20 June 2016, Lagos – Mixed reactions have trailed CBN’s announcement on Wednesday of a flexible exchange rate in the foreign exchange market. While some foreign investors are keeping sealed lips, others are saying they will wait and see the level of the exchange rate depreciation before venturing into the Nigeria market.
However, local investors are cautious in their reactions stating that the economy was held down by government control for too long. Naira-Dollar Professor Chris Analo, Registrar/Chief Executive Officer, Institute of Credit Administration said that the move by the CBN is a bold step in the right direction.
He said the economy should be freed and the invisible hand of supply and demand should be allowed to allocate resources. The flexible exchange rate, he said, would help determine the true value of the naira. Dr. Frank Jacobs, President of Manufacturers Association of Nigeria, MAN, described the new foreign exchange policy as a step in the right direction.
In a telephone chat with Vanguard, he said: “I am not speaking for MAN as a body at this time because we are meeting this week to know how it will affect manufactures generally”
He continued: “My personal voice on the policy is that if we allow market forces to determine the price of the naira, it will be better in the long run. Also, there won’t be fluctuations of the naira as we have been having in recent times.” For Mudal Yusuf, Director-General, Lagos Chamber of Commerce and Industry.
“The move is quite commendable. It is a position that the Organised Private Sector (OPS) has canvassed over the past one and half years.”
According to him, Nigerians should expect the following benefits from the policy: “Improved liquidity in the foreign exchange market which would boost investors’ confidence; there will be a significant improvement in the allocative efficiency of foreign exchange; supply of foreign exchange to the foreign exchange market will be enhanced as confidence improves, especially from capital importation, export proceeds and diaspora remittances.”
Continuing, the Lagos Chamber of Commerce and Industry boss said: “There will be considerable moderation in exchange rate as supply of foreign exchange improves; the federation account will benefit from better revenue inflows from the CBN as sale of subsidised foreign exchange comes to an end and that the policy is a major incentive to exporters as they will have unfettered access to their export proceeds.”
However, he said that “there is need for the CBN to review its position on this for the following reasons: Many of the items on the list are inputs for industries; many industries are being currently impacted adversely; the exclusion has led to considerable loss of jobs in industries, distributive trade sector and maritime sector; it has led to considerable loss of customs revenue, which has impacted negatively on the federation account and fiscal viability of governments at all levels and that the phenomenon of smuggling may be aggravated in respect of some of the excluded items.”
The Chairman, Progressive Shareholders Association of Nigeria, PSAN, Mr. Boniface Okezie in his view said: “The flexible exchange rate in my own view, will fuel inflation as there is likely going to be sharp fall of the value of naira. We should note that Nigerian products will become relatively cheap and imports more expensive, which should stimulate the domestic economy and also lift inflation. So, the major likely effect is that we will have a weaker naira because we are still an import-dependent nation. So, in the short run, the effect would be enormous as this might not be good for our manufacturers who still import their raw materials.
But, in the long run, it will be better if other impediments are also addressed simultaneously. In the case of portfolio investment, more foreign investors would want to bring their dollar to invest, make profit and repatriate to their own country. This is because, the dollar will have higher value than naira and once they make their money, convert them to dollar, they will repatriate to their home country. The local investors would be the worst hit because they are the real investors whose returns would be eaten up by inflation.
Furthermore, local investors at the moment don’t have money to invest because there is no flow of funds in the economy. Contractors are being owed, high unemployment, difficult operating environment, etc. are constraints to local investors. However, if the flexible exchange can favour the real sector, it will be better for the country.”
Speaking on the issue, Managing Director, Securities Africa Limited, Mr. Afolabi Folayan said: “The stock market initially opened on a high note as investors anticipated the CBN’s guideline but dipped at mid-day before closing bullish subsequent to the Press briefing of the CBN Governor on Wednesday. I believe the changes have been expected by the market since the last Monetary Policy Committee, MPC meeting and the effect has already been priced into equity prices over the past few weeks.