Business
Fresh anxiety mounts over naira rate, as experts forecast further fall before stability
Optimism appears to have given way for anxiety about the ability of the new leadership of the Central Bank of Nigeria (CBN) headed by Olayemi Cardoso, to achieve the much desired stability in the nation’s foreign exchange market anytime soon.
A record tumbling of the naira that started on Thursday, with little or no likelihood of abating this week is sending a disturbing signal that several measures by the apex bank to reverse the ugly trend may have proved ineffective.
The national currency fell to a record low of N1,415/$ at the parallel market on Thursday, and worsened on Friday to N1,425/$, a rate representing 0.71 percent or N10 increase from that of the previous day.
Amid acute dollar scarcity, Bureau de Change (BDC) operators, who spoke with our correspondent in Lagos, quoted the buying price of the dollar at N1, 410 and the selling price at N1, 425, leaving a profit margin of N15. In the official market, the naira closed against the dollar at N891.90/$, a 1 percent appreciation from the N900, 96/$ on Thursday.
The naira’s fall has persisted despite the best efforts of the CBN to strengthen it, piling more pressure on the economy and the average Nigerian. Recently, the apex bank announced it had paid $2bn as part of FX backlogs.
Also, the Federal Government through the Nigerian National Petroleum Company Limited (NNPCL), got a $2.25bn oil-for-cash loan facility from the African Export-Import Bank to boost FX liquidity. However, all these are yet to be reflected in the market.
According to the International Monetary Fund (IMF), the volatility of the exchange rate can be linked to excess naira in circulation. Nigeria’s Country Representative, IMF, Dr. Christian Ebeke, recently said, “This is because if you look at naira pressures, you can decompose them into three main categories. One is the fact that you have excess naira in the market.
“The second one is structural; the market is new. These reforms are bold; the government needed a lot of courage to let the naira depreciate like that in a country, where the naira has been quite stable for a while.
“The market is still new. It is still in its price discovery mode. Market participants are still learning how to transact in an orderly fashion. These structural factors affect the naira because the market is new; it is a little bit shallow, which is also responsible for volatility in the market.
“Then, there is also uncertainty in the market. I am not sure that the parallel rate is the ultimate rate. At some point, we may think about a fair naira rate that is probably between what we see in the parallel market and the official market. But it is very difficult while you are still in the transition phase to talk about what is a fair value and what we are seeing.”
Hoarding and dollarisation
Last week, Bureau De Change operators raised the alarm that due to the depreciation in the value of the naira, some Nigerians are keeping their savings in the United States dollar. National President, Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, stated that there was a need for the forex market to be liquid, noting that the $2.2bn released by the African Import-Export Bank was not enough to stimulate the market.
“For now, it’s a difficult situation, which is also creating panic in the market because the value of the naira is eroding and because of that, a lot of people prefer to keep their savings in dollars,” Gwadabe disclosed.
Just on Friday, a chieftain of the All Progressives Congress (APC), Senator Adeseye Ogunlewe, in an interview with a national daily, attributed the high exchange rate to excessive subsidy money allocations to state governors, which he claimed the latter use in buying more dollars..
“It is the President that caused the exchange rate to be high because the money they (Federal Government) realised from the removal of subsidy, they pay the governors and they share much money, which allows the governors to buy more dollars.
‘’When they were not earning too much, the rate of dollar to naira was stable, you give too much money to them, they buy dollars to prepare for elections. We are the cause of our own problems and we know it.”
Expressing disappointment in the reforms of the CBN, a public affairs commentator, who prefers anonymity, corroborated the views of Ogunlewe.
He said, ‘’These people are very wicked. Why deceiving the public with policies when you can’t ban physical use of dollars in Nigeria? They know the dollars are in politicians houses instead of banks for fear of EFCC.
”Government pretends not to know even when I’m repeating the same resolve every day. CBN is aware by the statistics at their disposal that all dollars they get is raked by politicians into their private homes; yet they keep deceiving the public with policies that can’t change anything.”
Some financial experts are of the view that the CBN should de-dollarise the economy by declaring any local transactions in U.S dollars illegal. Speaking on strategies that can be deployed to strengthen the naira, the founder and chief consultant of B. Adedipe Associates Limited (BAA Consult), Dr. Biodun Adedipe, said the apex bank should stop government agencies from charging local operators and entities in dollars. According to him, the sale of crude oil to local refineries should also be made in naira, rather than in dollar.
Adedipe said: “CBN should deal transparently with participating banks at the I&E Window. De-dollarise the economy by declaring as illegal any local transactions in dollars (sale of assets, rent/leases, and other services, including school fees and medical bills) and ensure that government agencies stop charging local operators and entities in dollars (quite common in the maritime sector).
“Other suggestions include the need to ensure that the sale of crude oil to local refineries should be made in naira rather than dollar.
“President Bola Tinubu, should have a direct engagement with bank CEOs to generate ideas and use moral suasion to enlist their support for the market reforms. Face the reality that unified exchange rates (not any different than floating the naira) is a poor policy choice for a structurally defective and weak economy like ours,” he added.
Adedipe said Nigeria’s USD GDP will continue to shrink under the unified exchange rates regime, arguing that largely import-dependent economic activities and lifestyle with a low domestic production base are recipe for unabated depreciation.
“In this case, a growing naira-denominated GDP will become irrelevant insofar as the exchange rate depreciation is faster!”, he cautioned.
Hoping for stability
Commenting on the exchange rate recently at the launch of the Nigerian Economic Summit Group 2024 Macroeconomic Outlook Report, the CBN’s governor, Olayemi Cardoso, stated that there was an expectation that the foreign exchange market would stabilise in 2024.
He hinged this expectation on the reduction in petroleum product imports following improvement in local refining capacity, and the recent implementation of a market-determined exchange rate policy by the apex bank. He also said the naira was currently undervalued.
Announcing other moves by the bank, the governor said, “I am pleased to note our collaboration with the Ministry of Finance and the NNPCL to ensure that all FX inflows are returned to the Central Bank. This coordinated effort will greatly enhance the bank’s FX flows and contribute to the accretion of reserves.”
He added that the bank is implementing a comprehensive strategy to improve liquidity in the FX market. Cardoso expressed the belief that the national currency is currently undervalued and, “coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term.”
