Godwin Emefiele, CBN Governor

By FELIX OLOYEDE

The efforts of the Central Bank of Nigerian to unify the country’s exchange rate seem not to be yielding desired results as naira continue to weaken at the parallel segment of the market.

The apex bank in a bid to ease the pressure on the local currency and unify the different segments of the country’s foreign exchange markets, the CBN in March devalued the naira to  NGN387/USD in the Investors’ and Exporters’ forex window from NGN360/USD and at the interbank market, it weakened to NGN360/USD and subsequently to NGN381/USD.

However, the rate has continued to spike at the parallel forex market with the naira depreciating 25.53 per cent to NGN472/USD on Friday from NGN376/USD in March when the Central Bank first recently devalued the local currency, due to scarcity of forex in the official window.

The local currency has also devalued to NGN388.21/USD at the I&E forex segment, while the interbank remained at NGN381/USD as of Friday as investors continued to scramble for the limited forex in the country, occasioned by the drop in oil price and the impact of coronavirus pandemic on global economies.

Analysts believe naira is overvalued as the CBN continues to defend it, hence, the depreciation it has been witnessing at the parallel market.

Dr Bongo Adi, an assistant professor of Economics and senior lecturer, Lagos Business School, said: “If you take the purchasing power parity of the naira into consideration, you will discover that the purchasing power parity of the naira is around N400 to the dollar as of last month. What the CBN has at its effort to unify the exchange rate is N380/USD, which is still below the N400/USD purchasing power parity level.

“The parallel market is telling you that your currency is overvalued. The currency rate at the parallel market shows there is scarcity. A market-determined rate will bring it down because the CBN is still supporting several demands. If these demands are brought to the market that will calm the pressure in the parallel market, bringing the rate to around N400-N420/USD over time. Why you are seeing this disparity is because the CBN is still supporting the naira. They are paying lip service to float the exchange rate.”

He argued that liberal economists in Nigeria would see the liberalization of the exchange rate as the best thing, but other economic fundamentals need to be considered before tolling that path.

“If you go the way of full deregulation now with the attendant COVID-19 social-economic problems, this will add to the pressure households are going through currently.”

Dr Adi said the corruption going on in government is rubbishing whatever gain the people would get from the deregulation of the forex market.

“So, they should keep defending the naira because the current structure would not allow the people to gain anything from the deregulation of the foreign exchange market. They will only suffer more,” He concluded.

MallamAminuGwadabe, President, Association of Bureau de Change Operators of Nigeria (ABCON), explained that “We are only witnessing the pressure in the parallel market. The procedures for accessing forex in the areas where unification is being adopted is very cumbersome and conventional. Except there is liquidity at the retail exchange market by allowing BDCs to receive remittance from abroad. Once you have liquidity at the critical end of the retail market, the activities of the parallel market operators will be checkmated. It appears they are in control now.

“The parallel market, which is not structured and regulated is currently undermining the unification efforts of the Central Bank.”  He noted that even in banks, the invisible transaction rate like the school fee is not N381/USD, it is between N390-N395/USD.

“So, there is still volatility because there is a lot of accumulated demand from portfolio investors. And people are thinking the CBN is still going to devalue the naira. Once there is that kind of thinking in the economy, a lot of people will be speculating.

“It is very difficult now to forecast the future of the naira because of what is happening, It is in Nigeria you see the wide gap between the official and parallel markets. Even in our close neighbour Ghana, the disparity is not as worse as that of Nigeria. It is not a question of the naira being overvalued. The Nigerian forex market is not currently driven by demand and supply forces but by interest, rent-seeking, hoarding, and all fashions of corruption in the country,” Gwadabe asserted.

The Nigerian economy has been bleeding due to the decline in oil price and the devastating impact of COVID-19, which compelled the government to revise the 2020 revenue target downward by 37.2 per cent to N5.3 trillion as the International Monetary Fund (IMF) projected that the country’s economy would contract -5 per cent this year.

The country’s economy grew 1.87 per cent in the first quarter of 2020, but experts forecast that it may slip into recession by the third quarter, driven by the five weeks lockdown imposed by the government in March to curtail the spread of coronavirus.

“In our opinion, even though we admit that there is no escaping the devastating impact of COVID-19, decades of poor policy choices have elevated risks in Nigeria. The continued reliance on oil for FX receipts and government revenues, together with poor investment in the healthcare sector weakened the resilience of the economy. We believe the impact of this pandemic would reverse the marginal gains recorded since the 2016 economic recession, thereby hurting businesses and households. Beyond the initial response of removing fuel subsidies to support revenues, the upside is new priorities for the FG in the areas we have highlighted in the medium-term. We believe the economic crisis brought by COVID-19 presents an opportunity for policymakers to propose and implement reforms that would boost FG’s finances, enable a conducive business environment and attract investment into human capital development and infrastructure,” analysts at Meristem Securities stated.