Godwin Emefiele, CBN Governor

…importers, manufacturers cry out

By FELIX OLOYEDE

The steep drop in the value of the Naira last week has triggered serious concern in the country as importers and manufacturers groan over its adverse impact on their businesses.

The local currency was devalued by 2.27 per cent last week to N495 against the dollar from N484 the previous week at the parallel market, where foreign currency is more accessible and it has shed 6.45 per cent of its value in the last one month, due to the dollar scarcity in the country as a capital inflow in Africa’s largest economy waned.

The activities of foreign exchange speculators, who are expecting the Central Bank to further devalue the Naira, have also taken a heavy toll on the local currency. The Naira also weakened 1.30 per cent to N390 at the Investors’ and Exporters’ forex window last week as importers and manufacturers are having hectic time funding their Letters of Credits.

The dollar exchanged N379 at the official window on Friday as the apex bank continues to intervene in the market.

“Forex is not available even at the current rate. You cannot get the quantum of forex you need to be able to import your raw materials and machinery. It is really impacting negatively on the growth of manufacturing.

“There is a school of thought that says, why not devalue so that it becomes market-driven? But the CBN says that will be dangerous for the economy. But I do not know which is better: the situation we are in or allowing a market-driven exchange rate,” explained Ambrose Oruche, Acting Director-General, Manufacturers’ Association of Nigeria (MAN) in a telephone chat with BusinessHallmark.

Alhaji Aminu Gwadabe, President, Association of Bureau de Change Operators of Nigeria (ABCON) ascribed the renewed pressure on the Naira to illicit financial transactions in terms of hoarding, speculation, illegal cash evacuation, etc.

“There is a calculated attempt to force the Central Bank of Nigeria to devalue the Naira,” he noted.

He called on the apex bank to grant BDC operators payment bill so that it can help broaden the country’s forex market. He also expressed worry that Diaspora remittances in the country go through few hands, which has inhibited its impact in the forex market.

“The Naira is under pressure, obviously from unmet demand. Supply is way below demand, that is putting the Naira under pressure at the parallel market,” said Mr. Johnson Chukwu, Managing Director, Cowry Assets Management Company.

He mentioned that the drop in Nigeria’s oil output to 1.7 million barrel per day has not enabled the country to maximise the 135.48 per cent appreciation in oil price in the last seven months to $48.18 as of Saturday, November 28.

Mr. Kayode Omoregie, Faculty member in Finance and Strategy at the Lagos Business School, posited that the Naira devaluation is a function of the rationing of the dollar by the CBN relative to demand (demand, real and speculative far exceeds supply).

“Our national dollar inflows are not just from oil earnings, it is also from FDI, FPI (foreign direct and portfolio investments), all of which has diminished significantly, and Diaspora inflows also (which by some estimates exceeds even oil revenue inflows),” he further said.

“Our national revenue profile has diminished and so we are borrowing heavily. Also debt servicing (in dollars) – as a percentage of revenue – has increased and will remain so for some time to come.

“This implies that Nigeria’s requirement for dollars into the future will also increase or be relatively high for some time to come and so futures value of naira relative to the dollar is also trending down. This is also exacerbated by the inflation trend. The real inflation rate is more in the region on 20-24 per cent (some estimates put it at 34 per cent and not the official figures of 14.1 per cent).

He noted that the demand for dollar relative to supply is high now and in the near future.

“Think of dollar as a commodity in high demand relative to supply. The cost in Naira terms will go up (devaluation). Let us not also forget the role of speculators, leakages and round-tripping and hoarding of the dollar.”

“Given the expected slow growth of the global economy in 2021 and the current economic recession in Nigerian which is likely to persist to Q2 2021, we should be expecting a devaluation of the naira in the parallel market in the region of N500 – N550 /$1.

“Official rates may tolerate a 20/25 per cent spread, with an exchange rate from the official window in the N400 – N420/$1 range, if the political will is there.

“With our current macroeconomic realities and fundamentals, it makes sense to devalue and absorb this shock within a narrow timeline to ease speculation, volatility and uncertainty with the exchange rate, which is worse for business in the short-term for businesses and FDI/FPI investments,” he submitted.

The apex bank last week explained the country, like other emerging economies and countries that are oil-dependent, were gravely impacted by the decline in crude oil earnings as well as the retreat by foreign portfolio investors significantly affected the supply of foreign exchange into Nigeria.

“In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated from N305/$ to N360/$ and subsequently to N380/$”, CBN governor Mr. Godwin Emefiele, said at the end of the MPC meeting on Tuesday.

With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” Emefiele also said at the Charted Institute of Bankers of Nigeria (CIBN) annual dinner on Friday.

He added that due to the unprecedented nature of the shock, the CBN will continue to favour a gradual liberalization of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables.

“This we believe is in line with international best practices in countries where managed float arrangements are in operation. At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange.

“These measures have helped to prevent a significant decline in our reserves. Our external reserves currently stand above $35 billion and are sufficient to cover seven months of import of goods and services,” Emefiele asserted.

The twin challenges of decline in oil prices and the impact of COVID-19 have plunged the Nigerian economy its second recession in four years, having recorded contractions in two consecutive quarters as the economy shrank -6.1 per cent in the second quarter and -3.62 per cent in the third quarter.

The country’s capital inflow which dipped 78.60 per cent year-on-year to $1.29 billion in Q2 2020 has also caused its external reserves to plummet -11.10 per cent in the last one year to $35.43 billion as of November 26.

The country is not only battling economic downturn but also grappling with rising prices as inflation accelerated for the 14th consecutive months to 14.23 per cent in October.

The finance minister, Mrs. Zainab Ahmed, declared last week at the Nigeria Economic Summit, that Nigeria will soon exit recession, projecting that its economy will grow by 2 per cent next year, the Federal Government predicted a 3 per cent growth.