Charles Nwaoguji
Nigeria would soon begin to witness improved investment inflow following the decision of the Central Bank of Nigeria (CBN) to unify the foreign exchange rates.
The Manufacturers Association of Nigeria (MAN), which made the prediction in its position on the unified exchange rates adopted by the bank said the association, in its various submissions and publications has been advocating a unified exchange rate in the country to promote a market friendly rate that can facilitate stable production planning and engender sustainable economic growth.
In its statement, the association said it was therefore gratifying that the CBN has now unified the country’s exchange rate.
While commending the CBN, MAN said the development will engender increased investment inflow into the real sector of the economy describing it as a laudable initiative that has come at the right time, particularly now that the economic outlook is gloomy in light of the impact of the ravaging COVID-19 pandemic that has culminated in uninspiring macroeconomic situations.
The International Monetary Fund (IMF) and World Bank have at different times advised the country on the need to unify the multiple exchange rate windows to prevent distortions in investment decisions in the public and private sectors of the economy. Indeed, the World Bank had attributed the country’s loss of Foreign Direct Investment (FDI) to investors exasperation from perceived manipulation of the foreign exchange market, an advice that was hitherto rejected by the monetary authority until recently when it became a conditionality for monetary support.
Speaking on the implications of the foreign exchange adjustment, MAN recalled that the CBN had at two different occasions “adjusted” (devalued) the value of Naira amid lower oil prices, first from N306 to N360 and now followed it up by another adjustment of July 7, 2020, which moved the rate at the Special Secondary Market Intervention Sales (SMIS) to N381 per dollar.
The adjustment, according to the association was motivated by the intention of the apex bank to merge the exchange rate around Investors & Exporters (I & E) window where the Naira is weaker.
Drawing from basic knowledge of the transmission mechanism of exchange rate management and experiences of Cuba and India, the current forex unification agenda will entrench convergence, enhance exchange rate stability, boost investors’ confidence, control rising inflation and promote transparency.
It will also entrench better exchange rate management, eradicate distortions to the barest minimum, eliminate the notorious socially destructive rent seeking activities, halt the incidence of round tripping, ensure better allocation of resources, facilitate income expansion and stimulate the inflow of foreign investment into the economy.
However, MAN observed the existence of the unavoidable pains that naturally come with the transition from a multiple exchange regime to the domain of a single exchange rate, particularly the burden of dollar denominated loans and offsetting existing credit commitments to foreign suppliers of raw materials.