Policy inconsistency of CBN undermines foreign exchange supply – DG, Lagos Chamber

CHINYERE Almona is the newly appointed director-general of the Lagos Chamber of Commerce and Industry, the oldest chamber of commerce in West Africa, with over 3,000 member-companies.

Almona holds a doctorate degree in Business Administration from Business School Netherlands. She led the Africa Corporate Governance Program of the International Finance Corporation (IFC), which provided a wide range of corporate governance reforms across 13 African countries. Before joining the IFC, she was a director at PricewaterhouseCoopers, leading the Corporate Governance, Risk, and Compliance (GRC) Practice, which she established. In this interview with The ICIR’s News Editor Odinaka Anudu, she says that the policy inconsistency of the Central Bank of Nigeria (CBN) undermines dollar supply. She also proffers solution to Nigeria’s revenue challenge, urging the government to commercialise its assets while allowing the private sector to invest in commercially-viable infrastructure projects. Excerpts:

Let’s start with dollar scarcity. In the last six to seven years, the global oil price and Nigeria’s oil output have fluctuated. As a result, Nigeria has faced severe foreign exchange scarcity. What measures should the Nigeria’s policymakers take to put an end to the perennial FX scarcity that has hurt the economy so badly? 

The protracted challenges of the naira exchange rate are deep-rooted in the weak productive base of the country. Three approaches to looking at these challenges are: boost the supply of forex to meet demand (supply side), peg the rate or control demand for forex (demand side). The CBN has tried to do all three, but demand pressures outweigh supply leading to naira exchange rate challenges. Consequently, the rising demand for import items including food commodities, education, and medicals continues to put pressure on the demand for the dollar.

Whenever there is a free fall of naira exchange rate at the parallel market segment, as we are currently witnessing, the CBN applies demand containment and/or price control measures as seen from the 43 items ban and quest to peg the exchange rate of the naira.

Tightening measures have always failed to stabilise the exchange rate in Nigeria. It only redirects FX transactions to the underground arrangement, with unintended consequences of increased pressure on the exchange rate and creation of wide premium between the official and parallel market exchange rate -N162 premium gap between Investors’ & Exporters’ window rate of N412 (CBN) and the parallel market rate of N574 (EIU).

There are several impediments to boosting FX supplies in Nigeria. One is policy inconsistency of the apex bank, which undermines supply of FX. At the moment, Foreign Portfolio Investment is shrinking significantly. Another one is the breakdown of FX supply fundamentals and lack of confidence in the naira as a store of value.

There is also another important factor, which is the non-diversification of the foreign revenue sources, even though the GDP is domestically diversified. Most of our forex is sourced from oil and gas which accounts for about 80 per cent of our revenue.

So, in the long-term, what should Nigerian policymakers do to drive more foreign exchange inflows into the economy?

Nigeria needs a policy that will stimulate financial flows, straight to the balance sheet. We need to leverage the huge opportunities for investment in the balance sheet by repositioning viable businesses and government securities, making them appealing to attracting foreign capital and investment.

Two, flexibility in FX management will allow naira exchange rate to adjust to equilibrium dynamically. Measures that will spur confidence in the Nigerian economy will boost supply and help the naira exchange rate get its national value.

Also, there is a need for the diversification of the economy, allowing other sectors to be productive, while incentivising export-oriented sectors. Nigeria also needs to diversify the sources of foreign earnings, adopt import substitution strategy and open up other sectors that have export potentials (such as health and tourism).

The African Continental Free Trade Area (AfCFTA) holds a lot of promise for Africa, especially Nigeria, which is the continent’s biggest market. Many of your members had prepared to participate in the AfCFTA earlier in the year. Unfortunately, the trade pact is yet to take off 10 months after. What are the issues that are holding back the kick-off of the trade treaty?

The African Continental Free Trade Agreement (AfCFTA) was operationalised on January 1, 2021. The trade treaty marks the biggest free trade globally in terms of the number of participating countries since the formation of the World Trade Organization in 1995.

The trade agreement was borne out of the need to deepen economic integration in Nigeria, considering Africa’s low intra-regional trade volume with other continents like America, Europe, and Asia. The agreement sought to eliminate tariffs on 90 per cent of goods while also enabling micro, small, medium, and large businesses to penetrate new markets and establish strong cross-border supply chain linkages with trade partners.

