- Exchange rate unification ‘ll stimulate FX liquidity – Experts
- Say clampdown on BDC operators step in right direction
- Urge Nigerians to choose between economic recovery or perennial bondage
About 10 months after he took the oath of office to run the affairs of the most populous black nation in the world, President Bola Tinubu has been in the eye of the storm.
This is primarily due to the policies of his government which largely are not well received by a good number of Nigerians, and this has attracted widespread criticisms of the administration whose ambition is to bring Renewed Hope to the people.
Perhaps the most criticized of his policies is the removal of petroleum subsidies on his very first day in office on May 29, 2023.
Besides fuel subsidy removal, the government has taken several bold measures in the form of policies to change the narratives in Nigeria’s economy.
These include fighting inflation through monetary policy from the Central Bank of Nigeria to drastically cutting the cost of governance by the decision to implement the once-abandoned ‘Oronsaye Report’ which will address the issue of proliferation of government Parastatals, Ministries, Departments and Agencies, aimed at cutting the costs of governance.
To restore sanity in Nigeria’s foreign exchange market, a good number of measures have been taken by the administration.
Just at the weekend, the CBN announced the revocation of the operating licences of over 4,000 Bureau De Change Operators, a week after it resumed sales of dollar to genuine operators to restore sanity in the highly manipulated market.
Despite the Naira’s continuing plummet against the dollar, financial experts predict that the exchange rate unification could potentially stimulate enhancements in FX liquidity in the medium to long term.
Some pundits also predict an inflow of investors across various sectors of the economy due to this recent shift.
An economist, Kelvin Emmanuel, puts a positive spin on the situation, stating that the current uptick in foreign inflows shows an appreciation in light of the government’s decision to peg the Naira to fair value.
Emmanuel said, “The increase from $468 million to $2.55 billion serves as evidence that aligning official I&E rates with spot rates leads to increased independent government revenues, higher foreign direct investment (FDI)/foreign portfolio investment (FPI) funds, improved diaspora remittances, and enhanced net export proceeds.”
An exporter, Oluwaseun Obilana, emphasized the need for the government to increase their rebate to exporters and improve daily limits on FX transactions.
INFLATION
The Monetary Policy Committee, in its first meeting under the new management of the Central Bank of Nigeria, and Yemi Cardoso, the new CBN Governor, took to a more aggressive tone in its rate hike, adopting the inflation-targeting framework by raising the MPR by 400 basis points to 22.75 percent from 18.75 percent.
This move aligns with the expectations of financial experts for an increase in the benchmark interest rate and marks the ninth consecutive meeting since May 2022, during which the committee has adopted a hawkish stance to clip the wings of rising inflation.
It is worth noting that the decision for aggressive tightening by the committee was unanimous while members consider the decision as a trade-off between output growth and maintaining price stability in the short to medium term.
Also, the committee noted that the option to either hike or hold was premised on previous hikes which have shown a slow rate of inflation acceleration as well as the impact of various reforms within the past months such as the unification of the foreign exchange market; the adoption of the willing buyer; willing seller model within the foreign exchange market; the strengthening of surveillance and guidance in the banking system on the revaluation of foreign exchange gains; the introduction of a two-way quote system in the fx market as part of efforts to encourage price discovery and clip the wings of speculators, among others.
“A financial expert, Abdullahi Abdumumini, described the CBN’s decision to revoke the license of numerous Bureaux de Change operators as one of the best that the Federal Government has taken.”
The Group Managing Director, Cowry Asset Limited, Johnson Chukwu, noted, “In contrast to some advanced economies experiencing a downward trajectory in inflation, Nigeria’s headline inflation took a faster foot of athleticism to a 28-year high of 29.90% in January 2024 on the back of insecurity challenges, supply chain disruptions, removal of subsidy on PMS and the pass-through effect of naira devaluation. This reflects a sustained build-up of inflationary momentum, with price increases observed in various divisions, including food and non-alcoholic beverages, housing, transportation, and others.”
“The decision to implement an aggressive rate hike indicates the committee’s commitment to addressing inflation concerns amid the heightened outlook. By this model of inflation targeting, the committee aims to demonstrate that the current policy is effectively curbing rising,” he added.
A Positive Outlook
The Nigerian government is currently targeting a growth rate of about 3.76 percent in 2024 and 6.0 percent or more in the coming years, signaling cautious optimism from the current administration for the current year 2024 and beyond.
Looking ahead to 2024, there is an anticipation of higher real GDP growth than in 2023, with expectations of accelerated growth in the oil sector, aligned with the recovery in crude oil production.
