Naira Depreciates To N764.86/$ In I&EW As Forex Reform Clocks 4 Months

October 15, (THEWILL) – Four months after the foreign exchange (FX) reform of June 14, 2023 that abolished the much-criticised multiple exchange segments and set the naira tumbling, the local currency depreciated to N764.86/$ on Friday, October 13 – the last trading day for the week, on the Investors’ and Exporters’ (I&E) window.

The currency, which had exchanged for N759.29/$ just a day before, suffered a marginal dip of 0.7 percent, settling at N764.86/$ at I&E window.

While the open indicative rate announced its presence at N770.16/$, what marked the game changer was the spot exchange rate of N799.90 during the day’s trading. This is a striking dip in the currency’s tumbling value before it ultimately found its equilibrium at N764.86.

Amidst this continued volatile rate scenario, the investors and exporters window recorded a substantially low turnover with a total of $52.02 million changing hands. This represents an 87 percent decline compared with the peak of $407.66 million turnover recorded on the previous day – the highest in the four months of the forex reform.

The unprecedented turnover peak coincided with the readmission of 43 items to the FX window announced by the Central Bank of Nigeria (CBN).

The CBN on Thursday, October 12, 2023 announced the lifting of FX restrictions on the importation of 43 items which was introduced eight years ago as a measure to curb the pressure on the local currency.

In a statement signed by Dr. Isa AbdulMumin, Director of Corporate Communications at the CBN, the apex bank said importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian FX market.

The removal of FX restriction on the 43 items introduced in 2015 has been a matter of interest to international financial institutions, as well as the multilateral agencies – the World Bank and the International Monetary Fund.

In a note by Citigroup Global Markets, after a recent assessment trip to Nigeria, the international rating agency frowned against forex restrictions that encumber smooth market operations, especially the contentious 43 forex-barred items. It urged the CBN to dismantle the policy framework that prohibits the sourcing of forex for the importation of the prescribed 43 items from the official FX market.

“There are all kinds of regulations that need to be removed to get rid of the tiered FX system: the glaring one is the restriction of FX provision for 43 items. An elegant system may persuade more transactions to move from the parallel to the formal rate (where we hear US$1-200mn/day is transacting).” the agency stated in its note to clients.

“Ten years of seriously heterodox policy has created deep distortions in the economy – no small feat to turn-over.

“Luckily, Nigeria is a country that can run a current-account surplus, an enviable position relative to many in the sub-region.

“If the administration can unwind the policy mistakes of the past over the next 6-12 months, Nigeria could-just-about-balance itself without market access. That makes it a good curve to consider on beta led dip,.” the Citigroup stated.

Some analysts believe that the forex policy reversal on the 43 items is good for a unified FX market and for a reversal of growth in inflation. They are optimistic that local production will benefit from cheaper imported inputs, and consumers will benefit from cheaper retail-product imports.

But where is the domestic productive capacity? Under what operating environment will that happen? The Nigerian economy has not been productive for decades and the readmission of the 43 items to the foreign exchange window may not do the magic of enhancing forex supply.

Professor of Economics, Ken Ife, urged the government to intensify non-oil and export-oriented activities to boost FX supply, stressing that lifting the restrictions is just a step to the destination.

“Lifting the restriction on 41 items is the first real step at forex rate convergence, and unification but we need to increase USD supply and Asset based financing and more non-oil export revenue and others, to decelerate the fall of Naira and use other instruments such as currency swap with China, other major trading partners and AfCFTA – PAPSS to shift demand for USD.

“We also need to invoke the ECOWAS levy instrument to augment ECOWAS CET and raise effective duties and tariff wall on the 41 items to protect local infant industries particularly those that are established in the 43 restricted items.

“We need to fight speculation as it is pushing forward rates of forex which makes USD a primary store of value thereby heightening the demand for USD, beyond importers that alone need over USD4billion a month. All measures need to kick-in now as banks may well be re-pricing their assets,” he said in a note to this newspaper.”