The battle by the Cenral Bank of Nigeria (CBN) to save the naira from crashing in exchange with other foreign currencies, has been on for years.
But quite recently, this challenge has gathered momentum and assumed a sense of urgency for obvious reasons.
This is the core of the CBN’s deft move to salvage the naira and ensure it does not crash in its exchange value with its international peers.Nigeria’s major source of foreign exchange earning is crude oil, accounting for nearly 95 per cent of Federal Government’s foreign exchange revenue. With only oil largely contributing to the foreign reserves, the CBN is hard-pressed as to what options and strategies to adopt to ensure a favourable exchange rate for the naira under the prevailing circumstance.
He urged industrial conglomerates in the counrtry to support government’s efforts to grow the economy and return it to its green days. The CBN chief enjoined Conglomerates to key-into the current administration’s drive of diversifying the base of the Nigerian economy by taking advantage of its large population to market their products that could be produced in Nigeria and exported to the rest of the world, saying the bank is willing to provide foreign exchange to companies that required such for raw materials and machinery that could not be obtained locally.Expectedly, varied reactions have trailed the policy.
On the contrary, the former President of the Trade Union Congress , Peter Esele, opined that there was no better time for Emefiele to have acted than when he did, He said Nigerians should realise that there is no gain without pain, saying although the present may be “painful or difficult, but at the end, the benefit will be for all to reap.”The pressure on the naira has been on for years with the CBN regularly intervening to stabilise it against the dollar.
Emefiele gave credence to this at an investors conference titled ‘COVID-19 -Economic and Budgetary Update with the Federal Government anchored by CitiBank., Emefiele has confirmed that the CBN will continue to pursue unification around its Nafex rate. The NAFEX rate is the forex window where Investors and Exporters transact dollars on market-determined prices.
He also said the CBN is lending support to the Dangote Refinery and Petrochemical Plant, as it is projected to generate over $2.5 billion in forex to the economy and employ over 70,000 Nigerians when it begins operation next year. He said the plant would also retain foreign exchange as Nigeria becomes self-sufficient in petroleum refining.
He said: “Nigeria will soon become the biggest and only urea exporter in sub-Saharan Africa, for the first time. And we are not only exporting, we would be exporting, big time. Dangote said the size of the project necessitated the construction of a jetty to take care of the over-dimensional cargoes. He continues that because “airlines are not flying, and people are not traveling so there should therefore not be any demand for forex exchange in that market”.
The?IMF had previously pointed out that unifying the exchange rate will impact the economy more positively than the multiple exchange?rates,?which?creates?a lot of?opportunities?for arbitrage. “When somebody comes today to tell us they want to open fresh LC we begin to wonder the motive behind that” he chided.
They insist there is legitimate pent up demand of up to $5 billion as liquidity shortages continue to affect the NAFEX market. However, these claims have not been substantiated as there is no official record or data where demand is published.This session was organized to help calm the nerves of foreign investors now awash with bailout dollars but worried about Nigeria’s faltering economy and its likely ability to trigger further devaluation. Mr.
Inflation – driven by higher food prices – has risen, marking the end of the disinflationary trend noticed in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.” “The mission reiterated its advice on ending direct CBN interventions, securitising overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate.
By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products. Stressing further on the need to prioritise the Nigerian market, the CBN Governor assured the companies that the bank would collaborate with the relevant government agencies to help nip smuggling in the bud, while also promising to protect their businesses to ensure that they succeeded in Nigeria.The pressure on the naira has been on for years, with the CBN regularly intervening to stabilise it against the dollar. The CBN says it defended the naira with $8.
He further explained that although the foreign exchange rate markets remain relatively stable at both the Bureau De Change and the I&E Forex windows, the weak performance of the current account balances, fall in foreign reserves and the small margin between oil price and the budget benchmark price for oil, imply that there could be increasing pressure on the naira in the medium term if the existing conditions subsist.
According to him, the exchange rate has remained stable, helped by steady sales of foreign exchange in various windows. By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products. That is why Dangote is going into the building of refineries and this will create employment for Nigerians.
President Muhammadu Buhari sparked controversy last week when he disclosed that he has directed CBN to stop providing foreign exchange for importation of food. Critics also said the president has no constitutional right to direct the policies of the CBN, an independent institution. “As we stand today, there are about 43 items on that list and I will say substantially most of them are food items,” he said.
