By Yemi Adepetun and Temiloluwa Adeoye
MANY are wondering what is happening to the Naira, which gained marginal value after the elections. The naira had gained about 23 Naira against the Dollar as it exchanged for N197, against N220 before the elections, making many to heave a sigh of relief. Thinking was that the Dollar would continue its free fall.
But the Naira is beginning to witness a downward slide in the value, as it now exchanges for N230. Efforts by the Central Bank of Nigeria (CBN) to shore up the Naira have not made a difference. In fact, the value continued to depreciate. The bank had adopted a lot of measures, including prohibition of demand and offer of Dollar for local purchases and services, closure of Retail Dutch Auction System (RDAS) for interbank foreign exchange market and recently, the removal of 41 items from the list of imported items that foreign currencies could be sought for importation.
The declining value of the Naira is taking its toll on every sector of the economy. Importers are lamenting low patronage and inability to import more and to clear some of their goods at the ports.
Olalekan Tosin is an importer of lace materials. She is the owner of Titilope fabrics on Lagos Island. According to her, she has not been able to travel to Switzerland to buy lace materials in the last six months because of the rising exchange rate and the inability to sell fabrics at the prevailing rate.
“The ones I brought into the country when the exchange rate was N210 are still there unsold. We used to sell a yard of brocade for N3, 500, but it is now N4,500. Business is slow because of low value of the Naira.”
In the same vein, Madam Olufunke, an importer of baby products lamented low patronage, when she spoke with The Guardian in Balogun, Lagos. She said, “ During my last trip, I was still shopping, when I received the news that the naira fell to N220. Now, I’m still selling at the rate of N220 to a dollar, which was the exchange rate for the goods, but the prices seem to scare buyers away, as sales are very low. Now that the rate is N230, I don’t even want to imagine having to buy forex at the new rate, I can only pray that the Naira rises again. Government should please look into it, alongside their policies, to help business people like us, because at this rate, more businesses would fold up.
The high exchange rate is also hitting manufactures hard, as many of them are just struggling to remain in business because of high cost of raw materials.
The president of the Manufacturers Association of Nigeria, Frank Jacobs said manufacturers, especially those who import raw materials, are also affected.
“This is a call for manufacturers to look inwards, and it would take time to get local content. The rise and the fall in the value of the Naira against foreign currencies is not the issue. The underlying factors are high interest rate, low productivity, and unfriendly business environment. If these basic things are provided, businesses would expand and then we can talk of exporting our products, but If Nigeria continues to be dependent on oil, we will keep going through these negative cycles. Even after devaluing twice, the cost of funding is more important than planning further devaluation,” he said.
The devaluation and continuous fall of Naira has and may continue to take its toll on the Information and Communications Technology (ICT) sector.
Responding to The Guardian’s enquiries on the effects on the telecommunications sub-sector, the General Manager, Corporate Service, MTN Nigeria, Funmi Onajide, said the exercise has increased the cost of doing business, as the industry is extremely forex and capital dependent.
Speaking also, immediate past president of Nigeria Internet Registration Group (NIRA), Mrs. Mary Uduma, said, “it is definitely affecting the sector and the economy as whole.
Uduma said this is because most ICT devises are all imported adding that, “contracts that have been concluded long before now may have to be reviewed. Those that are importing may have to look for more money to push things and bring in their stuffs.
“So, we can see it affecting the IT/ICT sector because we are still a consuming nation. Vendors, retailers and service providers would have to look for more money to be able to bring in those devices and infrastructure to be able to move the sector forward. At the end the consumer would still have to pay more.”
Advising the government, the NIRA President said, “it is high time that Nigeria looks inward and think of how to develop local content.”
Looking at the economy, the former President of the Institute of Software Practitioners of Nigeria (ISPON), Chris Uwaje said the economy “is all about wealth creation and the creators of wealth are the labourers, meaning that without them, there can be no wealth. Uwaje said, “to be able to create internal wealth; local content is critical and be able to fortify them with innovative facilities and infrastructure with research and development.”
From his own perspective, the President of the Association of Licensed Telecommunications Companies of Nigeria (ATCON), Lanre Ajayi, “said the impact would be substantial considering the fact that most of the things used to provide services are mostly imported and bought with foreign currencies. If the industry still has to import, the same quantities would need to be bought with more Naira and it means that it will either affect the bottom line of the provider or the bottom line of the consumer.”
He urged the government to diversify the economy to avoid too much dependence on just one product. The way out, he said, government would have to create wealth outside the oil and gas as done in other countries like Japan, China among others.
In order to shore up the value of the naira and protect foreign reserves, renowned economy analyst, Henry Boyo, said there was need to reduce excess liquidity in the financial system. According to him, Nigerians should blame the CBN for the declining value of the Naira, adding that the country was suffering from excess liquidity.
“The CBN is deliberately wrecking the economy because it keeps flooding the economy with excess naira. The success or failure of a currency is also dependent on the management of the monetary strategy that underlies the usage of resources.” He explained the situation saying, “surplus Naira is responsible for the currency decline, devaluation, inflation and high cost of fund.”
“In the commodity market, when tomatoes is surplus in the market, it becomes cheap. When it is scarce, it becomes expensive. Replace it with Dollars; you have the same situation. When the Naira is surplus and the green back becomes scarce, the Naira becomes cheap and Dollars become expensive. The naira has continued to decline for over 30 years because the same person controlling the Dollars makes sure it is scarce in the market, then auction rations, whereas there is excess liquidity, this is a deliberate attempt to kill the Naira.”
Continuing, Boyo said, “there is so much money in the system. The banks have too much credit capacity to exploit. To prevent inflation, the Apex bank pays banks as much as 13 percent interest rate to borrow money from them and keep, without using it for infrastructural development, the money lies fallow with the CBN, even when industrialists are saying they don’t have money. The naira should not be this expensive when it is everywhere.”
A lecturer at the Economics department, University of Lagos, Dr. Femi Shaibu said the measures taken by the Apex bank would not have been if they were without the approval of the presidency. He therefore urged the government to find alternative ways to help affected businesses.
“Restricting some items from forex list puts pressure on the parallel market because it is like removing subsidy on some items, and most of our imports are based on the items in the prohibition list.”
According to him, foreigners are skeptical of investing in Nigeria due to the instability of the Naira. Already, there are talks on further devaluation, which the International Monetary Fund is also proposing. Government must follow through with their policies, articulate them, expose the people to them, and let the Naira find its natural level, build confidence in the Naira and block loopholes.”
The Director of public communication of Central Bank of Nigeria, Ibrahim Muazu said the bank had been tackling the exchange rate from both sides of demand and supply. He said prioritisation of the forex for certain imports, the closure of official forex market for interbank foreign exchange market and the prohibition of Dollar for the exchange of goods and services locally are some of the measure already taken to control the demand and supply of the Dollar in the attempt to stabilize the value of the Naira.
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