New FX regime: CIBN, experts x-ray effects on business, economy

In a move to ensure better business environment and improved foreign exchange rate in the country, the Chartered Institute of Banker of Nigerian (CIBN) and financial experts have x-rayed the effects of the newly introduced forex policy on the Nigerian business environment and its implications on the nation’s economic growth.

The industry experts also expressed concern over the current business dynamics being faced by Nigerians under the prevailing flexible exchange rate in the country.

Speaking at a breakfast session of the institute at the weekend, with a theme: ‘Business Dynamics under a Flexible Exchange Rate Regime’, the President and Chairman of CIBN, Professor Segun Ajibola, said that the CBN has done well by allowing the market to play a role in determining exchange rate for the Naira, to promote allocative efficiency. According to him, if businesses can reorder their modus operandi as counseled above, Nigeria’s economy and Nigerians stand to be the gainers.

He, however noted that the flexible exchange rate was another attempt at finding a workable exchange rate regime in Nigeria and for Nigerians, adding that the underlying facts are well known. In a situation where there are supply rigidities, attempts to administratively regulate prices promote black marketeering.

Herein lies the challenge of the Authorities. Should Naira be allowed to float freely? Some have argued that pegging the exchange rate at about N270 to a dollar is equally unrealistic.

He said, whatever view is held, the immediate implications of the flexible exchange rate regime on businesses of all types and at all levels include increase in cost of factor inputs, hence cost of production.

“Accordingly, total demand may fall, leading to reduced output, stunted growth and reversed development and eventually fall in both nominal and real GDP.

Consequently, other financial experts noted that though, the recent policy had placed a positive impact on the economy by removing distortion, hoarding and speculation in the currency market but could only be enjoyed better if the CBN, would remove its ‘invisible hand’ from the free flow of the market operations.

They said that with the adoption of the flexible exchange rate, the apex bank had promised that the decision would lead to increase in dollar inflow in few days but the reverse has been the case as Nigerians are facing hard time to do business with the directive.

On the other hand, the expert explained that the policy in the short term is hurting the economy because of the dwindling revenue accruing from the sale of crude oil but believed that round-tripping and arbitrage which use to be  the order of the day has  been reduced drastically.

They also blamed the Federal Government for not creating an enabling atmosphere for the manufacturing sector to thrive in order to increase the nation’s capacity to earn in dollars.

While commenting on this development, Managing Director / CEO, Dove & Brooks Group, Dr. Tunji Sohodu, specifically explained that poor Nigerians are the most affected by the federal government’s fixed exchange rate regime.

He further noted that a synergy of monetary and fiscal policies directed at infrastructural development and reforms would increase tax compliance and create a favorable environment for the SMEs to thrive.

In his words: “The long term benefits of free float foreign exchange are contingent on efficiency, transparency and proper regulations. It is also expected that foreign investors will re-enter the economy through Foreign Direct Investment (FDI) and provide domestic companies with necessary funding and expertise required to resuscitate business activities

.Also, the first Vice president of the institute, Mr. Uche Olowu, urged the government to apply a robust debt management plan at both the federal and state levels, while following through on capital projects required to drive the economy and attract FDI.

They agreed that more than before, businesses need to redefine focus, move away from import dependent technology and substitute imported raw materials for local ones. Consumers need to buy into the new dynamics.