By Omodele Adigun
As the new year gradually unfurls, experts have urged both the fiscal and monetary authorities to strengthen the foreign exchange (forex) market and tackle the challenges faced by end users.
This is part of their agenda for the Federal Government and the Central Bank of Nigeria (CBN) to ease the forex restriction witnessed in 2016.
According to the Managing Director of May & Baker Plc, Mr. Nnamdi Okafor, if the Federal Government handles the issue of Niger Delta equitably, and if the trend of crude oil price continues, “we should be able to have some respite.The way it goes, however, depends on what we do as a country.”
Okafor was speaking on the backdrop of what most manufacturers passed through last year sourcing forex.
To Ibrahim Sheka, a professor of Economics at the Bayero University, Kano, there should be vigorous campaign to enlighten Nigerians to start patronising goods made in Nigeria. “That will reduce our import dependence significantly because Nigerians are enlightened. We should set a target. We should not allow the currency to float like that. The CBN should have a target like the US and other countries, which also have a target. We should not allow the market forces to determine the currency rate completely.
“The whole issue is about supply. How do we get dollar into the economy? It is a question of demand and supply since you subject the market to floating exchange rate. First of all, the CBN and whichever institution is responsible must be sure that those demanding foreign exchange are demanding it for real production, not just for trivial things.They must make sure because the amount of dollar demanded, compared with the output produced, carries a question mark,” Sheka said on Good Morning Nigeria (GMN) programme aired recently by the Nigerian Television Authority (NTA).
Another university don, Professor Olanrewaju Olaniyan of the University of Ibadan, believed the CBN should bridge the naira gap between the interbank and black market rates.
“Once you have the gap between the official rate and black market rate at that large, which is about close to 35 per cent of the value, then it gives opportunity for arbitrage. People understand that they can make profit by just buying that particular currency, holding it for some time and selling it. So the solution to that is that we need to close that gap. Unfortunately, the ability of policies to close that gap is also limited with the structure we have now. The economy is stagnant and there is high inflation. So both policies have to be worked out very carefully and keenly for us to be able to reduce that. It will not be in the interest of the economy to go extremely floating now because the rate at which the naira is going, if we completely float it, the naira will soon hit something like N800 to N900 per dollar. But even when the CBN cannot afford to float and still peg, you still require your reserves to serve as a background so that it can hold forte for you. One thing we need to do is to find a way of shoring up the reserves in such a way that it can do that,” Olaniyan said at GMN show.
All these are seen as temporary measures. According to Sheka, “whether we like it or not, this issue of diversification of foreign exchange coming from other sources is a long term plan.”
He explained that, “we don’t expect anything in the next couple of years. Really, the main source of foreign exchange is still the petro-dollars. If we are not able to make the 2.2 million barrels per day (bpd), we should be close to that. The issue of Niger Delta militants must be resolved. The real thing is, where are we going to get the dollars in the short run? And what plan do we have in the long run so that we will have continuous flow of the dollar? Since we realign with the dollar now as if we are not ready to realign with any other currencies, it is a question of trying to make sure we source dollar from all the available sources.
“There is no fiscal policy to support the local industry. Under this situation, when we are talking about diversification, the local industries are supposed to be supported. We are supposed to have good fiscal policy. The industrial sector requires a lot of support; the agricultural sector requires a lot of support. There is no way you can diversify through manufacturing sector without power, without support; without soft loans and without all sorts of support in that sector. There is no way you can diversify through agriculture without laying the infrastructure. We know it has to be through irrigation for the farmers to produce four or five times in a year. You can’t depend solely on the rainfall for agriculture. And as it is now, most of them don’t have the facility. So we need to produce the template. So aligning our policy towards particular currency may not bring the solution. The problem lies in sourcing more dollar, then support other areas gradually so they can pick up and contribute to the foreign exchange earnings.”
As if to align with Sheka on the challenge of the real sector, Okafor painted the forex issue this way:
“The forex situation has gone beyond what we can handle. And by the first quarter of the new year, most factories that are still standing will begin to shut down because the situation with forex has actuallhy gone worse in the last six months. It was a bit better in the first half of 2016 because you might get, maybe, 20 or 30 per cent of your forex requirement. But in the past six months, we have not got anything. So what it means is that, as I speak to you, we have not been able to order materials that normally by now, should be sailing into Nigeria. We have not ordered them for the new year.
