Uchechukwu Okoroafor,Abuja
From the all-time low of about N2000 to $1, the Nigerian Naira has strengthened between N1200 and N1300 to $1 in recent days, apparently because President Bola Ahmed Tinubu has, without public announcement, jettisoned the floatation of the Nigerian Naira against other currencies, which created the economic crisis in the country.
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With demand and supply no longer determining the value of the naira at the forex market, the market is now being regulated like at the time of Godwin Emefiele as Governor of the Central Bank of Nigeria (CBN), without many Nigerians being aware of this.
With the growing strength of the naira at the forex market, most Nigerians are wondering why this is not reflected when they go to the market to purchase goods. The price of most essential goods are still high and beyond the reach of the average Nigerian. What could be responsible for this and what can the government do to address the problem?
First, the government of President Bola Ahmed Tinubu should be blamed for the high cost of goods because of the high rate of exchange charged at the ports to clear goods by the CBN through the Customs, all in the name of generating revenue for the government.
The CBN wanted the exchange rate for Customs clearance to be at par with the Nigerian Autonomous Foreign Exchange Market (NAFEM) because of revenue that the Nigeria Customs Service (NCS) would generate. They are more concerned about revenue than inflation and its attendant consequences. Since Nigeria is an import-dependent country, any slight increase in the Customs exchange rate for cargo clearance leads to an increase in price, and Nigerians always suffer for it. What we are experiencing now is a result of an increase in the Customs exchange rate for cargo clearance. The more the government adjusts the exchange rate, the more we record inflation and other price increases. The country is import-dependent, so any spike in port charges will lead to a crisis in the economy.
Hike in Customs duty through high FX rates affect all goods in the market because every commodity in the market has imported input in them. The frequency at which the CBN is adjusting the exchange rate has become worrisome, which is why there has been so much overtime cargo at the port until recently.
For Nigerians to reap the benefits of the strengthening of the naira against the dollar, the federal government, through the CBN should bring down the forex rate at the ports. This it has started to do.
Recently, the CBN slashed the exchange rate for computing Customs duties at the nation’s seaports and airports by 0.76 percent. The slash, analysts argued, was a result of the naira strengthening against the dollar at the official window. The Naira had strengthened by 0.90 percent against the dollar as supply increased at the official foreign exchange (FX) market. The local currency appreciated as the dollar was quoted at N1,603.38, stronger than N1,617.96 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data released by the FMDQ Securities Exchange. However, due to the appreciation of the naira in the official market, the Customs duty rate was reviewed downwards from N1, 624.7/$ to N1, 612.281/$1, according to information on the National Trade Hub, the official trade portal of the Nigeria Customs Service. This represents a 0.76 percent drop when compared to the old rate of N1, 624.7/$1 and a reduction of N12.419 less on a dollar. To this end, importers will pay less to clear their cargoes as import duties are benchmarked against the dollar.
Also, late last month, the Central Bank of Nigeria slashed the exchange rate for customs import duty collection to the lowest in eight weeks. Check on the customs exchange rate window reveals that the rate for duties collection has declind from N1405/$ to N1303.8 to the USD. This represents a drop of N102 or 7.24% in a 48-hour period. The FX rate of N1303/$ represents the lowest exchange rate since 2nd February 2024 when the exchange rate for customs duties stood at N1356.8/$. The recurring decline in the customs exchange rate for duties collection reflects the appreciation of the naira in both the official market and parallel market.
Recent trends show a consistent decrease in the value of the USD to the naira, highlighting the naira’s appreciation relative to other currencies in both the parallel and official foreign exchange markets. The naira has seen a significant increase in its value, rising from N1,615 per dollar on March 13th to N1,382 per dollar by March 26th.
So as the federal government continues to bring down rates at the ports as the naira strengthens, very soon it is going to be reflected in our markets in terms of the price of imported goods dropping significantly.
However, the strengthening of the naira presently is believed to be artificial, which means it is not sustainable.
Strengthening the value of the naira against the United States dollar is a critical goal for the Nigerian government, given the significant impact it has on the country’s economy, trade balance, and overall stability. The recent fluctuations in the exchange rate have underscored the urgent need for sustainable measures to enhance the value of the naira. While there is no single solution to this complex issue, there are several strategies that the Nigerian government can adopt to achieve this objective.
First and foremost, the government must prioritize macroeconomic stability through prudent fiscal and monetary policies. This includes maintaining low inflation rates, reducing government borrowing, and implementing sound budgetary practices. By demonstrating a commitment to fiscal discipline, the government can instill confidence in investors and stabilize the currency market.
Additionally, the Central Bank of Nigeria (CBN) plays a crucial role in managing the exchange rate. The CBN should focus on implementing monetary policies that promote exchange rate stability, such as adjusting interest rates and managing foreign exchange reserves effectively.
Furthermore, the CBN should enhance transparency in its foreign exchange operations to reduce speculation and improve market confidence. Promoting export diversification and encouraging foreign direct investment (FDI) are also essential for strengthening the naira. The government should provide incentives for industries with export potential, such as agriculture, manufacturing, and services. By boosting export earnings, Nigeria can reduce its reliance on oil revenues and mitigate the impact of external shocks on the exchange rate.
Improving the business environment and addressing structural constraints are critical for attracting FDI. This includes enhancing infrastructure, streamlining regulatory processes, and tackling corruption. By creating a more conducive investment climate, Nigeria can attract foreign capital inflows, which will help support the value of the naira.
Furthermore, enhancing productivity and competitiveness are essential for sustaining the value of the naira in the long term. This requires investments in education, skills development, and technology adoption to increase efficiency and reduce production costs. Additionally, promoting innovation and entrepreneurship can spur economic growth and enhance Nigeria’s global competitiveness.
Finally, fostering regional cooperation and integration can also contribute to strengthening the naira. Nigeria should deepen its economic ties with neighboring countries in West Africa and leverage regional trade agreements such as the African Continental Free Trade Area (AfCFTA). By expanding market access and fostering cross-border trade, Nigeria can enhance economic resilience and reduce dependency on external factors affecting the exchange rate.
In conclusion, strengthening the value of the naira against the United States dollar requires a comprehensive and coordinated approach by the Nigerian government. By prioritizing macroeconomic stability, promoting export diversification and FDI, improving the business environment, enhancing productivity and competitiveness, and fostering regional cooperation, Nigeria can achieve sustainable exchange rate stability and support economic growth and development.