Operators in the Nigerian economy have expressed fear that there might be further rise in cost of goods and services, and more shutdowns of their operations over the worsening naira value.
They called for urgent intervention in the sector to prevent more hardship on Nigerians.
The National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, said higher prices would be the unavoidable consequence of the current exchange rate.
He expressed dismay that the floating of the naira which was supposed to curb speculation of currency speculation, had consequently escalated the activities of speculators.
According to Kuti-George, unless the government moves swiftly to stem the tide of the naira depreciation especially at the parallel market where more customers access the FX, more factories would be forced to shut down.
He said, “It is ironic that what works in other places don’t work in Nigeria. The cost of production is rising, because we still import a large part of our input, especially equipment. Most of the raw materials that we use are imported.
“So, when the cost of input goes up, the cost of production also goes up. This will happen to the price of products. The question now is – will people be able to afford our products now? Will imported products not be cheaper than our own to the extent that people will be rejecting our products for imported ones? Unless the tide is stemmed, there will be more factories closure.”
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Inflation
The President of the Manufacturers Association of Nigeria, Francis Meshioye, said the current exchange rate would inevitably lead to a hike in the prices of products given the toll it would take on manufacturers to access foreign exchange.
According to him, the floating of the exchange rate will not mean anything to operators if the naira continues the free.
Meshioye said, “It is an unpleasant development because that is the major currency through which we purchase our goods outside the bounds of our nation. It means that the cost of raw materials will continue to skyrocket.
“It is unpleasant. We hope that the government will do something about it. While we float the exchange rate, it should not be allowed to be somersaulting and skyrocketing to unreasonable levels which will not augur well for the country, knowing full well that we are not just trading amongst ourselves.”
He added that, “We have to trade outside of our bounds. The implication of this is that our prices may be unreasonably higher than prices of other countries. That implies, among other things, that our products may be found to be too expensive. If you want to look at the unavailability of disposable income among the citizenry, the choice of buying Nigerian-made products, which may be expensive and foreign products which are cheaper is low. It is pathetic.”
Scarcity
The President, Association of Bureaux De Change Operators of Nigeria, Dr. Aminu Gwadabe, said the volatility of the local currency had continued to underpin the nation’s slow economic growth.
He said, “The high demand pressure at the 1&E window and the parallel market due to lack of sufficient liquidity have been fuelling the widening gap between the I&E Window and the parallel market rates.
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“Combination of several factors including the investors’ backlog estimated at $6.8bn and disincentives to bring fresh funds into the economy is one of the major concerns.
“In the same vein the dwindling receipt of Diaspora remittances and resurrection of subsidy on petrol are major deterrents and big concerns to fresh liquidity in the market.”
According to him, the uncertainties and loss of public confidence on the local currency has heightened demand pressure in all segments of the market.
He said, “In addressing the challenges of the I&E window, there is need for the legislation of the willing buyer and willing seller concept. This will lead to enhanced liquidity in the foreign exchange market and enhance public confidence.
“It is also imperative in this regard to recognise the inclusion of the BDCs at the I&E window to continue to play their roles of moderating and correcting the markets.”
He advised the Federal Government on how to bring in more Diaspora remittances.
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The CBN had recently announced operational mechanism for the BDCs to trade foreign currencies at similar rates obtainable on the Investor & Exporter forex window.
It gave the directive to all BDCs and the general public in a circular number TED/FEM/PUB/FBC/001/007 dated August 17, 2023, titled, ‘Operational mechanism for Bureau De Change operations in Nigeria’.
The circular stated, “The spread on buying and selling by BDC operators shall be within an allowable limit of -2.5 per cent to +2.5 per cent of the Nigerian exchange market window weighted average rate of the previous day.
“Mandatory rendition by BDC operators of the statutory periodic reports (daily, weekly, monthly, quarterly and yearly), on the financial institution forex rendition system which has been upgraded to meet operators’ requirements.”
Confidence
The Director/Chief Executive Officer, Centre for The Promotion of Private Enterprise, Dr Muda Yusuf, said the new CBN Governor, Dr Olayemi Cardoso, was assuming the leadership of the CBN at a very crucial time in the economic history.
He said, “There is a serious confidence crisis in the foreign exchange market fuelling an unprecedented speculative onslaught on the naira. The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed. Sadly, these outcomes are manifesting at a time when the country’s foreign reserves have been substantially encumbered.
“There is an apparent deceleration in the pace of economic reforms as the outcomes are at variance with expectations. The social costs of the reforms were substantially higher than anticipated, resulting in push-backs from the civil society.”
He said the economic management orthodoxy of market forces was being called to question in the light of the social outcomes of the market-oriented reforms.
He said there was a measured re-emergence of political economy with the reappearance of fuel subsidy and divergence in exchange rates.
This was evidently an economic management quandary that the new economic team would have to manage, and urgently too, he said.
Yusuf said, “Meanwhile, the CBN must ensure strategic and transparent intervention in the forex market to minimise volatility, as far as the reserves can support. In addition to the I and E window, it has become necessary to create an autonomous window in the banking system where the currency can trade freely without any encumbrances. This is necessary to avert the diversion of remittances to other jurisdictions or the black market. We cannot afford to live in denial at this time.
“The clearance of the backlog of forex obligations should be accorded high priority to restore the confidence of domestic and foreign investors.”
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