The Nigerian Chamber of Commerce and Industry (LCCI) has advised the Federal Government to adopt a flexible exchange rate regime to enable the country cope with changing demand and supply conditions in the forex market.
The chamber listed the benefits of flexible forex to include: enhancement of liquidity in the forex market, reduction of uncertainty in the foreign exchange market, enhancement of investor’s confidence, making allocation of forex more transparent, minimisation of discretion in the allocation of forex, as well as the reduction of opportunities for round tripping and other sharp practices.
The President, Dr. Nike Akande said the fixed exchange rate regime by the Central Bank of Nigeria (CBN) is better suited for countries with adequate reserves to support such.
“But in Nigeria’s case, we do not have the reserves to support the exchange rate at N197 to a dollar. The consequences of fixed rate adoption have started manifesting in the gap between the official and parallel market exchange rates to an unprecedented level of over 60 percent, lack of liquidity in foreign exchange resulting in acute scarcity, mounting trade debts, increasing factory closures, as many manufacturers have not been able to access foreign exchange for raw materials and other inputs, unavailability of investors to meet offshore obligations, mounting inflationary pressures and sharp drop in capital inflows.
To mitigate the crisis occasioned by the nation’s exchange rate policy, she said there is need to deepen the autonomous foreign exchange market through liberalisation of inflows from export proceeds, Diaspora remittances and multinational companies, donor agencies, while market rates should be allowed to prevail at the autonomous window.
On interest rate, Akande said: “The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on March 22 2016 resolved, among other issues, to raise Monetary Policy Rate (MPR) to 12 percent from 11 percent. It also increased bank’s Cash Reserve Ratio (CRR) to 22.5 percent from 20 percent. The upward review signals a reserve to monetary tightening.”
She lamented that the flow of investment into the country has been declining in the last three years.
“According to the National Bureau of Statistics (NBS), in the last three years, Nigeria has recorded a total decline of $11.68bn (N2.3tn) in investment inflow with total investment inflow of $51.7bn (N10.18tn). The report revealed that all the three major components of investment such as foreign direct investment, portfolio investment and other investments all recorded declines within the three-year period.
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