The flexible exchange rate policy the Central Bank of Nigeria (CBN) announced on Wednesday has received massive support. It is due to go into effect on Monday.
The Naira and trading at the Nigeria Stock Exchange (NSE) firmed up yesterday in response to the policy.
The International Monetary Fund (IMF), the European Union (EU) delegation to Nigeria and the Lagos Chamber of Commerce & Industry (LCCI), among others, hailed the policy.
Lagos lawyer Olisa Agbakoba (SAN) supported the policy which he believes will bring naira back to its deserved value in addition to making foreign exchange available for those who need it.
IMF spokesman Gerry Rice told a weekly news briefing that the Fund wanted to see how effectively the naira exchange market functions once the new float system becomes effective.
CBN Governor has said the bank expects the naira to settle at around N250 to the dollar after it abandoning the peg of N197 to the dollar it has supported for 16 months.
“I think the announcement yesterday to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important and welcome step,” Rice told reporters. “It will provide greater flexibility in that market, the foreign exchange market.”
“As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform,” Rice said, adding that allowing the exchange rate to better reflect market forces is an integral part of that.”
LCCI Director General Muda Yusuf said the Organised Private Sector (OPS) had consistently canvassed the new position taken by the CBN in the past 18 months.
He said the OPS expects an improved liquidity in the forex market, significant improvement in the allocative efficiency of foreign exchange and improved investors’ confidence.
Yusuf said the new policy will enhance the supply of forex to the market from capital importation, export proceeds and diaspora remittances.
He said the policy will also moderate the exchange rate in future as the supply of forex improves.
He said: “The policy is a major incentive to exporters as they will have unfettered access to their export proceeds. Besides, the federation account will benefit from better revenue inflows from the CBN as sale of subsidised forex comes to an end.
On the continued exclusion of 41 items from forex market the LCCI boss canvassed the need for the CBN to review its position. He argued that many of the items on the list are inputs for industries leading to negative impact on the manufacturing sector.
According to him, the exclusion has led to considerable loss of jobs in industries, distributive trade sector and maritime sector. Furthermore he said the negative policy has led to considerable loss of customs revenue, with the capacity to impact negatively on the federation account and fiscal viability of governments at all levels.
He argued that if government fails to retrace its step on this singular policy, the phenomenon of smuggling would be aggravated in respect of some of the excluded items.
Head of Trade and Economics at the EU delegation to Nigeria and West Africa, Mr. Fillippo Amato, commended the policy, saying it will attract huge investments into the economy. He said prospective foreign investors who have been holding on to their funds will be impressed with the new policy and will have no choice but to invest as market forces will determine the real value of the Naira.
Agbakoba (SAN), a former Nigeria Bar Association (NBA) president, described the new fiscal policy as “potentially transformational”.
He said the impact of a single foreign exchange market will have the best possible outcome for the economy.
“I am confident that well managed, Nigeria will be out of depression by the first quarter of 2017,” he said in a statement.
According to him, the economy is depressed because everything is imported, very little is exported and nothing is produced.
“Import substitution turns the story around. We should only import the very essentials and produce everything else in Nigeria. In this way, we create millions and millions of jobs. But this policy can only work if the economic and investment ministers apply the correct fiscal and trade tariffs by building high walls to discourage useless import,” he said.
To him, Nigeria has been in recession since the last quarter of 2014. “So, we are in depression but the good news is the new foreign exchange single market and the opening up of the petroleum industry to competition.