As the federal government continues its frantic search for a solution to the steady slide of the Naira through the adoption of a number of quick fix measures, experts have said that the solution lies in a steady supply of forex.
As part of efforts to boost foreign currency liquidity in the economy and strengthen foreign exchange (FX), the federal government is planning to Securitize about $7 billion of the country’s dividends from the Nigerian Liquefied Natural Gas (NLNG).
The government is also expecting inflows from the $3 billion emergency loan from the African Export-Import Bank (Afreximbank), which the Nigerian National Petroleum Company Limited (NNPCL) had secured two months ago, bringing the total inflows expected in the short-term to $10 billion.
Reacting to these measures, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said the measures will significantly improve forex supply, but he was quick to add that these are stop gap measures that could put the country into more trouble if nothing is done to ensure a more sustainable supply of forex to the market.
Dr. Yusuf, who spoke in a telephone interview said, ” These measures are going to be significantly effective because it will be able to substantially deal with the problem of the backlog of FX which is a major source of the confidence crisis. That will help us to ease the problem of lack of confidence in the system.” He said, “If you have better confidence the inflows will be better because right now, we are battling with the problem of paucity of inflows from foreign direct investors (FDI) and foreign portfolio investors (FPI), not much is coming in from all these areas because of the confidence problem, so if the confidence improves as a result of the clearing of the backlog, not just clearing the backlog, but using part of it to intervene in the market.
“But more importantly is to see how we can get sustainable supply because this one is a stop gap, you know it is taking money upfront, like an overdraft, if you don’t quickly prepare to replenish it, then you will be postponing the evil day.”
Dr. Yusuf said Nigeria needs to look at the fundamentals of supply and fundamentals of its import substitution strategy.
“We need to scale up our exports especially of oil and gas, they are the biggest things that can make an impact. So we need to look at that space and see how fast we can boost output, luckily the market is there, it is just for us to put our house in order and boost output in that area.
“Secondly, non-oil exports, although that hasn’t contributed significantly historically to our forex inflows, but it can also bring something to the table. So whatever barriers we have in that area, we can talk to stakeholders and see how we can remove the barriers so that forex can come in.
“And we should have an FX window where people can bring in their forex at market rate, it should be another official channel through which they can bring in the money at the market rate. That will also help to improve supply.
“These steps the government is taking now will give us an opportunity to sort out some of our policy issues especially as it affects exports”.
He said on the demand side, Nigeria needs to see what it can do quickly on the domestic production of petroleum products so that the pressure that is coming from the demand for Petroleum products will reduce and the money can go back to the forex market.
“We need to improve our power situation also,” he said. “If power improves, the demand for some of these Petroleum products will reduce. Government needs to intervene in the power sector.
“To alleviate the current pain, because for the average citizen, things are hard. government needs to reduce import duty on a lot of things,
Forex is not in our control, oil price is not in our control, but import duty is within our control.
“I hear that many people have abandoned their cargo at the ports because of high import duty. How much revenue do you want to generate that you are strangulating business people? Let us look at the products that we can ease the import duty on to bring immediate relief to the citizens. I am not talking about products that will affect domestic products, but those that will support domestic production.”
On his part, an economist, Professor Jonathan Aremu said Nigeria needs to take advantage of every opportunity that will help it to trade more either within the country, outside the country, in the Economic Community of West African States (ECOWAS) or in the Africa Continental Free Trade Area.
He said the issue of naira going down in terms of value is based on the quantity theory of money, “when the available money in the economy is higher than the transaction, the value will go down. If the volume of domestic currency rises above the foreign currency, the value of domestic currency falls,” he said, adding, “What we need to do is that Nigeria should take advantage of every opportunity that will help it to trade more. That is the only way out. That is why some of us have been shouting over the years that Nigeria should be part of the AfCFTA so that the products that we are producing can go to other African countries and we can earn money from them.
“We succeeded in convincing former President Buhari to sign the AfCFTA agreement, we have rectified it, but there is still another problem, we have not domesticated it, unless we domesticate that particular Treaty, we may not be able to participate in the trading.
“Article 12 subsection 1 of the Nigerian construction says no matter how good an international Treaty is, if it does not have the accent of the National Assembly, it is not going to be practical.
“Of course you can engage in trading, but when there is a problem they will use your domestic law to adjudicate in the law court and when your domestic law does not recognize it, those engaged in that trade activities run into problems.
“So I think one thing Nigeria needs to do quickly, if possible this week, is make sure they domesticated the AfCFTA Treaty. We need to be able to move faster.
“The relevant ministers concerned should move quickly and make recommendations to President Tinubu to send the bill to the National Assembly for domestication and Nigeria should start participating immediately, we are too slow.
“That is what is affecting our exchange rate, if they know we have opportunity to trade in other Africa countries, they will know that Nigeria is ready and they will build confidence in our forex market.”