One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally. For most part of the past five years, or more, the CBN has come under considerable pressure in its avowed determination to keep the naira exchange rate against other currencies, stable.
With growing appetite for imported items, pressure will begin to mount on the limited foreign reserves. The obvious implication is that scarcity would set in, thus inducing a disparity in the exchange rate equation. The CBN, in February, introduced new domiciliary account rules in which it directed that customers can deposit dollar into their domiciliary accounts but are not allowed to transfer it to another party.
There is a standing rule that Personal Travel Allowance and Business Travel Allowance purchases must be on quarterly basis. Head of Research, Afrinvest West Africa Limited, Abiodun Keripe, explained that it is the CBN that makes dollar payment for customers after their naira accounts are debited for transactions.
He further said the PTA/BTA policy was to reduce Nigeria’s travel spends estimated at $20 billion per annum. Also, foreign and local investors are interpreting the policies, and the interpretation they give them will determine the level of foreign capital the economy will attract. According to him, devaluation of the naira will have its own challenges such as prices of goods going up due to rise in inflation rate and subsequent rise in poverty rate, but the foreign receivers will be protected.
He ruled out devaluation within the year, insisting that at $37.3 billion, the foreign reserves are enough to keep the naira stable. “The CBN is trying to restraint dollar demand in order to protect the foreign reserves and economy. It has assured us that the naira will not be devalued, but many people do not believe that position.
But I see the domiciliary account bottleneck removed if and after the naira devaluation happens,” he predicted. “People should understand that the CBN has reasons for implementing the policy. Those whose businesses are affected by the policy should speak out for possible review,” he advised. “The foreign exchange restriction policy will reduce the demand pressure on Nigeria’s foreign exchange earnings. Nigeria spends approximately $1.2 billion to $1.5 billion annually on milk and dairy importation, 3.21 per cent to 4.01 per cent of the current external reserves level of $37.37 billion,” he said.
Payment for exports from Nigeria will continue to be by means of Letters of Credit or Bills for Collection while appropriate sanctions will be imposed on commercial banks that remit funds on the basis of forged documents, engage in fraudulent transactions. The CBN says it will also sanction bank customers who breach any of the foreign exchange operational guidelines.The pressure on the naira has been on for years, with the CBN regularly intervening to stabilise it against the dollar.
Member of CBN-led Monetary Policy Committee , Prof. Adeola Adenikinju warned that the naira faces immense challenge ahead unless certain conditions challenging the local currency’s stability are addressed in the economy. The Mission Chief for Nigeria, Amine Mati said: “The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.
Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” he said.Despite the challenges being experienced by the economy and the naira, a ray of hope sprang up at the weekend after facts emerged that Dangote Refinery, Fertiliser Plant and Petrochemical Company could rake in $2.5 billion annually to support Nigeria dollar positions once they start operations.
He said: “We should not wait for foreign investors to invest in the economy. We have to do it ourselves; especially now that interest rates are dropping and banks are lending more to the economy. I encourage more entrepreneurs to gear up and borrow more to develop the economy.”
Nigeria Latest News, Nigeria Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
BBNaija Lockdown: Recap of week one- The Nation Nigeria NewsBBNaija Lockdown kicked off on Sunday, July 19, 2020. The viewers were at the edge of their seats and it was obvious no one could resist the urge to watch
Read more »
Davido and Holmes tell love story in new song - The Nation Nigeria NewsDAVIDO has joined forces with a fast-rising artiste, Holmes, to tell a love story in a new song, 'Love'.The new single has been hailed as one
Read more »
The issue of compatibility in a relationship - The Nation Nigeria NewsEVERYONE has imperfections, no human being is perfect, we just keep trying to do our best. A lot of people have various ideas on what they think defines..
Read more »
Teni breakfasts with Ned Nwoko and family- The Nation Nigeria NewsEVER since singer Teni Makanaki stormed the music scene, many have wanted to associate with her.Few days ago, Teni was spotted at the home
Read more »
Between love and lust - The Nation Nigeria NewsKEEPING safe is no longer news. We all hopefully know what to do to avoid danger. So we sanitize our hands and observe personal hygiene.
Read more »
Tokunbo Wahab's love for low profile - The Nation Nigeria NewsGOVERNOR Babajide Sanwo-Olu's Special Adviser on Education, Tokunbo Phillip Wahab, is one man who shies away from public attention despite
Read more »