The Lagos Chamber of Commerce and Industry, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture and the Association of National Accountants of Nigeria on Friday canvassed the need to stop the continued depreciation of the value of the naira (the local currency) by reviewing the country’s foreign exchange policy.
They said as long as the country failed to review the current policy, the scenario would continue because it would not help liquidity in the foreign exchange market, Punch reported.
According to them, the current fall of the naira in relation to international currencies such as the dollar has led to hyperinflation in the country, killing everything.
Naira had fallen to N391 to a dollar at the parallel forex market as of Thursday.
Speaking in Ilorin, Kwara state, on Friday, the President of the Association of National Accountants of Nigeria, Chukwuemeka Nzom, said the fall of the naira had negatively affected financial and economic activities in Nigeria including the fortunes of financial institutions and other organizations.
Nzom called on the government and Nigerians to encourage more local production and patronize locally-made products to reduce the country’s reliance on forex for business transactions.
Missing Supply Side
He said, “The current crash of naira is affecting everybody and institutions including banks because it is leading to hyperinflation. Prices of goods and services have gone up.”
The LCCI Director-General, Muda Yusuf, also expressed fear that naira would exchange for N700 to a dollar if the foreign exchange policy was not reviewed.
He said, “The current policy is concentrating only on the management of demand; it is not addressing the issue of supply. I am not talking about supply from the sale of crude oil because there is not much we can do about that. But there is a lot we can do about supply from other sources, from export proceeds, from our people in the diaspora, from multinational companies that need to bring forex here, from donor agencies that have projects here that they need to execute in naira.
“The only way to encourage supply from the other sources is to liberalize the influence in those areas. If people bring the money in, let them exchange it at the market rate and not at the rate that the Central Bank of Nigeria has fixed.”
Also, NACCIMA National President, Chief Bassey Edem, sought further review of monetary policy rate downwards to enhance foreign direct investments. He said, unless the nation’s manufacturing sector was encouraged to source for raw materials locally, the naira would continue to be under pressure.
He said the value of the naira would continue to fall unless the apex bank further reviewed downwards its monetary policy and enforced adequate policies to empower the real sector and also ease access to low-interest funds.
Productivity Factor
This reality about exchange rates is the reason why many countries around the world have moved to more flexible exchange rate regimes. In the 1970s about 70% of countries pegged their currencies to some other currency, usually the US dollar. By the late 1990s only 29% did so. The lesson in most countries is always the same: fixing currencies has very few benefits but lots of real costs, especially during periods of economic shocks.
The reason why most countries have moved to more flexible regimes is because the costs of fixing currencies is usually borne not only by the governments but by businesses, especially with regards to their productivity. And productivity is what the economy is really all about. “Can our farmers move from producing six tons of yams per hectare to producing 15 tons per hectare? Can our financial sector expand their services to the poor in Nigeria and to customers in more countries? Can our oil industry move from refining less than 10% of domestic demand to exporting excess refined fuels? Can our manufacturing move from producing low value products like toothpicks, to high value products like cell phones?”
