MANY Nigerian businesses and traders have raised concerns about the negative impacts of Central Bank of Nigeria (CBN) policies on currency management on their activities.
The CBN has prioritised the exchange rate unification and floating of the naira against the US dollar as a key component of its reforms on currency management, which has seen the naira on a downward spiral for eight months since the President Bola Tinubu-led administration took over the nation’s leadership.
Some business owners who spoke with The ICIR said they struggled to import goods due to the high volatility of the exchange rate, resulting in capital erosion (loss of capital for business).
“We are not certain of the exchange rate to use in pricing our goods anymore because of the constant volatility in the exchange rate market. If you’re selling a product, you’re not certain of the price to import next time because of the unpredictability of the forex market rates, which is causing a lot of problems for us,” a dealer in phone accessories in Ikeja Computer Village, in Lagos State, Kenneth Chukwuma, told The ICIR.
“The unpredictability in the forex market is affecting investors’ confidence. For instance, I have a partnership in England that I have been pursuing since last year. The investors said Nigeria’s unpredictable currency market was their main problem, “he added.
Another businessman, Ikechukwu Ohaneche, deals with medical equipment imports. He said it had become a problem to be in business because of capital erosion and the inability to sustain competitive, fair pricing.
“The government shouldn’t have floated our currency the way it did because we don’t have a strong currency reserve as a buffer. We go to the parallel market to source our dollar, and the constant decline of the naira is affecting our business,” he said.
For some economic analysts, the apex bank took a huge risk in floating Nigeria’s currency market when there was no market equilibrium (When demand outweighed supply).
A senior financial analyst with the Financial Derivatives Company Limited, Dumebi Oluwole, said there had been two official devaluations of the naira by the Tinubu government, which he said could not save the naira.
“All together, we’ve seen the currency lose up to 40 per cent in the eight months of Tinubu’s government, yet its value continues to depreciate. This is a huge concern for businesses and investor confidence,” she said.
According to Dumebi, the CBN needs to have policy coherence and impact evaluation mechanisms of its policies to sustain investors and business confidence in the country.
“We would also need to look closely at our exchange rate. We’re an import-dependent country, and imported items are surging food inflation. The CBN is trying to do more with reforms, but we need clarity of market rates to help grow investors’ confidence,” he added.
Notably, the naira has declined against the US dollar since the Tinubu government floated it.
At the official Nigerian Autonomous Foreign Exchange market (NAFEM) rate on January 31, 2023, the currency trading opened at N1,480.16/$ at the official window and closed at N1,455. 59/$.
At the parallel market, informed sources told The ICIR that it traded at N1,500/$, signalling a gradual close of the gap with the official rate.
This continuous decline has affected businesses as the Senate, on Wednesday, January 31, through its Committee on Banking, Insurance, and Other Financial Institutions, summoned the CBN governor, Olayemi Cardoso, to appear before it on Tuesday, February 6, to answer questions on the state of the economy and the free fall of naira in the forex market.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.