Amid the foreign exchange (forex) illiquidity in the economy, the Manufacturers Association of Nigeria (MAN) has insisted that proper compliance to the unification of the exchange rate is the best alternative to overcoming forex scarcity. The Acting Director-General, MAN, Ambrose Oruche, in an interview with New Telegraph in Lagos, said that it was time the Central Bank of Nigeria (CBN) changed its forex policy strategy, which solely focus on the demand management side.
It advised the apex bank to start capturing the supply side in order to encourage more supply of foreign exchange into the economy. He said: “On forex illiquidity in the economy whether the CBN has done enough. Well, the CBN has been trying its best, no doubt, but the emphasis has been on the demand management side. “What we are saying as an association is that CBN should also be looking at the supply side of forex.
That is, how do we encourage more supply of foreign exchange (forex) into the economy. “It is not enough trying to curb demand or suppress demand. It is also to be looking at policies that will encourage inflow either from foreign direct investments, diaspora remittance, export proceeds, Moneygram and the likes. And the critical factor in this area is we need to ensure the unification of the exchange rate.
“So the more we give room for the market mechanism to allocate forex the better the liquidity situation because that will encourage more inflow from the supply side. So that is issue with forex in the economy.”
Oruche said MAN noted the various policy measures taken by the Central Bank of Nigeria to conserve the country’s foreign exchange resources in light of the weakening dollar inflows precipitated by the global pandemic.
These policies include stoppage of Form M for transactions whose payment are routed through a buying company/ agent or any third parties, foreign exchange restriction on food and fertilizer imports at the formal segment of the foreign exchange market, and the proposed introduction of Product Pricing Verification Mechanism (PPVM) to checkmate overpricing or mispricing of goods and services imported into the country.
To him, while MAN appreciates the efforts of the apex bank in preserving the scarce foreign exchange at a time the economy is confronted with the twin challenge of lower oil price and production, “we believe demand management strategies alone are not sustainable solutions to the recurring foreign exchange crises.
It is thus imperative to address supply side issues. This could be policy related and could also be related to fixing the structural factors impeding output and competitiveness in the economy.
“Inappropriate forex policies could discourage fresh capital inflows, be it foreign direct investment, portfolio investment, remittances, and non-oil export proceeds into the economy. “This fact is evidenced by the sharp plunge in the level of capital imported into Nigeria from $5.9 billion in the first quarter to $1.2 billion in the second quarter, partly caused by the capital control policy of the CBN.
“A market driven foreign exchange management framework is necessary to further inspire investors’ confidence.” The acting MAN DG explained that the association had been advocating for a unified exchange rate in the country to promote a market friendly rate that can facilitate stable production planning and engender sustainable economic growth for years. He explained that it was, therefore, gratifying, as it appears that the Central Bank of Nigeria has now unified the country’s exchange rate. According to him, “this is clearly a welcome development that should engender increased investment inflow into the real sector of the economy and a laudable initiative that has come at the right time, particularly now that the economic outlook is gloomy in light of the impact of the ravaging COVID-19 that has culminated in uninspiring macroeconomic situations. “It is pertinent to note that IMF and World Bank have at different times advised the country on the need to unify the multiple exchange rate windows to prevent distortions in investment decisions in the public and private sectors of the economy.
“In fact, the World Bank had attributed the country’s loss of foreign direct investment to investors exasperation from perceived manipulation of the foreign exchange market. An advice that was, hitherto, rejected by the monetary authority until very recently when it became a conditionality for monetary support.”