The Lagos Chamber of Commerce and industry [LCCI] appreciates that these are challenging times for the Nigerian economy. The pressure on foreign reserves has intensified as crude oil prices continue to plunge. There is a resultant impact on the naira exchange rate with varying degrees of impact on all sectors of the economy. The macroeconomic outlook is a cause for concern. However, the quality of monetary and fiscal policy responses could have a considerable moderating effect on the impact of this negative outlook on the economy, the investors and the citizens.
We acknowledge steps taken by the CBN to manage the current conditions as follows:
- The closure of the CBN foreign exchange window.
- Termination of foreign exchange sales to the Bureau de Change [BDC] operators.
- Lifting of the prohibition of the deposit of foreign currency cash to the domiciliary accounts in the banking system.
- Lifting of transfers from domiciliary accounts for transactions outside the country, subject to specified limits.
These policy actions were inevitable in the circumstances. But the foreign exchange market is still characterized by considerable uncertainty which drives speculative activities and impacts negatively on investors’ confidence.
As the Monetary Policy Committee [MPC] of the CBN meets this week, it important to draw attention key areas of concern. The apex bank needs to urgently articulate a comprehensive framework for the autonomous market [which is now the major forex market]. The scope of the market needs to be clearly defined. In order to ensure a deep forex market, foreign exchange from the following sources should be allowed to be freely traded in the autonomous market:
- Diaspora remittances
- Export Proceeds
- Forex sales by foreign investors and multinational companies
- Forex sales by Donor agencies and other NGOs
The adoption of this model would have a significant moderating effect on the exchange rate.
Excessive regulation and documentation should be avoided as it could undermine the development of a robust autonomous forex market. Current controls and regulations of forex inflows into the economy should be relaxed, without necessarily compromising the money laundering prevention measures of the relevant authorities. Overregulation considerably hurts the economy. It is paramount at this time articulate policies that would stimulate and unlock the huge potentials in diaspora remittances and other capital inflows into the economy. Diaspora remittances to Nigeria were $21 billion in 2014, according to World Bank sources.
Meanwhile, we reiterate our call to the CBN to lift foreign exchange restrictions on the 41 items, especially now that the CBN official forex window has been closed. The restrictions have caused considerable loss of jobs and many more jobs are at risk as many firms run out of stock of their critical inputs for production. For the sake of economic policy coherence, any product that is not on the official import prohibition list of the federal government should have access to the autonomous foreign exchange market.
Import prohibition is a vital trade policy matter which should be undertaken in an integrated manner with inputs from the Finance Ministry, National Planning, Trade and Investment and the Nigeria customs service. The consequences of import prohibition are far reaching and go beyond the narrow perspective of conservation of foreign exchange. The dimensions of inter sectoral linkages, employment implications, customs revenue implications, breaches of regional and other international trade treaties should be taken into account. Fiscal policy measures [taxation and import tariffs] could be used, as and when necessary, to shape the behavior of economic operators as the policy thrust of government dictates.
The normalization of the foreign exchange market is very crucial at this time to stem the current slide in the economy, factory closures, job loses, escalating prices, waning GDP growth and weakening investors’ confidence. The impact is being felt across all levels of investments – large companies, medium enterprises, small business, micro enterprises and the informal sector. The systemic significance of foreign exchange policy in the Nigerian economy needs to be well appreciated. This is partly as a result of the high import dependence of the economy, and also a reflection of the increasing integration of the Nigerian economy into the global economy. It very important to get it right! A foreign exchange market characterized by transparency, liquidity and stability is imperative for rebuilding the economic growth momentum, boosting investors’ confidence, encouraging foreign exchange inflows and creating of jobs.
