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FX market: Experts urge CBN to deepen market reforms

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FINANCIAL analysts have told the  Central Bank of Nigeria to move beyond the stoppage of sales of dollars to the Bureau De Change Operators, BDCs and sustain reforms that address price distortions in the Nigerian foreign exchange market.

They further called on the Central Bank to ensure a market-driven price that ensures a stable exchange rate regime and encourages investments into the Nigerian economy.

The Central Bank of Nigerian governor Godwin Emefiele has at the last Monetary Policy meeting directed suspension of dollar sales to the BDCs in the country citing concerns of the graft and illegal transactions in their operations, as a key reason.


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The directive from the apex bank has seen the naira adjust firmly against the dollar, which analysts attributed to the policy on forex restrictions to the BDCS, but insisted it is not a long term solution to the FX crisis in the country.

“The gains were largely an adjustment for the initial shocks from policy forex restrictions to the BDCs.But rates are likely to remain above the pre restriction levels. It may not be appropriate to describe the correction as progress,’ An economist and former director-general of Lagos Chamber of Commerce and Industry Muda Yusuf told THE ICIR.

He said: “For normalcy to be restored, the pricing driven distortions must be corrected. The huge premium between the official retail exchange rate and the open market rates would continue to perpetuate roundtripping and other forms of distortions.

He noted that there would be enormous demand pressure on the banks which will ultimately pose a profound corruption risk, stressing that a market solution appears to be the sustainable solution.

Recall, the World Bank had in June in its report on economic development raised exchange rate management as the first of six policy areas where it was advising the Nigerian authorities to take action within three to six months.

The global bank in the report called on the authorities to provide a clearer and more predictable foreign exchange management system suggesting that its response to Abuja’s request for a $1.5 billion loan would be linked to how the issue was handled.

Nigeria has multiple exchange rates operating in parallel, a system put in place during a 2016 oil price crash because the government was seeking to avoid a large official devaluation of the naira as a matter of national pride.

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The Central Bank of Nigeria has recently opted for a gradual weakening of the official rate of the naira in an apparent move to allow it to converge with the NAFEX rate, a market-determined rate for investors and exporters.

On the back of the concerns raised by the World Bank, analysts are worried that the multiple exchange rate concerns and market distortions have not been adequately addressed.

Former Deputy Governor of the CBN Kingsley Muoghalu has earlier called on the apex bank to stop subsidising import and float the naira to actually determine its market value.

“The government cannot continue to fix the price of the naira, which is what the Central Bank is doing. If you float the naira, you have to stop subsidising imports. Our country is structured in such a way that it is subsidising the country’s imports. This breeds arbitrage.

Muoghalu notes that when you float the naira, you create incentives for those who want to export and earn forex. That way, you structurally shift the economy to those who want to export but must combine it with trade policy.

Notably, the Central Bank of Nigeria has been struggling to fix the demand side of the FX market but has been weak in developing the supply side of the FX market. Industry analysts said Nigeria’s over-reliant on oil to boost its reserve and FX market exposes it to more vulnerability.

“The issue why naira is so vulnerable to being devalued is because we are not generating enough dollars. The oil market is volatile and it is affecting naira’s vulnerability because of not having enough buffer. This has been the bane of our problem,” An Economist at the Centre for Study on African Economies, CSEA, Mma Ekereuche told The ICIR.

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She noted that the government must find a way to explore the agribusiness sector and the manufacturing sector with the advantage of the African Continental Free Trade Area Agreement in other to improve dollar access to the economy while strengthening the naira.

The founder and managing director of Cowry Assets Management Limited, and Facilitator, Institute of Chartered Accountants of Nigeria, ICAN Jonhson Chukwu told The ICIR that the apex bank must sustain reforms in the FX Policy and increase the supply side of dollar to the economy.

“The Central Bank of Nigeria must find a way to create platforms for several legitimate demands that find satisfaction in the parallel market. This would enable it to sustain the gains between the naira and the exchange rate.”

“Beyond what they are doing presently, the Central Bank has to find a way of admitting some transactions that were accessing money from the BDC window or the parallel market window, to take out some of the pressure that will come in near future, since people are still monitoring the market, to see its  reactions in near future,”

He noted that the apex bank must find a way to increase the supply side of FX by encouraging a competitive edge in the export of commodities that Nigeria has a competitive advantage on to increase the supply side of the dollar to the economy.

“That way, there would be more dollars into the economy,” he said.

It would be noted that naira appreciated against the dollar at the parallel market on Monday as deposit money banks set up foreign exchange teller points for customers in line with the directive from the Central Bank of Nigeria.

The naira strengthened to 512 against the greenback at the parallel market from the 515/$1 at which it closed on Friday.

It, however, fell by 0.02 per cent to 411.50/$1 at the Investors and Exporters window, with a forex turnover of $121.08m, according to FMDQ Group.

The local currency had last week plunged to an all-time high of 525 against the dollar at the parallel market following the stoppage of the supply of foreign exchange to Bureau de Change by the CBN.

Chukwu, however, said the CBN would channel a significant portion of its weekly allocation currently meant for BDCs to commercial banks to meet legitimate forex demand for ordinary Nigerians and businesses.

Meanwhile, officials at the banks visited said that a dollar was being sold for N412.

Beyond FX reforms, analysts want Nigerian economic managers to tap into gradual ease of lockdown in the global economy and facilitate reforms that put the Nigerian economy on the pathway to sustainable growth.

Our economy needs a myriad of actions that can trigger a possible rebound, said an economist and former director-general of Abuja chamber of commerce and Industry, Chijioke Ekechukwu.

He said: “Firstly, the ability of CBN to continue to meet the FX demands of importers and payments for invisible transactions and an economic environment that can encourage foreign Investment will be necessary to stimulate trade.

“We need to profile businesses of Government, State or Federal as well as businesses of the private sector that can produce for local consumption and for export.”

He also advises the government to find more external markets for our abundant Gas reserve, having declared a decade of gas to diversify the economy.

He also noted that the manufacturing sector must be made to be a major driver of our economy.

The more they are, the more revenue from taxes and the more employment.

“We need to open our Solid mineral resources market to the world so that more investors in that space can bring in their funds.”

Ekechukwu pointed out that the sector is enmeshed with clandestine transactions, cartels and secrecy while urging more transparency in order to position it for wealth creation.

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