The Port Harcourt Chamber of Commerce has stressed the need to have a flexible forex regime in the country.
This, the Chamber said can apparently be achieved with an aggressive pursuit of an export-based economy to earn sufficient forex, relax impediments and ensure unfavourable policies to exportation are expunged from the system to particularly aid expansion of non-oil exports.
The President, Port Harcourt Chamber of Commerce, Dr. Emi Membere-Otaji, stated this in a report made available to THISDAY recently.
He noted that over the years, the naira has gone through a series of devaluation and depreciation, saying that at its current value, the nation’s currency is still overvalued.
“Persistently the non-stop argument for and against the devaluation of Nigeria’s currency has remained unabated, analysts have predicted that foreign investors will likely remain wary of Nigeria until there is stability and enduring policies, and a further naira devaluation leading to a dollar surge in the interbank market.
“The belief is that even though international investors want a piece of Nigeria, they will stay away, because, right now, they expect to make a 10 per cent loss on the foreign exchange side since devaluation is likely to happen. Further devaluation of the naira is imminent, as such would make the importation of goods into the country more expensive, encourage local manufacturing and inflow of foreign capital,” he said.
According to the Port Harcourt Chamber boss, although devaluation of the naira was keenly anticipated by many foreign investors, “words of warning has continued to pervade the air that this could lead to more speculative trade, with questions about how the naira’s ‘fair value’ will be determined.”
Membere-Otaji, however, noted that a strong positive correlation exists between the exchange rate and crude oil price.
Nigeria’s crude oil – Bonny Light, which traded at $110.2 per barrel in January, last year, hitting $114.6 per barrel by June same year, is now trading around $30 – $40 per barrel. With the discovery of the shale oil, crude oil prices are projected to moderate in coming years, coupled with the commencement of crude oil sale by Iran. In addition, the threat by the US to reduce oil imports constitutes a downside risk on crude receipts of Organisation of Petroleum Exporting Countries’ (OPECs) members. Nigeria’s dependence on crude oil makes economic growth susceptible to price shocks.
“Apparently, dwindling oil prices around the globe pose serious challenges to a developing economy like Nigeria’s, and that has sparked up the clamour for government to as a matter of urgency consider various diversification options.
“Around 70 per cent of Nigeria’s export income is petroleum crude; due to this huge dependency on oil, the slump in oil prices to around $30 per barrel has equalled in a reduction in forex earnings from crude oil,” he added.
The drop in oil prices also led to reduced foreign exchange earnings as well as lower revenues for the Nigerian government. This has compounded the Balance of Payment (BoP) position of the country as well as the assumptions under which the 2016 budget was drawn up and anchored.