June 12 (Lagos) - The CBN could have just signaled an end to official exchange rate of N 306 to 1 USD on its website where it usually publishes the 'official' exchange rate. The CBN wrote "
Naira exchange rate is market determined" where it usually writes the offical exchange rate. Now was this some kind of a signal that the era of fixed exchange rate is over? Or was this just a error because today the exchange rate is mentioned again and is not much different from what it was before those words appeared there.
More evidence of a devaluation (of official rate) was that Nigerian customs directed importers to pay duties at the weakened exchange rate of N 326 to 1 USD. In the parallel market the Naira is trading at 360 to 1 Dollar. Some analysts are calling for a merging of the two exchange rates into one official new rate which will be the only exchange rate in the country going forward.
However taking a look at the CBN website today the official rate is written as N 306.95 to 1 USD. What is not mentioned is whether this rate is market determined or fixed rate. So clarity from CBN is desired but today is a public holiday so maybe we will hear from them later in the week.
Since 2015, Nigerian Central Bank has tried to control the Naira value in the face of low foreign reserves and record low crude oil prices in 2014-2016 period. In 2016 Naira was trading at below 400 to 1 Dollar in the parallel market before the CBN introduced NAFEX window which stabilized the exchange rate around 360 to 1 Dollar.
The fact remains that Nigeria's economy is fragile because of low foreign exchange reserves, high rate of borrowing and government spending on servicing debt as well as spending on maintaining itself. Unless these issues are fixed, there is no way out for economy from this spiral of economic doom.
Re-development of the Agriculture sector has been much spoken about but there is little progress on the ground. Most of the rice in Nigeria today is smuggled in from porous borders to the west and east. The bagging of rice is what is actually taking place in Nigeria and not production what is supposed to be the savior. This in turn still puts the same pressure on the Naira exchange rate only at a lower rate than at the official rate. Same things can be said about things like tomato paste and other agric products.
If there is one exchange rate in Naira, it will make it easier for foreign investors to understand our markets and invest here but do we really need the type of short term foreign investors who come in when market is in the gutter, pump up the asset prices and then simply exit with their profits?
That's really not what Nigerian markets need at this time. It is better such foreign investors stay away who do not really believe in investing in Nigeria long term. They actually cause more harm in long term to Nigerian retail investors who are left holding the bag after the foreign investors who done their 'jump in jump out' with the help of Nigerian fund managers.
But that is a question for another day. We need investors but what we need are long term investors who are committed to a stronger Nigerian economy.
The Central Bank should ensure that whatever steps they are taking regarding the Naira exchange rate are well thought out and benefit consumers and not short term foreign investors.
Hope and pray it is not November 2015 all over again when the CBN lowered the interest rates and that led to the crash of the Naira and then they came back 3 months later to increase the rate interest rate and it was too late for the Naira and our economy. CBN is known for its flip-flops and is responsible for the suffering of Nigerian consumers and market stakeholders.
Hope this time they will get it right and give the country a stable exchange rate which is long term and sustainable. Whether it is 350 or 400 just make sure it is sustainable and long term.
Today is June 12 the new Democracy day so enjoy the holiday and lets hope and pray for the economy to turn a corner and finally come out of the recession of the past 4 years.