By Obaka Abel Inabo

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Of course, it is no longer news that the era of fixed foreign exchange regime ended on Monday, June 20, 2016 when a flexible foreign exchange market commenced. That day marked the end of the period of determined effort of the Buhari administration’s resistance to naira devaluation. And when the Central Bank of Nigeria (CBN) announced details of the policy, some commentators euphemistically retorted that naira would now float like a butterfly! In practice, the market-driven foreign currency trading which has been termed as a flotation meant a steep devaluation from the former artificially fixed official exchange rate.
The new policy has many elements but the main ones are that the forex market will now operate as a single market structure through the interbank/autonomous window and the exchange rate would be purely market driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book. Mouthful of technical jargon aside, Nigerians rightly dread anything that is purely market driven, deriving from previous experience like SAP. Recall that foreign investors and economists have for months called for naira devaluation as chronic foreign currency shortages choked economic growth and deterred investment. Buhari was initially defiant in his stand against the devaluation of the naira which he regarded as its ‘death’ due to the untold economic hardship it has subjected Nigerians to in the past through hyper-inflation. Before I state the implications of the new forex policy for our economy, I shall first explain what it entails.
Market will operate as single market through the interbank while forex (FX) rate will be purely market-driven. Furthermore, CBN will participate through periodic interventions. FX primary dealers will be registered to deal directly with the CBN for large deal sizes but FX primary dealers will deal with other authorized dealers. There will be no more spread restrictions. The 41 items classified for not valid for FX are still not admissible in FX interbank market. CBN may offer long-tenored FX forwards. Selling of FX forwards must be trade backed with no pre-determined spreads. Over The Counter (OTC) FX futures will be introduced. The OTC FX futures are bespoke and volumes could be non-standard. Non-oil exporters are now allowed unfettered access to export proceeds via the interbank market.
Contributing to the debate, Dr. Ganiyat Adesina-Uthman, who is the Dean of the Faculty of Social Sciences, NOUN, believes the policy will lead to diversification of the economy, a shift to alternative goods and a reduction in dollarization of the economy. She added that floating exchange rate and limitation in a number of forex items will have some positive implications on the Nigerian economy such as promotion of locally produced goods. Ganiyat is confident that exclusion of rice and other items from the list of product demanding for forex in Nigeria is a call to turn to locally produced goods. She  explained that the supply side of forex has faced serious threat with the dwindling oil price and the incessant attacks on pipelines by the militants.
To achieve diversification of the economy, Dr. Ganiyat Adesina-Uthman suggests exploring non-oil sector with large-scale investments to increase productivity that can increase exportation. She believes that the effects of depreciation of naira value may not be felt so much if Nigeria joins again the comity of exporting nations.
My take on the new forex policy is that the CBN failed to do a scientific analysis of the forex economics and the associated politics. It is trite to state that most developed countries protect the value of their currencies economically and politically.
The Dollar and the British pound are enjoying this protection knowing fully well that the strength of any country is the value of her currency. The government should as a matter of urgency put up an economic committee to be made up of the academia and committed technocrats to direct the economy and not bankers and politicians. This is because some bankers and politicians have deposits of dollar and pounds in local and foreign banks. They also keep their foreign  currency at home and farms.  Further devaluation of the naira is to their selfish interest and advantage. They will be richer to dominate, oppress, dictate for the economy and perpetuate their hold on the political economy of Nigeria. There are just too many headwinds in the Nigerian economy, with a devaluation probably worsening the asset quality outside the oil and gas industry. Obviously, the ability of companies to pay back the money that banks have given them is a natural concern. Of course, businesses will be struggling to sell products and generate cash flows.
However, since CBN has tactically devalued the naira, I will not cry over  spilled milk I wish to point out like Dr. Ganiyat Adesina-Uthman did, that one of the ways to enhance the value of the naira is, to some extent, through an export-oriented economy. This will put less pressure on the dollar. The new exchange rate regime could enable export-led growth. Having introduced the flexible exchange rate, I do expect the CBN to come up with a trade and economic policy with the aim to fast-moving up the industrialization process in Nigeria by exporting goods in  which the nation has a comparative advantage. Agricultural produce and solid minerals are good examples.
Since the deposit and inflation rates are also important to the new flexible exchange rate regime, the CBN should implement policies that will mitigate liquidity and interest rate risks. In other words, the CBN should come up with fiscal programmes that aim to drastically reduce interest rates to a single digit.
This reduction could have direct impact on the inflation rate currently around 15.6%. Additionally, the CBN could reduce the liquidity problem in the system through issuance of attractive bonds to local and international investors. Nigeria may have to, again, consider buying bad debts to reverse a contraction in lending like it happened six years ago when regulators had to rescue the banking industry from collapse after a debt crisis and amid allegations of corruption, setting up the AMCON to take on non-performing loans. The economy might not immediately return to growth, but at least the bleeding should stop!
*Obaka is a Lecturer at NOUN and a PhD Economics Student at UNIJOS.