Additionally, the normalization and permeation of new government reforms and policies are expected to propel growth in the non-oil sector, particularly supported by the Services sector.
Chukwu predicted a 3.25 percent year-on-year real GDP growth in 2024, acknowledging positive momentum.
Experts at United Capital Plc said Nigeria’s economy is expected to recover in 2024, aligning with the IMF’s projection that the economy will grow by 2.9 percent.
“Looking ahead, we still envisage that the Nigerian economy will recover modestly in 2024, driven by a rebound in the oil sector and a slow but steady growth in the non-oil sector. We align with the International Monetary Fund’s projection that Nigeria’s real GDP will increase modestly to 2.9% in 2024.
“In the oil sector, the economy may capitalise on envisaged favourable developments, fostering positive momentum in 2024. Anticipated increases in net exports are forecasted to serve as the primary growth catalyst. Expected improvement in security conditions in the Niger Delta and production from the Dangote Refinery is expected to drive up oil export volumes, thereby reducing a significant portion of fuel and chemical imports in 2024. Consequently, this shift is likely to result in a reduction in total goods and services imports and bolster the country’s trade surplus.
“Government reforms are expected to crystallize in 2024 with petrol subsidy removal projected to enable the Nigerian National Petroleum Corporation Limited (NNPCL) to settle its arrears and fully cover the government’s share of costs in Joint Venture (JV) operations, facilitating a gradual increase in oil production over time.
“In the non-oil sector, we expect sustained growth in the services and industrial sub-sectors. Consequently, we foresee the Financial Services, Manufacturing, and Information & Communication Technology Sectors to advance as the current administration’s reforms crystalise.’’
Financial pundits at Commercio Partners, however, said, “Despite the reported growth rate in the GDP, the country exhibits signs of economic vulnerability, with the growth momentum declining by 0.36%. This challenging scenario is compounded by the simultaneous rise in inflation, soaring by 0.98% to reach 29.9%, and an increase in the unemployment rate by 0.8%, reaching 5%.’’
The Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane and his team share the sentiment of their counterparts at Commercio Partners on inflation.
FDC Ltd is of the opinion that rising inflation could impact economic growth negatively, noting, “Still, food production could inch up as the Federal Government intensifies its efforts to support food technology, partnering with key players in the food value chain. The crucial directive, though, is for the Federal Government to address the lingering issues stifling agricultural sector productivity.
“This means solving insecurity and providing the necessary infrastructure and facilities to reduce food wastage and ease the impact of seasonality on food production. Food accounts for over 56 percent of household consumption, and the longer prices stay elevated due to supply shortages, the more consumers rebalance their spending to suit the current economic climate. This means that consumption which accounts for over 60 percent of GDP will keep declining, dampening growth,’’ FDC said.
Business Climate Improves
In January 2024, business activities across Nigeria relatively increased, exemplified by the 3.42 percent uptick in the Stanbic IBTC PMI reading to 54.5 points from 52.7 points in December 2023. This increase, driven by robust new orders and output rates, marked the highest increase between 2023 and 2024.
Noteworthy was the substantial growth in new businesses.
Across all major sectors surveyed, improvements in output were evident despite exchange rate challenges and elevated transport and raw material costs.
Nevertheless, companies increased their new orders, leading to augmented inventories. Employment growth, however, remained restrained, with firms encountering difficulties in meeting wage obligations.
A financial expert, Abdullahi Abdumumini, described the CBN’s decision to revoke the license of numerous Bureaux de Change operators as one of the best that the Federal Government has taken.
He said, “This is an action that will definitely re-position the naira against the likes of British Pounds, Euro and US Dollar. Past administrations treated this mess with kid gloves for whatever reasons best known to them but such reasons, take it or leave it, were selfish.
“With this, I mean the revoking of the licences of BDC operators, the apex bank can now regulate the sector effectively as it would not be business as usual where even uneducated people sit on boxes filled to the brim with dollars, pounds and euro selling them like akara to their customers that include diplomatic staff. It’s very terrible.”
Abdumumini recalled that in the past before the situation that turned everyone a BDC operator, those dollar sellers were approaching people secretly with low voices announcing “dollar, pounds” to advertise their market but now, they don’t even need any advertisement.
“I remember in those days when those selling foreign currencies would approach their potential customers and announce their market in a low voices like dollar, pounds but that no longer obtains because the market has transcended black market and is now an open market with authority backup that on almost every street if not even in our local villages you see people that have never worked in any organization sit on top of boxes filled to the brim with dollars, pounds, euro and other foreign currencies selling them as if they are lose. The big question is: are the sellers the owners of the business? The answer is no.
