Nigeria’s plan to unify its various foreign exchange rates around the investors and exporters window, I&E also known as the Nigerian Autonomous Foreign Exchange Market, NAFEX will remove a major obstacle to the ability of Africa’s biggest economy to attract and retain badly needed investment, analysts and investors said Wednesday.
Central Bank Governor Godwin Emefiele who has been reticent on the matter, told investors Tuesday the apex bank would push the rate convergence around the rate on the I&E window which closed at N386.63 to the dollar yesterday. It is the first time the bank governor would openly commit to a rate unification around a particular band and this could reinforce speculations last week that the official Naira rate had indeed moved.
“This is the clearest signal yet that Nigeria intends to do the right thing by maintaining a single rate for its currency as has been canvassed by investors for three years”, said Keith Clarke, a London-based economist and analyst advising a number of firms doing business in Africa.
A senior government official told BusinessDay last night that the principle of exchange rate conversion had been approved by President Muhammadu Buhari before the Coronavirus pandemic lockdown which has brought the economy to its knees.
It is expected that converging the rates around N387 to the dollar will also boost revenues of all the three tiers of government which could see an expansion of N20 on every US dollar earning in oil sales coming to the monthly FAAC allocation purse.
Speaking at an investors conference call held by Citi Bank Tuesday, Emefiele said, “what we mean by exchange rate unification is moving towards NAFEX. NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.
“That means that whether you are a businessman, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars you can also come to that market.”
Finance minister Zainab Ahmed as well as head of Nigeria’s debt management office, Pat Oniha also spoke at the event.
Nigeria has long resisted pressure for the unification of its various foreign exchange rates which spoke investors and led to allegations of lack of transparency and fairness by some.
Speaking at last week’s National Conversation organized by BusinessDay, the distinguished economist at Oxford university, Paul Collier said the multiple exchange rate system was damaging the Nigerian economy and wondered why any modern economy will adopt such a system that was prone to abuse.
Nigeria’s foreign exchange market has been virtually frozen in the last three months and this has seen the Naira falling persistently on the parallel market which the CBN governor condemned as a platform for those doing illegal business.
He said, “unfortunately, you find out that some people who do not want to procure the type of documentations that are required would sometimes rush to that market. But we have used the period of this pandemic to prove that anybody dealing in that market today is dealing in an illegal business.”
Nigeria is dealing with a foreign exchange demand backlog estimated at around $2.5bn at last week’s bankers committee meeting chaired by Emefiele, the CEO of one of the largest banks was mandated to lead work on finding a pathway to the resolution of this backlog which has also roiled the letters of credit, LC system which businesses have traditionally counted on.