23 June 2016, Lagos – Energy experts have applauded the Central Bank of Nigeria, CBN, for its decision to float the Naira and allow it to be driven by market forces.
According to Director, Emerald Energy Institute, Wumi Iledare, the decision of CBN, to float the Naira is a welcome decision, although it’s been long overdue.
“Particularly impressive is the fact that there is no price ceiling or price floor as was the case with the Petroleum Market,” he said. He also said that one can expect a spike in forex prices, but in the long run, the price would drop and stabilize. The only caveat is allowing the rule of law to prevail. This is essential if the expected outcomes are to be realized. And to minimize volatility, the regulator must be committed to transparency and accountability in the enforcement of the guidelines! “Regulatory capture must be avoided. What that means is that CBN officials must be on top of the issues and commit adequate resources to manage the volatility the market systems bring to forex pricing,” he asserted.
He also noted that as long as transparency remains the backbone of the policy and with adequate resources as they are needed, the indigenous Exploration and Production, E&P firms will be able to survive and local content act expectations would not be jeopardized. On his part, Chairman, Egbin Power Plc, Kola Adesina, argued that the focus of government is to energise the economy allowing the forces of demand and supply to stimulate the critical sectors. He said: “It’s a positive step which should permeate all sectors. This hopefully should stem rent seeking.
Also speaking, The Chief Executive Oficcer, Matrix Petro-Chem Ltd, Dr. John Erinne, noted though the new policy does not necessarily solve all our foreign exchange problems but it is certainly a more realistic, rational and efficient means of allocating the scarce foreign exchange.
“As it relates to electricity supply which is largely dependent on importation of parts and equipment, it will make good for access to FOREX to be engendered in order to guarantee stability of supply.” He explained that, as a regulated business, tariff setting must recognise true costs and be treated accordingly, adding that electricity is an economic product simplicita.
Also speaking, The Chief Executive Officcer, Matrix Petro-Chem Ltd, Dr. John Erinne, noted that the naira has indeed been progressively devalued informally in the market place over the past year or so.
According to him, “It was simply inevitable that the government will be forced to abandon its obduracy and respect the ruling of the market. Whether this is officially called devaluation or not is not particularly relevant. Nevertheless, if it is not devaluation, I wonder what else will be considered to be devaluation.
“Devaluation inevitably leads to inflation. This has been prevalent in the economy in the past few months, since informal devaluation had taken place. Most goods and services are therefore already priced on the basis of market determined exchange rate. The new policy measures are hence not likely to impact drastically on the inflation rate, to my mind.”
He added that though the new policy does not necessarily solve all our foreign exchange problems but it is certainly a more realistic, rational and efficient means of allocating the scarce foreign exchange.