As the CBN’s Naira-Dollar policy comes to an end, forex scarcity persists
The global covid pandemic has affected the countries in many different ways and the economic crisis was one of the toughest. It was even more difficult to cope with for the countries that were in an economic crisis before that, one of them being Nigeria. The inflation rate in the country has been going for several years already and the government had to make some valid steps to stop the never-ending inflation rate.
It has been already two-month since the Central Bank of Nigeria (CBN) has imposed the Naira4Dollar initiative, however, the specialist is not quite satisfied with the results and the majority of them think that the improvement has not been made the foreign exchange liquidity is still the major problem that the country is facing right now.
What the Naira4Dollar initiative means is that it offers remittance receivers an N5 incentive for every dollar sent into the nation as a measure to boost remittance inflows through legitimate channels and enhance foreign exchange liquidity in the country.
All receivers of diaspora remittances received through CBN-licensed international money transfer providers were paid N5 on every dollar received as remittance inflow from March 2021, when the program began, to May 8, 2021.
CBN Governor Goldwin Emefiele said the move will encourage banks and financial institutions to offer products and investment vehicles oriented at attracting investments from Nigerians in the diaspora, expressing confidence in the campaign’s success. Whale observers appreciate the program as it comes to an end on Saturday, May 8, 2021, they believe it has had little influence on foreign exchange liquidity, which they claim remains low. This is also taking into account the fact that remittances are expected to decline as the economies from which the remittances are sent are still recovering from the COVID – 19 epidemic.
It is vivid that forex is still in short supply and the situation has not improved, vice versa, it has even worsened. The CBN’s Naira4Dollar remittance program is a fantastic way to stimulate inflows but the specialist believes that if they had broadened the scope to include all of the resources of inflows, more capital would be allowed into the nation, which would directly increase the capital flow in the country. Rather than telling individuals whatever rate they must sell at, it is necessary to enable them to sell at whatever rate they think is more acceptable.
One of the most profitable industries, forex trading has been thriving in Nigeria even during the pandemic as people were trying to find the source to generate their finances. The main reason why the brokerage companies or investors are involved in the industry in Nigeria is its environment and that they are not restricted in the activities as they are in other countries. However, there have been some talks about imposing additional restrictions, because people are not aware of the dangers of Forex trading and they are losing a lot of money that causes the funds to flow out of the country. However, this might affect the economy more in a bad way because the main attractive factor, the forex-friendly environment will be out of the horizon while thinking about becoming involved in the Nigerian forex market.
Exporters are expressing dissatisfaction with the rate they are receiving, which is below market and many are hesitant to send in revenues. If they do not impose rates, this will alter. In the currency market, the rigidity of fixed rates must be relaxed. As a result, the liquidity will be improved.
Another problem that should be also mentioned is the fact that more money is spent on imports than they make out of it, particularly on oil importation. The system should have begun to improve with oil prices reaching $60 to $70 per barrel, but much of what they earn is used to import oil goods. As a result, the economy is not doing as it should. It is required to repair the oil industry and complete the deregulation of the oil industry so that the burden of debt may be lifted. If all the above-mentioned suggestions were implemented, FX liquidity would be improved and the economy would be strengthened further. By liberalizing the forex market and removing all obstacles, including price, they can also attract foreign direct investments, foreign portfolio investors, and exporters.
Johnson Chukwu, managing director and chief executive of Cowry Assets Management Ltd, adds that while no official numbers on how much has been transmitted during the time are available, before receiving the remittances, it is good to look at what is going on over there and what are the market conditions. Due to the fact that most western nations are experiencing difficulties, Nigerians in those nations may not have excess to go home when they emerge from recession and Covid lockdown. Mr. Chukwu, on the other hand, focused on promoting exports as a means of increasing foreign cash inflows into the country. To stimulate exports, he believes that the country must have exportable items. As a result, whether they make intermediate or final items, they are unable to compete with those produced abroad. That is the main impediment to exporting. They need to establish an atmosphere that allows them to generate a large number of exportable commodities in the country. The Naira is under a lot of strain. It will stay such since Nigeria’s economy is entirely reliant on imports. Nigeria continues to import toothpicks, as well as petroleum products. Because all of the factories have closed and they do not have any exportable items. It is also said that if the CBN had not intervened, the currency rate would have risen from N1000 to a dollar. And the Naira initiative should have been introduced sooner because banks and IMTOs have been defrauding clients by providing their local currency instead of foreign currencies during transfers.
