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Buhari to CBN: No objection to flexible exchange rate

By on June 2, 2016

Faced with an economy nearing recession and inflation at the highest in almost six years, President Muhammadu Buhari has backed down on his refusal to allow the naira to weaken.

The President, according to Bloomberg, has given the Central Bank of Nigeria the go-ahead to introduce a more flexible exchange-rate system even as he remains against a devaluation of the naira.

The foreign news agency quoted the President’s Senior Special Assistant on Media and Publicity, Garba Shehu, “The president is opposed to devaluing the naira, he has said so repeatedly…but he has given them (CBN) the leeway to introduce what he has called ‘flexibility in managing the currency’s value.”
The President had said in his Democracy Day speech on Sunday that he supported a stable currency, though he would keep “a close look at how recent measures affect the naira and the economy.”

Buhari’s media aide’s comments, which came days after the Central Bank of Nigeria said it planned to introduce a more flexible exchange-rate regime, cleared traders guess on whether the President supported the bank’s plan.

Bloomberg quoted a money manager at Aberdeen Asset Management Plc, which sold all its Nigerian government debt in response to currency controls, Kevin Daly, as saying, “The authorities are acknowledging they need to do something. “They realize this policy is doomed. The question now is how you implement it and how you save face.”

Nigeria has held the naira at 197-199 per dollar since March 2015, even as other oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014. Foreign reserves dwindled as the central bank of Africa’s largest oil producer defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds.

Three-month non-deliverable naira forwards have weakened about 35 naira to 283 per dollar since the central bank announced its change of direction, suggesting traders anticipate the currency may trade near that level in the event of a devaluation.

The Central Bank Governor, Godwin Emefiele, had said on May 24 that policy makers were considering a two-tier currency system, with the naira trading nearer a market-related level in the interbank market while the central bank would continue to allocate dollars to strategic industries at a fixed rate, adding that the new system would be implemented shortly.

The Head of Research at Sterling Capital Markets Limited, Sewa Wusu, has, however, criticised Buhari’s positions as contradictory. “How do you say you don’t believe in devaluation if that is what will create a fair price or bring about a market-determined rate?” Wusu told Bloomberg by phone from Lagos. “The government should come out clearly and say what it wants,” he said.

Nigeria’s Foreign Trade Declines in First Quarter

Nigeria’s total merchandise trade continued its downward trajectory, falling to N2.72 trillion in the first quarter of the year (Q1 2016), representing a 22.6 per cent decline or N793.5 billion compared to N3.51 trillion in the previous quarter. Foreign trade was recorded at N4.02 trillion in Q3 2014.

According to the Foreign Trade Statistics for First Quarter, which was released by the National Bureau of Statistics (NBS) yesterday, falling exports as well as sharp decline in imports caused a negative trade balance within the period.
It said the steep decline in exports brought the country’s trade balance down to a negative value of -N184.1 billion, or N548.7 billion less than what obtained in the preceding quarter.

According to the NBS, the country’s crude oil component of total trade decreased by N716.7 billion or 46.6 per cent against the level recorded in Q4 2015.

The value of exports totalled N1.26 trillion in Q1, representing a decrease of N671.1 billion or 34.6 per cent over the N2.07 trillion recorded in the preceding quarter.
Year-on-year, exports dropped by N1.39 trillion or 52.3 per cent against the export value recorded in the corresponding quarter of 2015.

The country’s export trade was still dominated by crude oil exports, which accounted for 64.7 per cent or about N821.9 billion of total domestic exports.
According to the statistical agency, quarter-on-quarter exports fell 34.6 per cent and 52.3 per cent year-on-year while imports dropped 7.8 per cent and 15.8 per cent.

On the other hand, import trade stood at N1.45 trillion, representing 7.8 per cent drop from the N1.57 trillion recorded in the previous quarter and a further decrease of 273.7 billion or 15.8 per cent year-on-year.
India, Spain and the Netherlands are Nigeria’s major trade partners respectively in Q1 while China, India and the USA constituted major sources of the country’s imports.

Meanwhile, the federal government has said it hopes to achieve the 3.7 per cent projected general growth outlook for the African continent through enhancing global competitiveness of locally made products.
The Minister of Industry Trade and Investment, Dr. Okechukwu Enelama, said this at the one-day sensitisation workshop yesterday.

Enelama who was represented by a director in the ministry, Adesola Olusola, said the 25 per cent subsidy on standardisation was targeted at ensuring that the economy is diversified through the export of globally competitive finished products as set by the Standards Organisation of Nigeria (SON).

“The decision of SON to embark on the 25 per cent subsidy programme is particularly auspicious given the current concerns on the need to make Nigerian products competitive in the domestic and export markets, a veritable strategy for the federal government to achieve the diversification of the national income base.

“At the heart of this effort are the twin issues of standard and quality of our locally manufactured goods and services, inadequate attention to them over the years has been a major challenge to their competitiveness and the country’s ability to achieve the projected 3.7 per cent growth outlook for the African continent in 2016,” he said.

Enelama called on manufacturers to freely and voluntarily key into the project and urged Nigerians to generously patronise certified made-in-Nigeria products to further empower the people economically and create jobs.
On their parts, some indigenous manufacturers lauded the SON for enhancing the minimum standard of Nigerian products through effective monitoring.

Head Marketing, Research and Development of Chikason Industries, Mr. Amechi Chukwu, said making local products attain global standards would enhance the employment generation of indigenous industries.
Chukwu who said the company currently had no fewer than 2,449 employees in Nigeria alone, urged the Federal Government to ease the cost of doing business in the country.

Also speaking, Mr. Jude Ike, Head, Marketing of Tummy Tummy Foods Industries, said the 25 per cent subsidy on standardisation if implemented would go a long way to help entrepreneurs stay in business.
Ike who described the attitude of Nigerians to consuming quality local goods as satisfactory, bemoaned the high cost of production especially due to poor supply.

He said the Tummy Tummy brand remained committed to minimum industrial standards as set by SON and urged the Federal Government to ease the access to forex to enable local firms procure standard raw materials that were sourced abroad.
Earlier in his speech, the Acting Director General of SON, Mr. Paul Angya, said the organisation would continue to protect Nigerian consumers from fake and substandard products.
Angya said the subsidy scheme was aimed at enhancing the viability Nigeria-made products and enable firms conform to standards.

Declaring the event open, Gov Willie Obiano called for the building of a standard test laboratory in Anambra as it had a thriving industrial sector.
Obiano who was represented by the Secretary to the State Government, Prof. Solo Chukwulobelu, lauded the SON for its pro-activeness and promised to continue collaborating with the agency.

 

[ThisDay]