Flexible FX Policy Long-awaited, Say LCCI, WAFIEM

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Olaseni Durojaiye

Director-Generals of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, and that of the West African Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, have described the new flexible foreign exchange framework as not surprising, even as the duo disagreed on how the new policy would impact the nation’s economy.

Yusuf commended the policy, noting that it was a position that the organised private sector had canvassed for over a year. Similarly, Ekpo stated that it was not surprising given that the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, had earlier hinted at the policy shift.

In a statement made available to THISDAY, Yusuf explained that the new policy would benefit the economy as it would improve liquidity in the forex market, which would boost investor confidence. “There will be a significant improvement in the allocative efficiency of foreign exchange, supply of forex to the forex market will be enhanced as confidence improves, especially from capital importation, export proceeds and Diaspora remittances,” he stated.

According to Yusuf, the new framework would ensure that “there will be a considerable moderation in exchange rate as supply of forex improves, the federation account will benefit from better revenue inflows from the CBN as sale of subsidised forex comes to an end, the policy is a major incentive to exporters as they will have unfettered access to their export proceeds”.

Furthermore, in his reaction, Ekpo, who traced the foreign exchange crisis to scarcity of foreign currency, which is not Nigeria’s currency argued that “the new forex regime is assuming that the Nigerian economy is productive and manufacturing or adding value to the production chain – exporting such commodities to earn forex which is then ploughed back into the economy. The Nigerian economy is not that sophisticated to implement the type of forex market mechanism regime enunciated by the CBN.

“If the economy is productive and manufactures for exports, then the forex market would operate like any other market in the economy. But this is not the case. It is important to create an environment which favours production and manufacture for export before allowing the market to take control of the forex market implying depreciation of the Naira. Perhaps the intervention fund of the CBN to boost export is to create such an enabling environment. However, what is the track record of such fund? Has it been implemented?” he wondered.

Ekpo, who welcomed the idea of the CBN playing the role of moderator explaining that the ability to intervene when the need arises will influence the direction of the market, however warned that there are other forces more powerful than the market.

“The CBN would be a major player in the forex market. It would buy and sell forex and in so doing would still influence the direction of the market. In addition, there are other forces more powerful than the market. If the market was sacrosanct, why not allow the 41 items to benefit from this new framework?,” he stated.

Continuing, he added that “Our major concern should be on how to get out of the present economic recession. If the recession deepens, then monetary and exchange rate policy would be ineffective. The government through fiscal policy should urgently implement all the measures in the budget so as to reflate and put the economy on the path of recovery. There is too much focus on the foreign exchange market. For an economy like Nigeria, it would have been better to tinker with the managed float framework,” he argued

Meanwhile, Yusuf has called on the CBN to review its position on the ban placed on 41 items from accessing foreign exchange from the official market, arguing that many of the items on the list are inputs for industries, and adding that many industries were being currently impacted adversely.

According to him, “The exclusion has led to considerable loss of jobs in industries, distributive trade sector and maritime sector. It has led to considerable loss of customs revenue, which will impact negatively on the federation account and fiscal viability of governments at all levels.” He added that, “the phenomenon of smuggling may be aggravated in respect of some of the excluded items.”