Worried by the parlous state of the economy, especially the unprecedented fall in the value of the nation’s legal tender in recent times, a cross section of experts have suggested practical measures which they hope would help to address the drift of the naira, reports Ibrahim Apekhade Yusuf…
The joke out there is that it is better to hold on to a piece of paper than to the naira!
The above analogy really captures the frustration with the naira and how it is being treated by many today because of its worthless value when compared to other legal tenders out there, especially the green back.
Indeed, the legal tender has had a run of bad luck lately as pressure mounts on the naira.
As at the time of filing this report at the weekend, one dollar exchanged for N1, 400 in the black market.
The previous week has been just as bad. Independent checks by The Nation last week revealed that the US dollar exchanged for ₦1,323.630 to the naira, British pound ₦1,652.0511, with euro going for N1,412.0091, Canadian dollar ₦981.293 and wait for this: South Rand exchanging for N47.55 to the naira!
Expectedly, the noise and agitation with the naira has reached a high decibel so loud that even the deaf can hear!
From the economic managers to other concerned stakeholders the one thing that bugs their mind is how to change the fortunes of the naira back to the good old days when the naira had such a store of value that it was a status symbol of sorts for people to be seen with wads of the naira both home and abroad!
A raft of policies that may lift the naira
With the benefit of hindsight, analysts who have been watching the way the economic pendulum is swinging have already seen the light about a promise of a new dawn.
Razia Khan, managing director and chief economist, Africa and Middle East Global Research at Standard Chartered Bank, said in a note, that “We expect donor support and external borrowing to boost FX reserves,”
She said the World Bank is expected to approve about $1.5 billion of budget support under the 2023 budget, adding that a similar amount is likely to be available for 2024.
Specifically, she said: “Nigeria hopes to draw on World Bank project financing of about $1.9 billion, although this may occur only in the medium term. Authorities hope that oil-backed borrowing from Afreximbank (sometimes described as the forward sale of oil), a syndicated loan for Nigeria LNG, and support from Middle Eastern sovereigns will allow them to meet an aggregate FX inflow goal of about $10 billion, allowing the CBN to clear its verified FX forwards settlement backlog and stabilise the market.
“Authorities also hope that plans for banking-sector recapitalisation will attract new flows.”
Like Khan, Dr Muda Yusuf, renowned economist said the outlook for foreign exchange would be influenced largely by developments around the fundamentals of supply and demand of foreign exchange.
He said the supply side would be driven by some variables, such as the prospects of attracting more investment into the oil and gas sector, especially leveraging the Petroleum Industry Act and growth of diaspora remittances and other inflows from foreign direct investment and foreign portfolio investment.
Yusuf, a former president of the Lagos Chamber of Commerce (LCCI) and Director, Centre for Promotion of Private Enterprise (CPPE), said the clearing of foreign exchange backlog by the CBN would impact on investors’ confidence and improve inflows in the medium to long-term.
Other variables, according to Yusuf, include growth in non-oil exports leveraging new initiatives to boost investment in solid minerals and improve domestic capacity to export, initiatives by the government to boost forex liquidity through crude oil forward sales by the NNPC and steps taken to securitise NLNG dividends to generate short-term forex liquidity.
How naira can regain its lost momentum
Also in the view of Eben Joels, Managing Partner, Stransact Audit and RSM Corresponding partner in Nigeria, would rather the government take the bull by the horns if it truly desires to revive the naira from its present slumbering state.
“The government should summon the same political courage it used to remove fuel subsidies to eliminate the sale of dollars on the streets,” he said, adding that “The USD should only be held by banks and changed into Naira via bank accounts at a market determined rate. If we can implement a cashless policy for the Naira, we should be able to do the same for the USD held in cash by private individuals.
“The current black market scenario has made cash forex holdings the major avenue for money laundering in Nigeria. As the Naira fluctuates, most upper-class Nigerians now hold their liquid assets in forex here in Nigeria. Of course this is not the major. Until we stop importing fuel, and increase our forex earnings significantly, the Naira will continue to be unstable.”
Echoing similar sentiments, Mazi Okechukwu Unegbu, who is currently Managing Director/Chief Executive, Maxifund Investments and Securities Plc noted that a drastic solution is required to rein in the crisis with the naira.
“I think we must start thinking of the cooperation between the CBN, the Ministry of Finance and the NNPCL. For instance, if the NNPCL is selling crude, is the money coming in? So, these are questions we need to ask. If they can be able to answer some of these questions, then our crude money is coming in and it will help to boost the exchange rate.”
While proffering specific solutions to the revamping of the naira, Unegbu reiterated that if sales of the crude come directly into government coffers, it will ease the pressure on the naira.
“As I have been saying, we should start pricing our crude oil in naira. I am sure it will help. The argument is that people will not buy, but I’m sure it will give the naira some edge because we start looking for the naira to exchange for crude and that would help our reserve. So, if the CBN can look at that, that would be very good,”Unegbu maintained.
A bird’s eye view of how to resolve the naira devaluation imbroglio
In the view of Peter Sunday Adebola, the Managing Director, Edgefield Capital Management Limited, an investment-driven firm, the depreciation of Naira against other convertible foreign currencies has been a nightmare to government at various levels, professionals, academia’s and businessmen.
According to him the fault lies squarely with the managers of the economy who have failed in the quest to improve the revenue-generating capacity of the country outside oil.
“For an import-dependent country like our country Nigeria, it cannot be anything else other than a headwind for our economic growth. Many professionals, finance experts and academia have been talking about this economic menace and are working assiduously to find solutions to the problem.
“Simple economic principle tells us that if the price is going up, then demand must be higher than supply. To maintain market equilibrium, the forces of demand and supply must be the same. The problem here with our currency is that the demand for foreign currencies is higher than the supply, most especially the United States Dollar.”
One best way to actually tackle this problem of currency depreciation is to look at both the demand side and the supply side.
“The group of people looking for US Dollars include: people paying for school fees abroad, importers, travelers, medical tourists, businessmen and speculators.
“Unfortunately, Nigeria does not have publicly available data to know the demand size of these groups of people. On the supply side, we only have the government exporting our crude oil and other exporters of non-oil products as well as diaspora remittances.”
To resolve the disequilibrium in the foreign exchange market, the market needs to be more transparent and seriously regulated, he stressed.
“If we can reduce the demand and increase the supply, then the problem will disappear. The following are my suggested ways of arresting the wildlife depreciation of the nation’s currency.”
Like Joels, Adebola have argued that a more frontal approach to tackling the issue of the naira depreciation should be adopted.
“The foreign exchange market should be sanitised. It is absurd to see people hawking currencies on the road side in the name of black market. The black market should be eliminated. It is only in Nigeria that people sell besides roadside, you cannot find that in a sane country even in Africa. You cannot buy dollars by the roadside in South Africa or even in Ghana. Why are we allowing this in Nigeria? These informal markets make it difficult to get accurate data of the foreign exchange transactions in Nigeria and this gives room for round-tripping and unjustifiable speculations. All foreign exchange transactions should be formalised.”
The renowned stock market analyst reiterated that selling of foreign currencies across the street should be criminalised with stiff penalties, noting that this will force everybody to do transactions with registered bureau de change or banks.
Pressed further, the onetime Managing Director of one of the BGL Group noted that if hospitals are well-equipped, this will reduce medical tourism just as he argued that if the nation’s education system can be revamped and meet global standards, then the demand pressure for US Dollar to pay school fees will be reduced.
On the diversification of export base, he said the country is blessed with other natural resources such as agricultural and mineral resources which can be explored, refined and exported.
Credit: thenationonlineng.net
