By Onome Amuge.
Economic experts have stated the importance of institutional reforms , clarity and transparency to address the longstanding exchange rate volatility, intensified inflationary pressure,among other economic challenges that have weighed upon investment opportunities in Africa’s largest economy.
The President Bola Tinubu administration has in the last two months introduced economic reforms, notably the fuel subsidy removal and foreign exchange window unification, expected to shore up the revenue-generating capacity of the federal government and “save the country from financial hemorrhage.”
However, the economic policies have inadvertently aggravated the biting hardship of Nigerians who have continually groaned over the exponential increase in the prices of goods and services including food and other basic consumables amid excruciating purchasing power squeeze.
Also, many businesses across the country including the biggest companies by capitalisation are either walking on a tightrope or forced to shut down operations as forex crisis, incessant hike in cost of operation and other macroeconomic headwinds inflict adverse impact on performance and bottom line.
Still, there seems to be no hands-on solution to the depressing situation the Nigerian masses have been flung into, while the government continues to implement “wait-and-see” economic policies.
There is no gainsaying that these are not the best of times for citizens of the world’s sixth most populous country as the government’s economic policies tighten the noose on citizens’ hardship.
Under these circumstances, economic analysts have called on the government to implement institutional reforms in the Nigerian National Petroleum Corporation Limited (NNPC), Central Bank of Nigeria (CBN), Federal Inland Revenue Service (FIRS), and others almost simultaneously to restore confidence in the economy.
According to Bismarck Rewane, the chief executive officer of Financial Derivatives, the economic policy changes introduced by the current government wouldn’t lead to economic stability, growth and development without the implementation of institutional reforms.
Speaking at the Arbiterz Conference themed “The Naira: Paths to Institutional Reforms and Accelerated Growth ”, held recently in Lagos, Rewane noted that to restore confidence in the economy, there must be institutional reforms within various institutions like NNPC, FIRS, CBN and all of these have to be done simultaneously to achieve general equilibrium.
“ Let’s not lose sight of the fact that both the tradable goods exports and invisible flows of funds, investment and return of capital flows outside of Nigeria are critical to establishing a well aligned and true value for the naira,” he said.
Rewane also noted that businesses must create models based on the country’s terms of trade, trade balance, interest rates and other variables for better economic projections and understanding.
In the same vein, Ayo Teriba, CEO, Economic Associates, charged the federal government to reorganise NNPCL and the oil sector fragments into accountable independent functional entities.
Teriba said the Nigerian government must optimise its national assets instead of selling them off, for their values to be more appreciated.
In his words, “You should optimise national assets and not sell them, Nigeria has real estate, but it’s not optimising it. We can have assets that can save us from our debt, some countries get a lot from asset optimization.
“Nigeria has a choice to either languish in illiquidity or get serious like Dubai did. I hope the new regime does away with ways and means, the federal government only goes to the debt market and has no assets listed on the stock market.”
According to the experienced economist, Nigeria suffers two sources of inflation and the solution to both is to stabilise the exchange rates by getting Foreign Direct Investment (FDI) into all sectors of the economy. He added that the country’s foreign reserves must be buffered and legitimate items excluded from the import list should be reconsidered.
He noted that if the federal government wants to see the outcome of its FX reforms, it must save the Bureau de Change (BDC) from being hounded by the CBN.
“The BDCs were created by the government and licensed by the Central Bank of Nigeria. And I think that this arbitrary exclusion from the official market is autocratic and an infringement on their rights,” he added.
Yonov Agah, chief trade negotiator, Nigeria, said there were no silver bullets on how each country could achieve its economic objectives.
To this end, he said Nigeria must look at its peculiarities and design policies that could accommodate them such as creating the appropriate trade policy to drive exports as a means to earn more foreign exchange against rationing what was currently available.
He added that the country needs to recognise that its foreign exchange policies have implications on the economy and global competitiveness, and the entire trade system,
Speaking on the implications of the exchange rate policy on trade, the former deputy director general of the World Trade Organisation (WTO), said Nigeria,especially in regard to foreign exchange regime,needs to recognise that the foreign exchange rate policy has implication for competitiveness of the economy and participation or integration into global value chains.
According to Agah, the foreign exchange policy is not a trade policy instrument because the overall macroeconomic variables of inflation and interest rate have very little direct impact on trade.
Speaking further,he said, “However, once you get your interest rate misaligned, or you are not putting your trade as a priority in your foreign exchange rate policy, you end up with a problem and the challenge for Nigeria has been the demand management approach to almost all our policies since the economic stablisation Act of 1982.
The best way forward is to try and get rid of the rates that are being created in the economy that reduces competitiveness, reduces productivity and creates an anti-export bias.”
The chief trade negotiator advised the CBN to support the growth of an export-oriented economy, by liberalising the foreign exchange market and focusing on strategies to enhance forex market creation for trade.
Agah noted that the best way forward is for the apex bank to put trade at the forefront of the foreign exchange regime, get rid of the risks that reduce competitiveness, and remove anti-export barriers to bring in more foreign currencies.
Agah urged the central bank to focus on regulation that enables all the banks to get their foreign exchange wherever they can and use it to fund businesses as they desire. He explained that taking this approach will enable the CBN to focus on the issue of exchange alignment and intervene to ensure that Nigeria remains competitive in the export market.
“The conversation should be what do we do to get foreign exchange and where is the next dollar coming from?
“We must not lose in terms of export or import and must put trade at the front of the foreign exchange regime going forward, to bring in more foreign exchange against trying to save what we have,” he added.
Ari Aisen,the mission chief for Nigeria, International Monetary Fund (IMF), said the government needs to implement additional macroeconomic tightening of fiscal and monetary policies and establish a transparent access to foreign exchange to reduce volatility and place the economy on a more durable footing.
Aisen observed that the country’s monetary and fiscal policies were too loose for the exchange rate to stabilise, adding that debts are still high despite the fiscal savings from the elimination of petrol subsidy.
The IMF official noted further that the interest rates of 18.75 percent does not fully reflect market rates, as evidenced by lower rates in the market, particularly in instruments such as treasury bills. This disparity, he explained, results in reduced foreign inflows and limited savings among Nigerians.
Aisen argued that the CBN’s continuing to finance the government through the ways and means, is an additional injection of liquidity into the system and if not mopped up will contribute to lowering the interest rate in the economy.
In his recommendation, the IMF chief warned Nigeria against wasting its foreign reserves. He said Nigeria must declare transparently its foreign exchange liabilities and assets as lack of transparency makes the terrain more difficult.
“When all of these are done and in the middle term when confidence returns, the economy can enjoy a different environment with more stability and more competitiveness,” he added.
Aisen admitted that the short-term challenges are undeniable, but maintained optimism that with renewed confidence in the medium term, the economy can enjoy a different environment for investment, with more credibility, more visibility and raise the employment level to a significant rate.