The AfCFTA has the potential to accelerate the socio-economic development of the African continent. A well-implemented AfCFTA will stimulate economic growth, generate job opportunities and help to facilitate the economic diversification of African economies while ensuring people, products and services move freely across the continent. Estimations by the United Nations Economic Commission for Africa (UNECA) revealed that AfCFTA can expand Africa’s manufacturing output to $930 billion by 2025, from $500 billion in 2016.

Much work remains undone on AfCFTA as critical parts of the agreement are yet to be finalised. Several important issues including schedules of tariff concessions, schedules of service commitment, rules of origin, investment, competition policy, and intellectual property rights have not been concluded.

There is still a lack of clarity on the type of value addition that must occur within an AfCFTA state party for a product to benefit from tariff reduction.  There are pending negotiations at the continental level, delaying the implementation of the trade agreement.  A great deal of sensitisation and enlightenment still need to be done on the implementation modalities.

There are also concerns about the adherence of participating countries to the protocols within the AfCFTA framework. Africa’s trade narrative, as we all know, is characterised by trade malpractices – smuggling, unilateralism, and violation of trade protocols. Within the context of developing nations, economic integration can create a trade diversion risk in which trade shifts from a lower-cost producer outside the continent to a higher-cost producer in the African continent. Also, Africa’s weak legal and institutional framework remains a source of concern.

Revenues of federal and state governments are dwindling, and debts are mounting, including debt servicing. As a financial expert, what do you think these arms of government must do to raise revenues and reduce borrowing?

The Mid-Term Expenditure Framework (2022-2024) has three areas that have raised concerns: debt servicing, revenue projections and budget deficit.

The rising cost and proportion of revenue used to service public debts, 98 per cent of revenue according to Presidential Economic Advisory Council, based on the actual revenue generated in the first half-year, is creating fiscal distortions of significant proportions. Since revenue fundamentals are currently weak, the ideal thing is to reduce the cost of borrowing, specifically the high deficit and debt cost projected in the Mid Term Expenditure Framework (MTEF 2022-2024).

The Federal Government should focus more on non-interest asset-linked securities as these unlock revenue and growth in the long term.

The Federal Government should allow the private sector to invest in some infrastructure projects that are commercially viable to generate incomes for repayment of funds expended. This will give more scope for the Federal Government to deepen fiscal consolidation.

What is your position on the value-added tax debate going on in the country?

The first concern of the Chamber is the confusion that businesses face as to who oversees VAT collection. This is not healthy for the business environment and planning. We, however, hail the swift intervention of the Court of Appeal to reduce the uncertainties surrounding these controversies.

Businesses should not be subjected to unnecessary hurdles and made to pay the same tax twice from different agencies. The Federal Government should urgently establish an understanding with the states on what is best for the nation and businesses.

The value-added tax was introduced in 1993 to replace the sales tax in the states. The original formula for the distribution was 50 per cent to the Federal Government; 35 per cent to states; and 15 per cent to LGAs. But with effect from January 1999, the formula was adjusted to be 15 per cent to FGN; 50 per cent to states; and 35 per cent to local governments. Presently, the states and LGAs share their allocation using the factors of equality 50 per cent; population 30 per cent; and derivation 20 per cent.

We advise that the current sharing formula for the states and LGAs be adjusted using the factors of equality 20 per cent; population 30 per cent; and derivation 50 per cent going forward. This arrangement should be agreeable to all concerned parties. This can drive innovation on revenue generation in all the states towards increasing their internally generated revenue. It will also make the states more sensitive to the needs of businesses in their respective jurisdictions knowing that whatever affects businesses negatively may also affect their ability to pay their taxes.

There are several hiccups to trade and commerce in Nigeria, but, perhaps, one of the biggest ones is infrastructure. With the Federal Government already cash-strapped, what model of infrastructure financing should the country adopt at the moment?

Nigeria is an asset-rich nation owning hundreds of large state-owned companies, valuable parcels of land, and built structures in prime commercial locations. These assets are grossly underutilised and contribute too little to the country’s fiscal and financial situation because their market values are currently not known. There is, therefore, a need for government to take urgent steps to establish the market values of the assets, securitise the corporate assets and commercialise the real estate assets to raise revenue for the government and foreign exchange inflows for the country.

There is a need to replace existing debt stocks with asset-linked debt to ease the debt servicing burden, attract greenfield FDI into publicly listed state-owned companies, and generate new revenue streams from commercialised real estate portfolios.

Given the challenges highlighted above, the Chamber wishes to propose to the government at both federal and state levels to identify public assets by conducting an official identification of national assets in terms of location, purpose, and usage, and producing a national asset register.

