Experts proffer solutions to Nigeria’s forex crisis

　　As the exchange rate pressures continued in the Nigerian foreign exchange market through last week, economy experts have recommended that the only way out is a total economic restructuring away from mono-cultural to a more diversified economy.

　　Last weekend the Naira closed the week at average N430/ USD1.0 as against N429/USD1.0 at the opening of trade on Monday in the Investors and Exporters window.

　　In the black market the local currency depreciated marginally to close at N682/ USD1.0 as against N680/ USD1.0 on Monday.

　　The exchange rate had hit a volatile stretch in the second week of August trading at an all time high of N720/ USD1.0 which prompted the National Assembly to summon the Central Bank of Nigeria, CBN, for explanations.

　　But most economy experts were concerned that rather than address the economic and fiscal challenges that have weakened the economy and its currency over the years, the law makers were rooting for a scapegoat.

　　Speaking to finance journalists at a seminar last weekend Professor Ken Ife, a development consultant & Lead Consultant, Industry & Private Sector Development, at ECOWAS Commission, said the challenges of the instability in the foreign exchange market is more of structural and fiscal imbalances than monetary policy issues. He stated, ‘’price stability is more volatile, not so much on interest rates, but on inflation and exchange rates.

　　He stated: ‘’Insecurity, borrowing, infrastructure deficit and other structural factors play more significant role in driving inflation than money supply in Nigeria at the moment‘’, adding, ‘’the foreign exchange demand pressure, import appetite, speculation, insecurity and exogenic forces on oil/gas price and production, drive the foreign exchange rates.‘’

　　Recommending solutions, he said, though the CBN has to use the domestic finance intervention to moderate these forces, invest in infrastructure to grow and diversify the economy away from monocultural dependence on oil and gas as major contribution to foreign exchange. Many structural factors limit the transmission and effectiveness of monetary policy instruments.‘’

　　He also harp on the role the failure of governance play in the unending intervention in almost every sector, stating, ‘’I don‘t believe there are governance failures in the domestic finance intervention from the CBN perspective. CBN has prioritized and quite rightly, investment in infrastructure, economic growth, diversification and employment, and chooses appropriate mix/blend of monetary policies to support these, not the other way round, simply because of insecurity and structural factors at play.’

　　Also speaking, Dr. Biodun Adedipe, Chief Consultant at B. Adedipe Associates, a firm of management and financial consultancy, stressed the need for Nigeria to undertake a comprehensive overhaul of its economic and governance system to stem the tide of exchange rate and price volatility.

　　Specifically he called for action on the overemphasised need for diversification of the nations economic base away from oil to real sector.

　　Outlining the policy options Adedipe called for a reform and rationalize of governance system saying, ‘’This is the root of policies, programmes and projects; The structure is convoluted and costly; Prune the number of ministries, departments and agencies; Eliminate duplications and realign responsibilities; Define clear and clean key performance indicators for Ministries, Departments and Agencies; Ensure accountability from the top leadership – Directors and above, especially.‘’

　　He also called for a reform of fiscal operations to address the revenue/expenditure nexus, including rationalization of fiscal spend; elimination of leakages; Setting a goal of 5-years target to equalize recurrent spending with non-oil revenue; Enforce expenditure rules and punish ‘clever’ circumventions.

　　He further recommended, ‘’Shift focus to industrial production; Focus on industrialization; Revisit and update the National Industrial Revolution Plan; Select sectors of importance for import substitution; Identify sectors and products for export-led growth; Provide relevant incentives, including tariff restructuring that focus on regional competitiveness; Commit to ‘Make-in-Nigeria’ and ‘Made-in-Nigeria’; Target infrastructure development at industrial clusters.‘’

　　Meanwhile, making a strong case for Nigerias economic diversification, the Director of Trade and Exchange Department at CBN, Dr Ozoemena Nnaji, harped on the need for inter sectoral dependence and balance in the economy.

