at 16.47 percent in January, the highest in more than 17 months, with many analysts expecting it to hit 18 percent by the end of the first quarter of the year.
According to the observers, most of the dollars being bought off the market are kept outside the nation’s financial system, making it difficult for the economy to derive any benefits from such increased flows.
Meanwhile, BusinessHallmark’s checks show that naira closed at N409.00 at the trading session of the I&E window on Thursday, a N2.13 or 0.52 percent appreciation from N411.13, the rate at which it closed at the previous session on Wednesday.
This happened as naira experienced an intraday high of N390.00 and a low of N415.00, before closing at N409.00 on Thursday. The appreciation of the domestic currency occurred as turnover increased by 420.34 percent, with $192.11 million recorded as against the $36.92 million posted on Wednesday.
However, at the unofficial market, data posted on abokiFX.com, a website that collates parallel market rates in Lagos showed the domestic currency remained unchanged.
According to the website, the currency closed at N484.00, the same rate it exchanged hands with the greenback currency on Wednesday, leaving the spread between the unofficial market and the I&E window exchange rate at N75.00, which translates to a gap of 18.34 per cent. The CBN’s official rate on Thursday was still N379 per dollar.
The Way To Go
Economy experts believe that providing enabling environment for investment is an effective way of complementing the efforts of the apex bank towards achieving foreign exchange stability in the country.
Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said there is need for Nigerians to continue to pressure the government to provide the enabling environment for business.
In a telephone chat with Business Hallmark, Yusuf said, “Look at the security problem, it has implication for investment. Look at the cost of transportation, it has implication for investment. Some regulatory histories – multiple taxation, all these things have implications for investment. Look at our energy sector, although recently there has been some improvement in few locations, but there is still a long way to go.
“When you begin to run a business or run a manufacturing firm using diesel generator or petrol generator, how competitive can we be, especially now that they are talking about African Continental Free Trade Area (AfCFTA), when we are going to be competing with other countries in Africa? So it’s an advocacy issue. We need to constantly engage the government to ensure it fixes our investment environment.
On his part, Prof. Ndubuisi Ekekwe, the world renowned tech guru, who co-designed iPhone and iPad’s XL Sensor, commended CBN’s move to address the nation’s forex liquidity crisis but suggested that encouraging investment through tax holiday would have been better.
Reacting to the CBN’s Dollar-for Naira scheme, Ekekwe, who is the Lead Faculty in Tekedia Institute’s Mini-MBA, an innovation four-month management programme, optimized for business execution and growth, with digital operational overlay, took to his facebook wall and wrote:
“I do think that this policy is designed to incentivize Nigerian diaspora to send money home. It is too early to know if that will improve remittance over long-term; I mean after the programme ends later in the year.
“Personally, my choice, as I noted in my Fidelity Bank presentation, would be to offer a seamless tax holiday on all profits through a special fund vehicle I called Diaspora Growth Nation Fund.
“Yes, if you invest in SMEs, startups, real estate or other productive areas, via official channels like banks, all taxes on profits over 5-10 years would be waived! That is a better way to get people to unload U.S. dollars and hard currency on Nigeria. I am not sure people with many ‘Benjamins’ -$$100 bill – will care that $1 will add extra N5! That is a distraction!”