Those who resort to alternative means often have to acquire it at an expensive and non-competitive rate.
By Johnson Atoukudu:
The Manufacturers Association of Nigeria (MAN) and the Association of Corporate Treasurers of Nigeria (ACTN), representing corporate treasurers, have expressed their support for the Central Bank of Nigeria’s (CBN) decision to float the naira, which aims to unify the various foreign exchange (forex) markets. According to these organizations, this move will enhance market efficiency and restore investors’ confidence in the country’s economy.
In an exclusive interview with Vanguard, MAN’s Director General, Segun Ajayi-Kadir, emphasized that the policy change will improve market efficiency and rebuild investors’ trust in the economy. He regarded the adoption of a unified exchange rate as a positive step towards addressing the foreign exchange challenges in the country. Ajayi-Kadir encouraged members to view this development as a long-awaited opportunity to alleviate the persistent issues affecting the forex market. He further noted that foreign exchange scarcity has been a hindrance to the manufacturing sector, with members facing difficulties in obtaining forex at the official rate. Those who resort to alternative means often have to acquire it at an expensive and non-competitive rate. With the introduction of a floating system, he expressed optimism that the official and parallel market rates will eventually converge, allowing investors to access forex at a competitive rate.
However, Ajayi-Kadir acknowledged that the impact on the overall economy would be mixed. On the positive side, he mentioned that forex scarcity would decrease as currency arbitrage activities decline, Nigeria’s exports would become more competitive due to the depreciation of the naira, and there would be an increase in both exports and capital inflows. On the negative side, he highlighted that the policy might result in increased import costs, reduced import flows (which would negatively affect manufacturers dependent on non-locally available raw materials), and heightened vulnerability to external shocks.
President of ACTN, Yinka Ogunnubi, shared a similar perspective, stating that the policy change will promote market efficiency, resulting in a more market-determined exchange rate based on demand and supply. Ogunnubi believes this will enhance investor confidence by increasing transparency and predictability, potentially attracting more foreign investments. He emphasized that a unified market aligns with the expectations of a normal financial market system and anticipates that it will bring clarity, transparency, and improved confidence, which are all positive for the financial markets.
However, Ogunnubi urged caution, emphasizing the need for additional measures from the CBN to support the forex markets, such as clear policy statements, guidance on addressing backlog demand and undelivered matured forward obligations, and measures to improve market practices.