Awaiting CBN’s foreign exchange rate unification

The dithering by the Central Bank of Nigeria (CBN) to tackle foreign exchange (FX) rate unification, a programme it pledged to pursue aggressively last year, has become a major disincentive to attracting capital inflows needed to drag the economy out of recession, The Guardian has learnt.

As the naira buckled under intense pressure amidst unstable oil prices mid-last year, the Governor of the Central Bank, Godwin Emefiele, promised that the CBN would continue to pursue FX rate unification around the Nigerian Autonomous Foreign Exchange (NAFEX) window. NAFEX rate is the window where investors and exporters trade dollars on a market-determined basis.

The pronouncement triggered a debate on the appropriateness or otherwise of the policy, with ex-central banker, Prof. Kingsley Moghalu, lending voice to the discussion. Some analysts doubted the monetary authority’s commitment to the policy.

Press Informant reported that the apex bank appeared to be under intense political pressure to jettison the proposed policy direction and retain the opaque multiple exchange rate regime. It also reported that the planned unification would not get relevant extra-official consent required to implement.

The naira had since then continued to wobble in-between indecision and abuses, which Emefiele admitted during a meeting with the money deposit banks (MDBs) and the international money transfer operators (IMTOs), whom he accused of unfair practices in their operational style.

An average Nigerian wants the naira to gain more value for a higher purchasing power that comes with it, whereas policy analysts view an overvalued naira as a disincentive to capital inflows and export attraction.

On the last trading day of last year, the naira fell to N410/$ at NAFEX, closing up slightly the huge differential between the official and parallel market rates, which most market operators regard as the closest point to market value that would unlock the investment potential of the country.

But as the market resumed this year, the apex bank intervened in the market, pushing the dollar down to N394.30/$ at NAFEX. Those who hailed the liberalising movement of December 31, 2020 as a move towards unification were taken aback by the seeming flip-flop.

Fresh findings suggest that the Central Bank’s move to implement the unification and pave way for a fairly valued naira is still being held back by political consideration and intrigues. If achieved, the unification will end a long history of round tripping in the foreign exchange market and make the market more transparent.

Successive CBN governors had ‘played by the unwritten rules’, allowing a wide differential between the official and parallel market for all sort of manipulation and profiteering. The differential currently hovering around N100 per dollar, coupled with the high cost of remitting to Nigeria, has also pushed many Nigerians in the Diaspora to unofficial means.

YESTERDAY, a member of the Presidential Economic Advisory Council (PEAC), Bismarck Rewane, cautioned against exchange rate fixing. He said “flexibility and investor multipliers” are key to growing the economy.

Speaking at a webinar on the outlook of the naira, an event organized by Arbiterz Media Limited in collaboration with Cordros, Rewane, who has held firm to his rate unification advocacy, said the market would react positively once that it realized “that the rates are not fixed.”
He cautioned against the tendency towards building and sustaining a strong naira, noting that “a stronger economy will eventually lead to a stronger naira” rather than the reverse.

The Director-General of the Lagos Chamber of Commerce (LCCI), Muda Yusuf, described “currency depreciation and liquidity crisis” as the death knell of the import-dependent local manufacturing.

“If somebody requests FX and you give her 10 or 20 per cent of the value, what do you want him/her to do with it,” he asked. Yusuf, who joined Rewane and others to examine the state of the market, said local manufacturers were stranded in the midst of uncertainty and fixation with the demand side of the market without a commensurate effort to attract inflows.

“These create a lot of uncertainty and other challenges for local manufacturers. These affect sustainability. There are a lot of transactions under the table as people scamper around to pay official and unofficial charges. We need to normalise the system to reduce the challenges and bring the transactions on the table,” he said.

Head, SSA Equity Sales, Stanbic IBTC, Akinbamidele Akintola, said the apex bank might not be inclined towards “adjusting the currency forward” as the value of the naira had a negative correlation with the cost of living, which is already becoming unbearable.

However, a perceived overvalued naira, he suggested, could translate to poor investment inflow. Even as bullish as the equity market is, Akintola said he was not expecting foreign investors to leap at it in the short-term, adding that “the market will be driven by locals” this year.

The Nigerian Stock Exchange (NSE) topped global performance last year with a capital appreciation of 50 per cent. Yet, analysts said portfolio investors are not attracted despite the bullish performance, as they feel shortchanged by the low official exchange rates as opposed to the high black market value.