“The implication of this is that we have lost credit from our suppliers. Nobody outside Nigeria is willing and ready to give us credit. It is also having some impacts on cost of imput materials because you have to borrow money, you have to pay cash before you get supplies. And to pay cash, you have to borrow. Banks are not willing to even lend. And when they do, it is at very high rates. So this has had a very huge impact on the cost of our products. Although, as much as we try to absorb the cost, we still cannot but to pass some to the consumers.
“Another major impact is the exchange rate loss. In the company, we are going to lose a lot of money from the LCs (Letters of Credit) we established, and goods supplied to us that we converted and sold. And at the time we were about to pay for those materials, we have to buy forex at much higher rates. This will have some significant impacts on our bottomline.”
For Olaniyan, diversification is key in the longer term to shore up the forex. “For us to diversify into manufacturing that can give us these foreign currencies, our infrastructure has to be improved. In the last couple of years, we have seen some improvement. This improvement must translate into the perception of the manufacturers. Most of the manufacturers are yet to start production because they are still thinking: this stable electricity, is it going to happen for a while or short time?
“We should also increase agric output. But agric output essentially has problem in the sense that the farmers are extremely poor, and they are not poor because they are not producing. They are poor because the farm produce’s aggregate prices are extremely low. There would still be need at a point in time for government to assure farmers that they will get value for their efforts.”
However, Aminu Gwadabe, President of the Association of Bureaux de Change Operators of Nigeria (ABCON), praised the apex bank on its efforts to stabilise the naira.
According to him, what CBN is doing is most strategic and tactical. “Strategic options is going to take us there. Nigerians need to be a bit patient. If you look at the 41 banned items, take rice importation, for instance, I don’t think the CBN has approved any importation of rice. However, we have evil forces that attack that market. There are various sabotage for rice to reach N40,000 so that we find ourselves in a mess. I pray that the boost, the harvest we are going to have very soon will help the country to maintain the stability of its currency. Not long ago, Presdient Buhari said we are going to save N10 billion in importation. There are strategic measures by both the fiscal and monetary authorities to ensure that the naira is stable,” he said.
Recall that CBN, just last month, helped some companies access forex valued at over N1 trillion.
According to the apex bank, the move was in line with its determination to ensure seamless flow of activities in critical sectors of the economy, to enable industries procure raw materials and machine spare parts.
Figures published for December show that the industrial raw material group got the highest share of N483.08 million, accounting for 48.1 per cent of the total forex allocation for the month. The petroleum and aviation sectors received about N372.12 and N123.67 million or 37.1 per cent and 12.2 per cent respectively, while agriculture received about N24.52 million or 2.1 per cent.
Last September and October, CBN supported these sectors with $660 million and $867 million forex respectively to enable them source industrial raw materials and spare parts through the interbank forex market.
For the two months, CBN said it granted $1.53 billion to 9,134 companies.
The data from the apex bank on forex allocation and utilisation for the two months show that manufacturing industries got the lion share of about $751.45 million. In September alone, the real sector got over $660 million from 1,342 companies to source raw materials and spare parts for their industries. This rose to about 7,792 requests for $867 million in October, with the raw materials sector receiving the lion share of about $355.75 million or 40.99 per cent of the total value of forex utilisation for the month put at $867.8 million.
The data also show that other end users like the petroleum industries got access to about $150.82 million. Companies and other interests in the agricultural sector got access to about $13.72 million for the period, while entities in the aviation sector received about $10.31 million for the same period. Finished goods and others got allotments of about $43.84 million and $10.78 million respectively.
Invisibles, comprising school fees, students’ upkeep and medicals, among others, received $191.34 million or 22.05 per cent of the total amount.
But commenting on this, the May & Baker boss said: “We have read pronouncements from government that manufacturers are getting some special allocations. That is not happening. So we are not able to bring in our packaging materials.In fact, that we survived 2016 was a miracle.”