　　She also listed the areas of focus in the diversification efforts to include, ‘’the need for more sources of export products to reduce importation of goods and services that can be produced locally; Promotion of international trade that will lead to a positive balance of payment position; and building a dynamic economy capable of absorbing shocks while maintaining full employment.‘’

　　She also made strong case for massive government action in the area of non-oil export, stating: ‘’The overbearing impact of the oil sector on the economy has exposed the country to external shocks whenever there were crude oil price changes.

　　‘’In order to insulate the Nigerian economy from the shocks and FX shortages there is the need to develop new strategies aimed at earning more stable and sustainable inflows of FX, through diversification of the non-oil exports sector.‘’

　　However, she listed some challenges to this direction to include, ‘’Poor industrialization support for export activities; Undue focus on extractive activities without value-add; Poor infrastructure to support export processing and packaging; Ineffective supply-chain framework; High freight charges due to lack of indigenous vessel owners.‘’

　　Other challenges to Nigeria‘s export drive, according to her, includes, ’‘Enormous paper-work; Manual and cumbersome port processes; Decaying ports infrastructure and congestion; Insufficient warehousing facilities and export processing terminals; Poor transportation networks, resulting in high haulage costs/time; Absence of developed commodity exchanges; Lack of regulated framework for standardization and pricing of produce and manufactured goods; No export framework for services like human capital, entertainment (film & music); Inadequate fit-for-purpose financing framework and capacity for export activities; Inadequate specialized risk management structures to support export financing; Relatively high cost of procuring machinery for processing and value-add activities; Difficulty in procuring farmlands from State Government to promote backward integration; Ongoing impact of insecurity on extractive and supply related activities; and Inadequate fiscal support towards promoting export extractive and processing industries.’

　　Meanwhile, Nnnaji has listed several measures CBN has taken so far to boost non-oil exports even when such are more of government and fiscal policy responsibilities.

　　According to her the CBN has, over the years, through various initiatives and interventions, incentivized the non-oil export sector because of the firm belief that the non-oil export sector holds enormous potential to contribute to employment generation, wealth creation and economic growth.

　　She said the initiatives and interventions of the Central Bank of Nigeria seek to bridge the gap identified in the non-oil sector by providing funding for working capital, capital expenditure, and support for the value chain expansion.

　　She listed the measures to include, the N500 billion Non-oil Export Stimulation Facility (NESF); N300 billion Real Sector Support Facility Using Differentiated Cash Reserve Ratio (RSSF-DCRR); CBN‘s Commercial Agricultural Credit Scheme (CACS); Anchor Borrowers’ Programme (ABP); Creative Industry Financing Initiative (CIFI); Central Bank of Nigeria/Bank of Industry N200 billion; the SME/Manufacturing Intervention Fund; the 100-for-100 Policy on Production and Productivity; the RT200 FX Programme‘’.

　　Explaining more on the RT200 FX Programme, Nnaji said the RT200 FX Programme is the CBN and the Bankers‘ Committee’s bold initiative to attract $200 billion in foreign exchange repatriation exclusively from non-oil export proceeds over the next three to five years.

　　According to her, the RT200 FX Programme is designed to incentivize the private sector and achieve its objectives through five key anchors.

　　The five anchors are: Value-Adding Exports Facility; Non-Oil Commodities Expansion Facility; Non-Oil FX Rebate Scheme; Dedicated Non-Oil Export Terminal; and Biannual Non-Oil Export Summit.

　　Over the years the CBN had taken several other steps to boost the export sector economy.

　　Some of the measures include, increased collaboration amongst export financing agencies (NEXIM, BOI, CBN) towards risk sharing/management; Implementing fiscal policies to promote extractive and processing activities; Export Grants, Compensative programs for industrial activities (EDF programs, tax incentives, etc.); Support capacity development programs and facilities; Enhance education around agricultural and extractive industries; Promote technical exchange programs for technology & knowledge transfer; Inter-agency cooperation towards enhancing export logistics at ports/borders/terminals; and Incentivizing states/LGA with programs enhancing non-oil export within their regions.‘’