Naira Crash: What the CBN is Not Doing Right
I always laugh whenever the Central Bank Governor, Godwin Emefiele, says the apex bank has the capacity to meet all legitimate forex demand. It’s just a political statement. Manufacturers and other businesses are sweating to access official forex. An official of the Lagos Chamber of Commerce and Industry told me yesterday that manufacturers have about $1.4 billion forex request, which the CBN is struggling to meet. “We hardly get up to 20 per cent of our forest demand from the CBN,” he bluntly added. The inability of the official market to meet forex demand has been putting pressure on the parallel market.
Sadly, the Nigerian Autonomous Foreign Exchange Market (NAFEX) is not being properly managed, resulting in the pressure it is facing. Here, only government agencies supply forex. Others are discouraged from doing so, because of price fixing by the CBN. It is currently officially pegged at about $/N413. So, there is unsuitable pricing of the exchange rate, with a huge gap in the window between the parallel market and NAFEX. Virtually everybody coming into this market wants to buy. Fixing of NAFEX exchange rate is discouraging other providers of forex, and a deterrent to export as well as hurting Foreign Direct Investment (FDI). There is a lot of round-tripping because of the huge gap between the parallel market and NAFEX window. To curb this, the CBN must end exchange rate fixing at NAFEX and allow the market determine the value of the Naira.
The former Director-General of the Lagos Chamber of Commerce and Private Sector Advocate, Dr. Muda Yusuf, was apt when he said the distortion in the forex market, created by the CBN, was responsible for the free fall of the Naira. With the distortion, it becomes difficult to attract foreign investment to the economy.
Yusuf adds: “By fixing the rate, CBN is blocking free supply to the economy because those who are willing to supply to the market will not do so when the rate is pegged. People are doing business under the table because CBN fixed a rate that is not sustainable. There is premium of 30 per cent between the official and parallel market. This regime is creating the problem.
“The critical factors of demand and supply, if well managed, will create incentive for people who want to bring in forex. CBN should allow a system that works. You can never win when you are confronting the market. One of the major problems in the market is the insistence that people should sell at a fixed rate. That
policy has created a problem of compliance.”
My dear Emefiele, please you should calmly engage stakeholders on the Naira crisis, and implement suggestions from such meetings. This is the only way to salvage the Naira. Your “I know it all attitude” must be jettisoned. In any case, you have very little result to show for this. So, let’s start with a town hall meeting on how to salvage our beloved Naira.