The Central Bank of Nigeria midweek announced the shut-down of the official foreign exchange market, an action that is aimed at shoring up the value of the naira. bukola idowu in this piece examines what needs to be done to help Nigerians survive the devaluation of the currency

Global oil price has begun its ascent, but the pressure on the naira and its toll on Nigeria’s external reserves has yet to subside, a situation that has led to a de-facto devaluation of the naira by the Central Bank of Nigeria (CBN).

As part of on-going measures to shore up the value of the naira, the CBN last Wednesday closed the official foreign exchange market, the twice weekly retail Dutch Auction System (rDAS) where it sells forex to banks, transferring all demands to the interbank market where the dollar sells for an average N198.

Devaluation of the currency had become imminent, as the demand for forex continued to rise despite the repeated intervention of the central bank, forcing the CBN governor, Mr Godwin Emefiele to state at a stakeholders meeting in Lagos that it would stop its support for the importation of some products.

Emefiele stressed the need to produce locally most of the commodities that are presently being imported into the country, so as to develop the country and strengthen the currency.

“In the course of time we are not going to ban the importation of rice but we are not going to provide foreign exchange if you are going to import rice into the country. So if you are interested in rice, I will advise that you go into the production of rice.

“If you want to use your dollar that you have kept somewhere, there is no problem but at some point we will not allocate foreign exchange for you to import rice. The same way we will graduate it to other products,” he had emphasised.

Following the closure of the rDAS, the CBN will now only meet forex demands which it deems genuine; as it had assured that it will continue to provide foreign exchange for legitimate investors and businesses.

In a statement issued and signed by the director of Corporate Communications, Ibrahim Mu’azu, the apex bank said it had taken the decision to close the official window to end the multiple exchange rates and also preserve the country’s dwindling external reserves.

The apex bank noted that the wide gap between the official and interbank value of the naira had engendered “undesirable practices including round tripping, speculative demand, rent seeking, spurious demand and inefficient use of scarce foreign exchange resources by economic agents.”

In view of this, Mu’azu in the statement said, “it has become imperative that appropriate actions be taken to avert the emergence of multiple exchange rates regime and pressure the country’s foreign exchange reserves.

“Consequently, we wish to inform all authorised dealers and the general public that with effect from the date of this press release, the rDAS/wDAS foreign exchange window with the CBN is hereby closed. Henceforth all demand for foreign exchange should be channeled to the interbank forex market.”

Head of African Research at Standard Chartered, Razia Khan reacting to the closure stated that the CBN decision to stop rDAS auctions, effectively discontinuing its forex subsidy for certain categories of demand was a positive news, and should help create more transparency in the Nigerian market.

However, she noted that with oil prices currently at levels where forex reserves would be difficult to replenish, the CBN’s appetite for continued support of the interbank forex rate would be closely monitored.

“With Nigerian forex reserves under pressure as a result of weaker oil prices, markets had anticipated eventual unification of Nigeria’s different exchange rates. Following the announcement in February that presidential and parliamentary elections would be postponed to March 28, Nigerian markets have become subject to greater volatility. NGN losses were frequently large enough to trigger a daily shutdown of Nigeria’s Forex market,” Khan stated.

To the managing director and chief executive of Financial Derivatives Limited, Bismarck Rewane, the development is commendable, as the measure would now make naira to be convertible and acceptable across the borders of the country.

He pointed out that there would be more naira available for governments at various levels, as well as the availability of the dollar, which will allow the naira to compete favourable and consequently, find its appropriate value.

“The situation is not bad at all. We are only having a naira adjustment. We have moved from control to auction and now tending towards convertibility. Whatever the naira is priced now is the real value of the currency. There is nothing again like exchange rate band. The N168 official exchange rate is now gone and I am sure that the speculations will be over now,” he said.

The managing director, Sabil BDC, Aminu Gwadabe affirmed that CBN’s policy to close the official forex window was a move in the right direction, as this would help stabilize the rate in the market in as much as the apex bank would continue to intervene in the interbank foreign exchange market.

He noted that the immediate implementation of the policy would restore fiscal discipline, which would disabuse banks from the sharp practices of speculating and round-tripping because they are the major players in the market. Gwadabe, advised that banks should disengage from the activities in the foreign exchange market, rather focus on developing the real business in order to diverse the nation’s economy.

Diversing the economy has been an issue that has continually been hammered on by government, economists as well as operators in the real sector. In the era of a low currency value the former deputy governor of the Central Bank of Nigeria (CBN) Tunde Lemo, noted that Nigerians will have to depend on import substitution and increase export drive to be able to scale through 2015. “We need to buckle up. Nigerians should be patriotic, let us depend less on importation, let us be self sufficient. Let us embrace import substitution, if we do that, it will not matter what the exchange rate of the naira is.

“The CBN have done their best, there is nothing we can do now other than to devalue because our economic main stay is petro-dollar and if it is not coming in the quantum it was coming before the only way like Russia did is to devalue but we as Nigerians can take advantage of that, if we embark on export drive, we will be more competitive, not only that, if we do import substitution we will depend less on importation”, Lemo stated.

Also, chief executive of Financial Market Dealers Association, Wale Abe, stressed the need for Nigeria to look inward at other sectors asides oil and gas that could generate more foreign exchange for the country.

Particularly, he emphasised that the Agriculture and the creative industry should receive more focus in the years to come. Noting that the dwindling oil price will be a major challenge for the economy, he said the lower capital expenditure in the 2015 and a higher recurrent spending would not be helpful as there would not be any real developmental spending. Abe furthered that this would affect private companies whose products and services are dependent on government spending.

Not only does the country need to begin to produce what it needs, growing the medium, small and micro sector will also increase the country’s potential to export and earn scarce foreign exchange. In times past, before the oil boom Nigeria had earned its forex from the agriculture sector and other mineral resources.

To the managing director of GMA Limited, Abayomi Sanya, “We need to find a way that we can adjust. We have to diversify and we have to produce what we will eat ourselves. When we produce what we are going to eat either in goods or services, and we export what is left, that will help us a great deal.

Business mongul and chairman of the Dangote Group, Alhaji Aliko Dangote had also stressed that the country could not continue to import consumables and “things that we don’t even need” urging that Nigerians be involved in manufacturing not only for local consumption but also for export.

Aside this, Nigerians also have to repent of their love for foreign made goods, especially those that are also produced within the country. Preferring locally made products above imported goods will also grow the MSME industry and create jobs for the teeming youths in the country.