How FG can salvage Naira

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Story by Omodele Adigun

“The Federal Government should seek a $10billion
currency support line from its trading partners; set
a limit for the falling Naira, fix infrastructure and
pursue the diversification drive with vigour”.

These are the pieces of advice by a cross-section
of Nigerians on how best to salvage the Naira,
whose worth continues to fall like a heavy Lead at
the black market.For instance, as at yesterday, it
was quoted at N455 to the dollar on the black
market. Even last month,the currency was sold at
N495 per dollar. “From a technical standpoint, the
Naira is heavily bearish and this negative
momentum could open a path towards 500 and
potential higher against the Dollar on the black
market exchange”, says Lukman Otunuga, a
Research Analyst with Forex Time (FXTM) on an
online investment note.
But how can the nation reverse this trend?
Mr. Johnson Chukwu, the Managing Director of
Cowry Assets Management Limited, advised the
Federal Government to seek bilateral or multilateral
loans to buffer the currency since the CBN can not
do so.
His words: “The only thing government can do is
to enter into agreement with a multilateral financial
agency or a bilateral financial agreement with one
of our trading partners to provide financial support,
budget support or currency support line of a
minimum of $10billion to the government through
central bank so that the government will be in a
position to meet legitimate demand for forex. The
key thing is that confidence has been punctured.
Investors , both local and international, complain
that we dont have the reserves to meet all the
maturing obligations or all our obligations. So they
are not bringing in their money. If we want that
change, we need to get a currency or budget
support line that is huge enough, that is large
enough to ensure that we, as a country, can meet
all foreign currency obligations as they are
unfolding.As of today, CBN can no longer convince
both international and local investors, that it has
the muscle to do that. So it has to leverage on
entities such as multilateral financial agencies like
the World Bank, the IMF,bilateral partners like
China or any of them to give the investing public
that confidence that the country have the resources
to meet all its obligations.”
He, however, warns: “If the situation persists, the
contracting economy will accelerate, so you are
going to have a high level contraction.If we do not
stop the deterioration in the exchange rate because
most companies can no longer afford to bring in
their raw materials and equipment they need for
manufacturing purpose.The cost of consumables is
going to adjust upward to the level that majority of
Nigerians can no longer afford to buy basic
necessities of life.”
Professor Garba Sheka, Professor of Economics at
Bayero University, Kano, advised that Nigerians
should shun patronage of foreign goods in order to
conserve the scarce forex.
In Good Morning Nigeria, an NTA programme, the
universituy don also urged that diversification
should be pursued vigorously.
His words: “There should be vigorous campaign to
enlighten Nigerians to start patronising goods
made in Nigeria. That will reduce our import
dependence significantly.
“Again, we should set a target. We should not
allow the currency to float like that.The CBN
should have a target like the US and other
countries have. W e should not allow the market
forces to determine the currency rate completely.
We should also reject completely or drop the idea
of selling the national assets in order to support
the economy. I dont think that is a very good
advice .It is a very wrong advice, and I think
government would not take that.
“To boost the value of the Naira is a question of
diversifying the economy. Of course, diversification
requires huge amount of money to put the
infrastructure in place.Then to come up with good
policies so that prices of our manufactured goods
and other goods can be competitive in the world
market.
As for Professor Olanrewaju Olaniyan of Economics
Departmnet of the University of Ibadan,the
monetary authority should close the exchange
rates gap between the official and black market.
“Once you have the gap between the official rate
and black market rate at that large,which is close
to 35 per cent of the value, then it gives
opportunity for arbitrage.”
People understand that they can make profit by
just buying that particular currency, holding for
some time and sell it.So the solution to that is that
we need to close that gap. Unfortunately, the ability
of policies to close that gap is also limited during
the structure that we have now. The economy is
stagnant and there is high inflation.So both
policies have to be worked out very carefully and
keenly for us to be able to reduce that.It will not
be in the interest of the economy to go extremely
floating it now because at the rate at which the
Naira is going, if we completely float it, the Naira
will soon hit something like N800 to N900 per
dollar. But even when the CBN can not afford to
float and still peg, you still require your reserves
as a background so that it can hold forte for you.
One thing we need to do is to find a way of
shoring up that our reserves in such a way that we
can do that. Those are the quick things that I know
that we can do now, but the longer ones are to
diversify; increase agric output. But agric output
essentially has problem in the sense that the
farmers are extremely poor, and they are not poor
because they are not producing. They are poor
because the farm produce aggregate prices are
extremely low.There would still be need at a point
in time for government to assure farmers that they
will get value for their efforts.
Diversification is key in the longer terms.And for
us to diversify into manufacturing that can give us
these foreign currencies, our infrastructure has to
be improved.In the last couple of years, we have
seen some improvement.This improvement must
translate into the perception of the manufacturers .

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