Thursday, August 04, 2016 4.48PM / Proshare Research
The floating of the Naira termed as a Flexible Foreign Exchange Regime remains one of the long awaited policies introduced into the Nigerian economy at a time when an FX denominated economy was experiencing obvious scarcity.
Following its introduction not withstanding, the policy has acted as a significant dynamic altering move especially within the banking system; with impacts felt within and outside the financial system. This move was followed up with the re-introduction of the interbank FX market which delivered a more stringent rule(s) founded on global transparency standards that offered comfort to FPI, FDI and development agencies positing its sole aim of achieving a single FX rate in the economy.
The proposition of a single FX rate in the economy has not built up as expected but remains a target.
That said, this policy has not come without its ups and downs with far-reaching consequences across various sectors of the Nigerian economy. Indeed, BDC operators, whom exponents of the policy had expected to fade away and offer a closure to institutionalized round-tripping has had a resurgence due to the nature of the economy and the structure of the financial system, nay financial services operators. Truth be told, very few citizens can do without the BDC’s and therein lies the mismatch in the problem-solution matrix which appears certain to ensure the sustainability of the margin (arbitrage) between the official rates and the parallel/black market rates; if not considerably.
To properly begin the capture of our journey towards the single fx market rate (as a component of the restructuring of the Nigerian economy); Proshare took the decision to document the developments in and around the forex market on a period basis in order to aggregate opinions, practices and options; but mostly to offer the investing public an opportunity to fully appreciate, understand and determine how the journey will pan out.
We believe that the whole process from the monetary side has and remains the best we could do in the absence of a solid appreciation and deployment of the very key fundamental instrument of fiscal controls – tariffs and taxes – to manage demand and moderate consumption in an era of low or inadequate supply of forex.
The execution of the policy and its initial hiccups reveal far more than administrative lapses or orgnisational incompetence, but points us all in the direction of a misalignment in the tools of economic management, a dysfunctional financial control structure that operates independent of each other; and an economy that has an existential burden of unproductivity.
That businesses, both small and large are suffering at this time is not an understatement. The dislocation today may in itself be a sign of more challenges that lie ahead given the imperative of time in the recalibration of the Nigerian economy. Analysts and Economists we spoke to believe that these may be early days of the new normal and that does not offer much comfort to an economy not used to disciplined financial interventions.
The current realities are not premised solely on issues which monetary policy(ies) can offer a quick fix on and in managing the current economic trillema, it is possible that missteps will occur if factors and indices driving a largely informal economy, built on the back of “unorthodox” funding is not properly contextualized; and the sub-texts adequately digested.
This was never going to be an easy ride after many periods of lost opportunities.
This report therefore offers no “smoking gun” but simply seeks to document thoughts, plans and decisions that serve as a compendium designed to guide the larger interrogation necessary for the hard decisions needed.
It is our hope that this report will enable readers use a credible working document that explains the workings of the new policy, the implications thereof and the evidence gathered to date to engage in a more meaningful discussion devoid of emotional and non-data backed interventions.
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For: Proshare Editorial Board
Reshu BAGGA Olufemi AWOYEMI
COO Proshare CEO Proshare
1. The Address of the CBN Governor on the new Nigerian Managed Float Exchange Rate System
2. Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market
3. FX Utilisation in Nigeria - Jan 2013 to May 2015: Exclusive Details
4. How Much FX was spent on Telecoms/Technology Related Items (2013 - H1 2015)
1. CBN Governor Explains Flexible FX Regime Plan
2. CBN Flexible FX Policy and Nigerian Business Environment
3. CBN Flexibe FX Policy and Nigerian Business Environment - Pt 2
4. CBN FX Policy- Implications for Nigerian Capital Market
5. Budget 2016 Presentation - Assumptions
6. Budget 2016 Presentation - Framework
7. Budget 2016 Presentation- Capital Expenditure and Allocations
8. 2016 FG Budget of Change Analysis
9. FG 2016 Budget of Change Analysis- Pt 2