LAGOS – Over the years, Nigeria has had a foreign exchange liquidity challenge crying for urgent and sustainable solutions.
As a country, Nigeria cannot escape the tyranny of a forex supply crunch in an economy whose forex demand cannot immediately be suppressed except you want many sectors of the economy to grind to a halt.
Significantly, the Federal Government has been trying to manage the demand for forex and this demand management approach has not worked.
Interestingly, the government’s attempts at rationing foreign exchange or picking who got forex at subsidised rates have created opportunities for arbitrage, patronage and other sharp practices.
The main reason for this approach was to defend the Naira with our foreign reserves. But reduced forex flows have shrunk the space for that.
In light of this, analysts have proffered solutions to this lingering anomaly that has led to a daily devaluation of the Naira.
Some of these options are, diversifying and increasing our export base. The oil and gas sector still accounts for more than 80 per cent of our exports and attracts foreign investments, both direct and portfolio investments.
Others are, taking some foreign loans at commercial or concessionary rates. One example of a commercial loan is Eurobonds, which we binged on at a point as well as seeking placements or deposits from countries awash with forex, such as the petrostates of the Gulf.
Analysts believe the Central Bank of Nigeria (CBN) surely has a key role to play here. However, due to the many ramifications of the challenge, this is beyond what can be left to the CBN alone and beyond what can be approached in the current piecemeal, uncoordinated way.
They posited that for Nigeria to get out of the foreign exchange scarcity being experienced in the forex market, it must take a bull by the horns by looking for huge loans and deposits.
In his opinion, a public affairs analyst, Dr Waziri Audio, said for Nigeria to make any difference in the forex market, it will need loans and deposits in the region of $20 billion.
He said: “This is the quantum that will calm the market and reassure players in the forex market about adequate liquidity. We don’t have to draw down on or use the forex loans/deposits.
“Their existence will serve as a psychological boost and take the heat out of the forex market. But loans (whether commercial or concessional) have to be repaid, and at a cost. So, taking on loans in whatever guise has implications for our external debt, for the increasingly crushing revenue/debt-service ratio, and for the debt burden we are imposing on future generations.
“However, we may have little or no options but to seek some significant but reasonable loans/deposits”.
Cyril Ampka, an economist, said Nigeria must return to earning forex from its main export: oil and gas.
“In 2010, flows from the oil and gas sector accounted for 94 per cent of total forex flows to the CBN but dwindled to 24 per cent by June 2022. A ready explanation for this is the decline in oil production.
However, reduced oil production doesn’t fully explain why oil forex flows more or less dried up. Nigeria is still producing oil, prices of oil have remained consistently high since Russia invaded Ukraine about two years ago and oil still accounts for more than four-fifths of Nigeria’s exports.
“The reason why the oil exports are not translating to commensurate forex flows is because of the effect of the policy that assigns a portion of the Federation share of oil to domestic consumption, called the Domestic Crude Allocation (DCA) and paid for in Naira”.
Curbing FX devaluation
Speaking on the constant devaluation of the Naira, the chief executive officer, Wyoming Capital & Partners, Tajudeen Olayinka, said Nigerians’ penchant for foreign goods also contributed to the fall in the value of the naira.
According to him, standard education, production of quality locally made goods and purchase of Nigerian products will strengthen the naira.
“It is not the main factor but it’s a contributing factor even though, lots of foreign students have parents who can sustain them by way of sending money from Nigeria to them so, so that can be a factor but it’s not a major factor even when they get there, and return money to Nigeria through diaspora remittances.”
Speaking on their penchant for foreign goods, Olayinka said, “ penchant for foreign goods and inability to manufacture quality goods locally is contributing to fall of naira and apart from importing finished goods, we also import raw materials even though that helps the economy but, we import everything into this country because we don’t produce quality manufactured goods here.
“Poor and substandard education is part of the reasons our people are traveling abroad to acquire qualitative education is putting so much pressure on our currency so, we need to get something right to strengthen our naira,” he stated.
A Bureau De Change (BDC) Operator, Saidu Abdulrahman, at Sango-Otta, Ogun State, said more demands for FX come from parents who have children in foreign universities and have to pay tuition fees.
Saidu further stated that bankers do direct customers who are in urgent need of FX to them.
“School fee paying-parents are majorly our customers. They can’t wait to get paid officially because time is mostly against them. It takes over two or three months at times before banks can process a form A so, anyone in a hurry will come to parallel market,” he said.
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