There are four types of assets namely: Corporate assets such as refineries, state-owned enterprises; physical assets such as government land and built structures; intangible assets such as the GSM licensing and pension funds; and human capital which is a national pool of high-return skills.

An asset register that provides detailed information about Nigeria’s assets at national, state, and local government levels must be created.

Secondly, government must determine the worth of these assets. Corporate assets should be securitised via public share issuance to raise equities. A typical example is Saudi Aramco’s IPO of 2019 where $25.6 billion was raised after the oil firm sold a 1.5 per cent stake to private investors, thereby establishing the value of Aramco to be over $2 trillion.

Physical assets such as idle or under-utilised properties could be repurposed and redeveloped for commercialisation to generate revenue. Typical examples are what the United Kingdom did with its inner-city prisons as well as the United States’ conversion of military bases into great commercial places through the Base Realignment and Closure Commission (BRAC) and created a separate agency to manage its thousands of real estate portfolios.

Also, Intangible assets such as breaking government monopoly in the infrastructure sector (railway, pipelines, power transmission) should be liberalised for investors to commit equity funds into these sectors. A typical example was the liberalisation of the telecoms sector that incentivised investors to purchase GSM licenses.

In human capital, massive investment in skill and talent development to increase the pool of the country’s human capital is needed. The financialisation of Nigeria’s human assets will boost net foreign income and remittance inflows into the economy. A typical example is how the Philippines is training its doctors, nurses, technicians, to enable them to export their services to foreign countries.

Another issue facing traders is the state of the seaports in Apapa and Tin Can. What do you think the government should do to reduce gridlocks and the number of containers staying on the bridges around these ports in Lagos?

Despite the interventions and steps taken by the governments (Federal and Lagos State), the burdensome process of moving goods from the ports and extortions by government agencies persist. The bottlenecks with the clearing of cargoes, especially the activities of the Nigeria Customs Service (NCS), constitute a significant deadweight to the process.

We advocate for an urgent reformation of the NCS through executive orders or legislative actions to enable Customs to discharge its trade facilitation functions effectively. We call for proper management of the roads leading to the ports and the withdrawal of excessive and often unauthorised officials from the roads to curb the persistent traffic situation at the Lagos ports.

As a new DG of the oldest chamber of commerce in Nigeria, what areas will you focus on in terms of advocacy and promotions?

The Chamber is the voice of the Organised Private Sector, and we represent and express the opinion of the business community on matters affecting trade and industry. Therefore, the advocacy work of the Chamber seeks to address current and real-life challenges faced by members and the business community. The Chamber’s advocacy focus under my watch will continue to be aligned with the existential needs of the economic and business environment, and what is required to alleviate the burden on businesses.

As the new DG of the oldest chamber of commerce in West Africa, now in its 134th year, I will strengthen our advocacy effectiveness and exploit all opportunities, leveraging digital technology, to create deeper, more meaningful partnerships in order to deliver greater value to our members. Incidentally, digital technology affords us easier access to policy makers and enables us to connect our members to these policy makers.

 What should the business community expect from your leadership?

    As I look to the future of LCCI, I see a chamber that is fully attuned to the journey into the Fourth Industrial Revolution. We will champion commerce, trade and industry issues in Africa and demonstrate the flexibility to grow and adapt to the changing dynamics of business, leveraging digital technology. Efforts will be made to infuse our membership pipeline with young and dynamic corporate leaders, entrepreneurs, and CEOs willing to be agents of growth, transformation, and success.

    Poverty is on the rise and the majority of consumers can’t afford what some of your members produce or sell. What should the government do to reduce the level of poverty in the country?

    Nigeria is currently experiencing stagflation whereby there is high inflation and high unemployment. We also know that to reduce poverty, you must create jobs and empower more people financially. With unemployment at above 33 percent and inflation at 17.01 percent, the outlook is bleak and needs urgent transformational policies that can revive manufacturing, agro-processing and exports, among others.

    Our production base is still weak with high dependence on imported raw materials and goods for our industries. The government should initiate special-purpose interventions in sectors that are job-rich such as agriculture, manufacturing, technology, and construction, among others.


    Join the ICIR WhatsApp channel for in-depth reports on the economy, politics and governance, and investigative reports.

    Support the ICIR

    We invite you to support us to continue the work we do.

    Your support will strengthen journalism in Nigeria and help sustain our democracy.

    If you or someone you know has a lead, tip or personal experience about this report, our WhatsApp line is open and confidential for a conversation


    Please enter your comment!
    Please enter your name here

    Support the ICIR

    We need your support to produce excellent journalism at all times.


    Most read