Analysts: De-dollarisation, Transparency in NAFEM, Others will Halt Naira Collapse

Festus Akanbi

As the naira continued its free fall both at the official Nigerian Foreign Exchange Market (NAFEM) and the unofficial market last week, some economic analysts at the weekend said the bashing of the local currency can only be halted with the combination of fiscal, monetary and trade policies in a determined manner.
The exchange rate between the naira and dollar fell to as low as N848/$1 on the official investor and exporter window on October 17, 2023. It also traded at a record intra-day high of N981/$1 on the same day.

Meanwhile, in reviewing the situation, analysts listed the way out of the current crisis to include the immediate de-dollarisation of the economy, the extinguishing of mature foreign obligations, and the urgent need for the Central Bank of Nigeria (CBN) to deal transparently with participating banks at the I&E Window (now NAFEM).

The list of the measures also included the call by the Association of Bureau de Change Operators, (ABCON) for the CBN to allow them to carry out online dollar operations and Point of Sale (POS) agency as part of measures to boost liquidity in the forex market and ensure exchange rate liquidity.
The suggestions came in the wake of last week’s separate reports of the Credit ratings and research firm, Fitch Ratings Inc., and Cordros Capital, which said the naira will continue to depreciate against the dollar as the increasing disparity between the official and parallel exchange rates of the Nigerian naira suggests that the government is struggling to stabilise the currency.

Speaking to THISDAY yesterday, the Founder and Chief Consultant of B. Adedipe Associates Limited (BAA Consult), Dr. Biodun Adedipe insisted that there is no shortcut to Naira exchange rate stability. Adedipe maintained that relying on the International Monetary Fund (IMF) accommodation is a palliative that will compound the misery while hoping for foreign investments is momentary until another global financial crisis or domestic uncertainty causes foreign investors to leave.

Instead of relying on the IMF’s palliative, he said Nigeria can start the process with a focused combination of fiscal, monetary, and trade policies.
According to him, “CBN should deal transparently with participating banks at the I&E Window. De-dollarise the economy by declaring as illegal any local transactions in US dollars (sale of assets, rent/leases, and other services, including school fees and medical bills) and ensure that government agencies stop charging local operators and entities in US dollars (quite common in the maritime sector).” Other suggestions include the need to ensure that the sale of crude oil to local refineries should be made in Naira rather than dollar.
“Perhaps also, President Tinubu should have a direct engagement with bank CEOs to generate ideas and use moral suasion to enlist their support for the market reforms. Face the reality that unified exchange rates (not any different than floating the Naira) is a poor policy choice for a structurally defective and weak economy like ours,” he added.

Adedipe said Nigeria’s USD GDP will continue to shrink under the unified exchange rates regime, arguing that largely import-dependent economic activities and lifestyle with a low domestic production base are a recipe for unabated depreciation.
“In this case, a growing Naira-denominated GDP will become irrelevant insofar as the exchange rate depreciation is faster!” he concluded.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE). Dr Muda Yusuf said there is no silver bullet in the treatment of the current fate of the naira. He explained that fundamentals are weak because the government can’t make fx available.
Yusuf said the CBN, which is the only supplier of fx for now is weak, saying the situation will remain the same until others can bring additional inflow. “These can be fresh flow from oil sales or IMF support which is also a possibility because other measures had been exhausted by the immediate management of the apex bank.”

Also at the weekend, the Association of Bureau De Change Operators of Nigeria (ABCON) asked the CBN to allow BDCs to carry out online dollar operations and Point of Sale (POS) agency as part of measures to boost liquidity in the forex market and ensure exchange rate liquidity.
ABCON also urged the apex bank to give regulatory approvals to allow BDCs to have access to diaspora remittances, like receiving International Money Transfer Operators (IMTOs) proceeds.

According to a report by Nairametrics, the ABCON President, Aminu Gwadebe was quoted as saying that full participation of BDCs in the retail segment of the foreign exchange market will help achieve a stable, strong, and virile exchange rate.
Gwadabe said that ABCON recommended that the apex bank should approve its overdue request that BDCs be made agents through which over $20 billion in annual inflows from the diaspora enter the economy. He noted that securing such regulatory approval will boost dollar liquidity and strengthen the naira.
On their part, analysts from Cordros Capital said unless there is a direct and deliberate intervention to halt the slide, the incentives for holding the naira will continue to be limited.

In the company’s latest report at the weekend, the analysts said: “Given the CBN’s unbanning of importers of all the 43 items previously restricted from the NAFEM in 2015, the market realised that FX supply is still minimal at the official market faster than we anticipated. Accordingly, importers have returned to the parallel market to fulfil their FX obligations. In addition, the incentives for holding the naira continue to be limited by the day, coupled with the panic-buying arising from the expectations of further currency pressures amidst limited FX supplies. Consequently, barring any significant FX inflows or convincing action by the policymakers to turn the tide, we expect the exchange rate pressures to linger in the short term.”

In its recent report published by Forbes Africa, Fitch Ratings highlighted the widening gap between the official and parallel market rates as an indicator of the challenges in maintaining exchange-rate liberalisation and suggested the possibility of further devaluation.