6 January 2016

Nigeria: CBN's Forex Policy Gets Backing

President Muhammadu Buhari and two leading Nigerian economists have endorsed the Central Bank of Nigeria (CBN) foreign exchange management policy, just as local manufacturers have applauded the policy. This is coming on the heels of strong criticism of the CBN forex policy on capital controls as against naira devaluation.

President Buhari noted during his recent media chat that he was not convinced on the need to devalue the naira and therefore will not support devaluation of the naira, a position which was in alignment with the stance of the central bank.

He pointed out that he needed to be convinced that there is need for the country to devalue the naira, while stressing that Nigeria as a nation has foreign exchange policy priorities, which is to provide money to fund the projects which the CBN has highlighted and not to waste the nation's resources on those who want hard currency to import textile and toothpick.

In the same vein, Managing Director/ Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, explained: "What the CBN has been doing is to manage the circumstances within the limited resources that we have, there has been rationing and other monetary control measures, all these are indications that what is available is not what is required, and therefore it is important to manage it in an orderly manner."

He also clarified the difference between exchange rate uncertainty and exchange rate risk. He stated that risk and uncertainty are not the same thing, saying risk is the probability that something negative will happen, and uncertainty means you do not know what is going to happen. So in 2016, Nigeria will be moving from uncertainty to an environment of low moderate risk.

Another leading economist Dr. Biodun Adedipe, also stated that Nigeria's economic problem is not the naira dollar exchange rate.

According to him, "the problem is the supply problem. The people want to get goods and Nigeria is not producing enough to meet local demand. Therefore, the people will have to import and that means pressure on the naira and invariable the naira dollar exchange rate. Therefore, the Central Bank of Nigeria in my own view has performed excellently well by placing capital control on foreign exchange. This however should have a set period to encourage all stakeholders to support the initiative.

"In respect of capital controls, I am firmly in support of the Central Bank of Nigeria, this is the logic and we have a reference in history, what Malaysia did in 1997, when they found themselves in the situation Nigeria has found itself today."

The impact of the policy is already being felt across several sectors of the economy, as attested by Mr. Eric Umeofia Chief Executive Officer of Erisco Foods Limited, who said that the foreign exchange restriction policy of the Central Bank of Nigeria (CBN) has raised his firm's production capacity from five to 25 per cent.

However, CBN has assured Nigerians that Foreign currency restrictions will be lifted only when reserves have been built up to an appreciable level.

This was disclosed by CBN's Director, Monetary Policy Department, Mr. Moses Tule, who said that the restrictions will be lifted "as soon as we build up reserves; when you see us building reserves to $50 billion, $60 billion, $70 billion, $200 billion or more".

Tule noted that the moment we begin to build reserves, we expect that just as this restrictions were not there most of the restrictions will be lifted, but for now every hand needs to be on deck. We need to earn foreign exchange. As a country you can improve your business processes in order to export and earn foreign exchange and that is what the country is calling on patriotic Nigerian businessmen to do."


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