Financial experts have made a case for further devaluation of the Naira by the Central Bank of Nigeria (CBN). For them, the dwindling oil prices left and the decline in the country’s foreign reserve had made the need for further devaluation of the currency and the diversification of the economy unavoidable.
Femi Olaloku, executive director, treasury, at the United Bank for Africa Plc, said he was expecting further devaluation of the Naira to take place soon.“The dwindling oil prices around the globe poses serious challenges to a developing economy like Nigeria, hence the need for government to also consider various diversification options,” he said.
Olaloku said that the Nigerian banks are today stronger than they were 10 years ago to finance the diversification of the economy. “We have a banking system that is today a lot stronger than what it was 10 years ago. Whether in power infrastructure, or in the agriculture, Nigerian banks have been able to meet the growing demand for funding,” he said.
Bisi Onasanya, managing director, First Bank of Nigeria, has also made a similar call for further devaluation of the Naira as it has become obvious that the Central Bank of Nigeria (CBN) cannot sustain the current exchange rate of the Naira to the dollar. “People just don’t believe the Central Bank of Nigeria (CBN) has what it takes to sustain the exchange rate at the present level. The market needs to reopen. You cannot peg the naira at a level that the whole world knows is unrealistic,” Onasanya said.
Indeed, the central bank is struggling to keep the Naira stable. This manifested last week when the apex bank added 40 commodities on the list of items prohibited from sourcing foreign exchange in the Nigerian foreign exchange market. A circular issued by the Trade and Exchange Department, Central Bank of Nigeria (CBN), said that in continuing effort to sustain the stability of the foreign exchange market and ensure the efficient utilization of foreign exchange and the derivation of optimum benefit from goods and services imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian foreign exchange markets in order to encourage local production of these items.
The additional items include rice, cement, margarine, palm kernel/palm oil products/vegetable oils, meat and processed meat products. Others are vegetables and processed vegetable products, poultry- chicken, eggs, turkey, private airplanes/jets, Indian incense and tinned fish in sauce. The list also includes cold rolled steel sheets, toothpicks, textiles and soap and cosmetics.
The central bank said that the implementation of the policy would help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation. “For the avoidance of doubt, please note that the importation of these items are not banned. Thus importers desirous of importing these items should do so using their own funds without any recourse to the Nigerian foreign exchange markets. All authorized dealers are enjoined to ensure strict compliance,” the circular said.
Onasanya described the measure as halfhearted and called on the apex bank to be bold and decisive. According to him, fear of further devaluation is driving the central bank’s policies and the current situation can’t be sustained. He predicted that the naira’s exchange rate would probably be N210 per dollar, plus or minus 2 percent, if more trading was allowed, he added. “We are in a situation where Nigerian banks are shopping for foreign-exchange in the international market,” Onasanya, who will retire at the end of this year, said on a panel before the interview. “We need to bite the bullet and move on, or there will be repercussions over the long term,” he added.
On his part, Oscar Onyema, chief executive officer, Nigerian Stock Exchange, urged Nigerian banks “to fashion out strategies to assist the country to wade through the various challenges that the dwindling oil fortunes present to the country.”
By Dike Onwuamaeze
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