By Omodele Adigun
“While Nigeria as a country has experimented with different exchange rate regimes, opinions are still polarized among economic experts on the best policy option in the management of the country’s foreign exchange.”
With those words, the president of the Chartered Institute of Bankers of Nigeria (CIBN), Professor ’Segun Ajibola, kickstarted the discussion on the theme of the institute’s fellowship investiture last Saturday: Coherent Set of Policies for Greater Exchange Rate Flexibility, delivered by the Senior Resident Representative and Mission Chief for Nigeria, Africa Department of the International Monetary Fund (IMF), Mr. Amine Mati.
Ajibola stated that the choice of exchange rate regime depends on a country’s level of development and the policies governing the monetary and financial fundamentals of such economy.
He explained: “Principally, there are two extremes of exchange rate regimes – fixed and floating – with different shades of combination.
“Most developing economies tend to adopt fixed exchange rate regimes in order to build confidence in their economic policies whereas the more advanced ones lean towards a flexible regime as they become more active in international financial markets.
“When Nigeria transited to what I call ‘a managed floating exchange rate regime’ in June 2016, questions were raised on the appropriateness and timeliness of the policy. In the past few months, the country has witnessed some stability in the foreign exchange market especially with the interventions of the Central Bank of Nigeria in the market since February 2017. I imagine, however, that in order to achieve a more sustainable transition to a flexible exchange rate regime, there is the need for a religious commitment to transparency and accountability in the management of the country’s foreign exchange market by all stakeholders.
Foreign exchange management remains a key enabler as Nigeria strives to improve on the citizens’ Human Development Index, adjudged. at the moment. to be below the international minimum benchmark. With over-reliance on imports of basic needs and export of mono-product, oil, the challenge of absolute and relative poverty remains very much with us. What more, we are, as a people, still exposed to the vagaries of the foreign exchange market.
Normally, you hardly find any economy where the foreign exchange management succumbs totally to the forces of demand and supply. The best that we have seen is managed floating, which is what the CBN introduced in February this year. But as the economy stabilises, as the economy is diversified, as we see more and more sources of foreign exchange earnings stabilising. especially the non-oil export, then we can be more and more flexible in our foreign exchange management policy.
“But today, we run the big risk if we allow the forces of demand and supply to dictate our foreign exchange rate in Nigeria because we still over-rely on one sector, that is oil, for forex inflows. And we spend a lot in the importation of basic necessities; consumer durables and non-durables, even plant, machines and others. So, the forex rate can go to any high level to a dollar if we allow the invisible hand of forces of demand and supply to dictate the rate
“Once again, it should be reaffirmed that the macro-economic objective of exchange rate stability and equilibrium balance of payments position can be achieved if only we tame our high propensity to consume imported consumer durables and non-durables, promote non-oil exports and pursue the age-long import substitution strategies.
“There is no doubt that the success of any policy initiatives towards repositioning Nigeria’s foreign exchange management template would depend largely on the quality of the human minds to implement such policies. And, as you are aware, the banking and finance profession plays a central role in any country’s foreign exchange value chain.”
Mati, in his paper, said the “recent introduction of the Investors and Exporters foreign exchange (FX) window is welcomed and there is a need to address market segmentation; remove FX restriction; simplify/unify the FX market; and improve operations of the FX market in line with market fundamentals.”
The Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, in his goodwill message, said .
improving the ease of doing business in Nigeria is also fundamental to the strategic drive of the current government.
Represented by Mr. Kayode Pitan, the Managing Director of the Bank of Industry
(BoI), Enelamah praised the institute for a job well done in the banking and finance sector.
He added: “We are partners with CIBN, and I’m happy that some of points that were made by Mr. Mati, we are already doing it as a ministry.
“Improving the ease of doing business in Nigeria is also fundamental to the strategic drive of the current government. The Presidential Enabling Business Environment Council was set up to drive initiative towards moving Nigeria up 20 places in the ranking index, from its current 169 to 149 by the end of 2018.
The plan targeted entry and exit of goods; entry and exit of people as well as government transparency and procurement. Some of the statutory reforms that have been achieved are ease of business registration from the Corporate Affairs Commission (CAC) quarter within 24 to 48 hours; obtaining visa on arrival for foreign business people, ensuring transparency of operations of government department and ministry.
“We, at the Federal Ministry of Industry, Trade and Investment, are a key implementing partners in the execution of the Federal Government initiatives and long term economic plans and economic recovery and growth plan of the government.
Our mission in the ministry is to reposition commerce as the hub of the nation’s economy. We focus on championing the course of Nigeria’s Micro, Small and Medium Enterprises (MSMEs) as a means of creating jobs and achieving inclusive growth and to proactively attract long term local and foreign investments.”
It’s obvious that we cannot do most of these things without working with the banks as partners.”
One of the awardees, Dr Joseph Nnanna, the Deputy Governor of the Central Bank of Nigeria (CBN) in charge of Financial System Stability, disclosed that the apex bank has achieved stability, as the much-anticipated convergence of the various exchange rates is happening at the forex market. Nnanna was, however, full of praises for the policymakers who initiated the policy.
On the Investor and Exporters (I & E ), he explained that it is already a sound success: because it performed beyond expectations. He said that within four months of its introduction, volume of over $10billion and above was recorded.
He added: “Our exchange rates are converging. We are getting southward. In IMF, they talk about the need to have one rate. The one rate can happen organically or inorganically. For us at the CBN, we believe that organic convergence is the way to go. Inorganic convergence, which is forced, will always produce an arbitrage.And that we don’t want. Before, we have bought forex for almost N500/$. Today, it has come down through combination of extraordinary policies. We didn’t force it down. It came down organically or naturally, and that’s the way it supposed to be. The rate will not go up, take it from me. We have achieved stability and the stability is here to stay.”
On how long could the CBN maintain the feat, Nnanna stated that that capacity is within the ambit of the apex bank:
“The sustainability is already evident; the reserve is growing. As I speak, it is $34billion. When we had volatility, the reserve was as low as $20billion. Then there was problem. But now, there is no problem. All we need to do is to manage the economy and manage it properly.”