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Economic Recovery: Experts Differ On Way Forward

Posted: Aug 5, 2015 at 12:23 am   /   by   /   comments (0)

By Bamidele Ogunwusi, Lagos


Financial experts have again disagreed on the way out of economic downturn currently staring the country in the face. Some are of the school of thought that the Naria should be devalued while others believed that there is the need to strengthen the country’s macro and fiscal policies.

Anor Anyanwu, former Deputy Managing Director of Mainstreet Bank, said the solution is not too far fetch only if the Central Bank of Nigeria (CBN) receives the backing of the Federal Government on the implementation of its restriction of importers of 41 goods from accessing foreign currencies from commercial banks.

Anyanwu said the best thing that could happen to the economy at this time is the step taken by the CBN on the forex ban. He added that things have already looking up for the country in recent weeks.

His words: “The forex ban and other measures by the CBN in recent time are yielding results, the naira is gradually regaining its lost pride, the nation’s external reserves is building up and other loose ends are being tightened”.

In the opinion of Bismarck Rewane, Managing Director and Chief Executive of Financial Derivatives Company, unless fuel subsidy is removed the impact of the currency adjustment would be more painful for the economy and that another adjustment of the naira is imminent.

Speaking on “Evolution of Foreign Exchange Market in Nigeria and the Way Forward” at seminar for finance journalists organized by the Central Bank of Nigeria, Rewane said if the country does not deal with the fiscal spending on subsidy, any move on currency restructuring will be wrong.

“Currency adjustment will happen, depending on when they take away the subsidies, the adjustment required will be minimal and become the equilibrium. What is required is the exchange rate determining mechanism which allows for a floating currency with interventions to create stability.

“If the oil price drops below the present value, the adjustment impact is going to be more. The problem of currency adjustment is not unique to Nigeria, all the oil producing countries are all facing the same thing so let us not wallow in it. Whether we like it or not I can assure you that they will get rid of petrol subsidy. Not because of the pricing but because it is a system is wrong.”

Noting that subsidy fuels corruption, Bismarck said the 40 million liters consumption figure could not be right but rather points out that subsidy paid for petrol is either imported and exported to neighboring countries or subsidy is paid on fuel not imported.

“In 2002, total subsidy paid in this country was N200 million, by 2012 it had gone to N2 trillion, does this mean that we now have 20 times more vehicles in Nigeria, no. We are talking about 40 million liters of petrol a day. Is it that we are driving on top of one another? The true figure should not be more than 10 to 15 million liters.

The FDC chief executive also stressed the need to increase productivity in the country saying “we must recognize that Nigeria has 2.6 per cent of the world population and produces 0.7 per cent of the world output. We can only desire and lay a claim to a higher quality of life if we can produce more.

“The diversification of the economic activity does not mean diversification of export revenue. We can produce all the Nollyhood movies in the world and produce all the Dbanj records in the world but if nobody buys it and pays dollars for it, you will have domestic balance but will not have external balance.

Director, Monetary Policy Department of CBN, Mr. Moses Tule, while defending CBN’s policy on foreign exchange, said that with a limited stock of foreign reserves and the price of the country’s main export earner-oil- showing no sign of a significant recovery soon, the CBN had no choice but to embark on strict management of the reserves, which stood at $31.175 billion as at last Tuesday.

He said the CBN had, over the years, raised the alarm about the import dependent nature of the economy, stressing that what the apex bank was trying to do was to prevent the country from ending up like Zimbabwe, which allowed its currency to become so worthless that it had to abandon it for the United States dollar.

He said: “Unless Nigerians stop patronising foreign items such as tooth picks and learn to consume locally manufactured goods, we may soon not have a naira currency.” He cited Norway as an oil producing country that Nigeria should emulate in terms of how it conserves and manages its earnings from oil, saying that the Scandinavian nation has the world’s largest reserves of $1trillion.

He also urged Nigerians to critically study how Ethiopia, a country, which some years ago was known for famine and drought has become one of the fastest growing and productive economies on the continent. Tule said: “The only way you are not going to have a foreign exchange crisis is to change the structure of the economy; make it less dependent on oil.”