“The business belongs to the high and mighty in the society. They are in the civil service, in the banking industry, government offices, oil sector, name them. They have hands in deciding winners of elections and by extension who our leaders are at all levels of governance and this is why we have remained in the mess of our currency becoming subsumed to the foreign currencies.
“This is only obtainable in Nigeria. In other countries we brag to be superior, you dare not. So, with this, the naira will gain some recognition in its country before we now talk of appreciating in the monetary and forex trading.”
To an economist and social commentator, Caleb Chimdimma, the positives in the revoking of the licences outweigh the negatives if only the action is not a smokescreen.
“Before we celebrate it, let’s be certain that CBN action is not a smokescreen aimed at deceiving Nigerians to believe that the problem of free fall of naira has been arrested while behind the mopping up of dollar by the high and mighty in the government including the presidency, national assembly, governors and business moguls.
“Do you and I have people selling dollars for us? I know the answer already. It’s no. But can we say that of these politicians ruling us, do we say that about the top businessmen and women tagged richest this and richest that, your guess is good as mine. Then how do you want me to begin celebration even when it’s clear that the positives outweigh the negatives without being certain that there are no hidden valleys in the course of the journey.
“Now that the CBN has revoked the licences of some BDC operators, will they take a step further to ensure that those whose licences have not been revoked and that when reapproving the revoked licences, they will make them operate BDC as they are operated in other climes.
“Go to some of these countries surrounding us, you need your international passport to change your dollar or whatever foreign currencies to their local currency and at a pegged amount. Unlike in Nigeria where every two minutes signals the amount dollar changes for naira. It’s very unfortunate. All these claims that our naira is turning to tissue paper because we are not exporting do not follow at all.
“Before recently, go to the popular BDC Avenue, Zone 4 and the place called Sheraton and see the traffic as if it is the Central market in Kano or Idumota in Lagos. Ask yourself, what they are selling in these places. Presidency officials, governors, bankers even from the CBN troop to these places and more. Some go to buy off the dollars while others go to supply dollars. That’s why our politicians don’t spend naira again; their currencies are dollars, pounds, and euros.
“Why should naira not fall freely? I therefore strongly believe that if President Tinubu means to walk his talk, the step should not be limited to revoking of the licences of BDC operators but should be extended to a vigorous monitor of flow of foreign currencies in our financial system. Introduce “show your international passport” before you change any foreign currency to naira and peg the amount that could be changed by an individual at a given period of time. The idea of someone rushing to banks or BDC and comfortably changing N1 billion to dollars should stop,” he said.
Public affairs analyst, Sylvester Enefeli, said even though at face value the decisions reached by the MPC have far-reaching effects that looked gloomy and could further tighten the noose on the economy; it would sooner than later bear fruits for Nigerians.
According to him, Nigerians will laugh last even though the MPR and CRR that were raised will trigger more inflation and possibly cause job loss.
“Enefeli urged Nigerians to choose between being on the path to economic recovery or being in perennial economic bondage.”
Enefeli said Nigerians must refrain from listening to “prophets of doom” in the country who have nothing but “demoralising and discouraging updates” for the people.
He also said the decision of the government to clamp down on BDC operators who were not meeting regulatory guidelines was a step in the right direction and that the actions of the EFCC immediately brought about a fall in dollar rate.
Enefeli urged Nigerians to choose between being on the path to economic recovery or being in perennial economic bondage.
On the clampdown on crypto currency, he said it was not necessary as the operators do not really have the power to influence the price of dollars.
“I am glad that the CBN finally held its first MPC meeting in 2024. It is a welcome development and I hope subsequent meetings will consolidate the first one.
“At face value, those decisions reached have far-reaching effects that are gloomy in outlook and can further tighten the noose on the economy. The truth, however, is that those decisions will eventually bear fruits.
“But I understand the fears of some Nigerians who voiced their apprehension that the new measures would cause further inflation and even job loss. To those people, I will say it is better we don’t postpone the evil day.
“Nigerians will laugh last because of these new measures. So, I urge them not to listen to prophets of doom who have nothing but demoralising and discouraging updates for them.
“As for the clampdown on BDC operators, it is a step in the right direction. When the EFCC was going after those economic saboteurs, people tried to crucify the government. But look at the immediate result of that action. The dollar dropped from around N1, 900 to about N1, 500 and with that, Nigerians must decide between being on the path to economic recovery and being in perennial economic bondage.
“Personally, however, I don’t agree with the government about their clampdown on crypto currency operators. It is not necessary. Their operations don’t really have the power to influence the price of dollars,” Enefeli opined.
