The Manufacturers Association of Nigeria (MAN) and corporate treasurers under the auspices of the Association of Corporate Treasurers of Nigeria (ACTN) have stated that the Central Bank of Nigeria’s (CBN) floating of the naira aimed at unifying the multiple windows in the foreign exchange (forex) markets will improve market efficiency and restore investor confidence in the nation’s economy.
Director General of MAN, Segun Ajayi-Kadir, stated in an exclusive interview with Vanguard, “We believe that the policy will increase market efficiency and help restore investors’ confidence in the economy.”
As a result, the move to adopt a unified exchange rate is a welcome idea for resolving the country’s foreign exchange problem. We are hopeful that the floating of the naira will restore sanity to Nigeria’s forex market, and we have advised members to view this new development as a long-awaited opportunity to soften the lingering challenges of the forex market crisis.
“We would like to emphasise that the manufacturing sector has been hampered by a lack of foreign exchange.” While getting the currency at the official rate has been difficult, members who have had to resort to alternative methods do so at exorbitant and uncompetitive rates. Given a floating system, we believe that the official and parallel market rates will eventually converge, allowing investors to seamlessly access forex at a competitive rate.”
However, Ajayi-Kadir stated that the overall impact on the economy will be mixed.
On the plus side, he predicted that “forex scarcity will decelerate as currency arbitrage activities decline, Nigeria’s exports will be more competitive in the international market due to naira depreciation, there will be increased exports and a rise in capital inflow.”
On the plus side, he stated that the policy may raise import costs, reduce import flows, which is bad for manufacturers who rely on raw materials that are not locally available, and make the economy more vulnerable to external shocks.
In the same vein, ACTN President Yinka Ogunnubi stated, “We believe that this policy change by the CBN will result in “Market Efficiency,” leading to a more market-market determined exchange rate reflecting the true value of the currency based on demand and supply. We also believe that increased transparency and predictability of offers will boost “investor confidence,” potentially attracting more foreign investments.
We believe that a unified market is what is expected of a “normal financial market system,” and we anticipate that this will provide clarity, increased transparency, and improved confidence, all of which will benefit the financial markets.
“That said, we are cautiously optimistic because, aside from unification, there are a few other measures required from the CBN to buoy the forex markets, such as clear policy statements and market direction, statements on treatment of backlog of demand, meeting the backlog of undelivered matured forward obligations, and sanitising market practises.“