How FG can salvage Naira


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 .

Source: Today Trending News




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