Bank Chief, Analysts Canvass Import Substitution as Panacea for Naira Volatility

Timothy Oguntayo

Amidst the unabated volatility in the value of the naira against the United States dollar at the parallel market, some banking sector players have canvassed for import substitution as panacea for the volatility of the Nigerian currency.

Their position was informed by the lingering pressure on the foreign exchange market which pushed the naira-dollar exchange rate to an all-time high of N280 on Thursday  before it appreciated slightly reaching N260-N270 per dollar on Friday, whereas the Central Bank of Nigeria official rate hovered around N197 to a dollar.

According to analysts, the significant cut in forex supply to the BDCs coupled with the existing huge unmet demand at the CBN official window has led to the recent pressure on the naira at the parallel market.

Reacting to the development, Managing Director, Skye Bank Plc, Mr. Timothy Oguntayo, said given the fact that the current scenario was caused by a number of factors, it would not be easy to halt the drift unless certain drastic actions are taken by the authorities.
He maintained that the flow of dollars from various sources appeared to be drying off because of the current global economic realities.

He said, "Inward remittance has been on a decline. And considering the introduction of many foreign exchange controls, many people are more conscious of bringing their dollars into the country. And also those who are not sure of the sources of their money are keeping them out of the country and so the system is being starved of dollars, meanwhile the demand for the dollar has not stopped, we are only saying some cannot go to the CBN official window and people still look for all means to get the dollar."

According to the bank chief, "The implication is that cost will increase generally either for manufacturers or for consumer goods because you were buying dollars at N190 per $1 and now you have to buy it between N240 and N260. You have to pass the cost."
He, however, warned that everyone would be affected.

He believed time had come to promote import substitution in the nation's economy, a development he described as a veritable means of preserving the little foreign exchange earned through various sources in the country.

He said, "Payment for schools abroad is part of import substitution avenue that we should be looking at. "Whether people should be looking at Nigerian schools of competing standards or to continue to send students abroad with the foreign exchange implication is an issue to be seriously considered now. Everyone has to make sacrifice by one way or the other," he suggested.
On his part, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, said time had come for a serious adjustment.

Rewane said although the naira has appreciated in the past few days exchanging for between N250 and N260 per dollar at the parallel market, the reality is that the falling price of oil has shown that an adjustment is imperative.

According to him, Nigeria has recorded about 75 per cent drop in revenue, while the cost of production of oil has not reduced. He described Nigeria's experience as a transition from vanity to reality, saying this is the time for us to sit down and lick our wounds.

"Oil price is not going up any time soon so we have to deal with adjustment," he said.

When reminded that this is the period of the year when some parents have to pay school fees for children studying abroad and when manufacturing companies will need foreign exchange for their machineries, the FDC boss explained that time had come for import substitution.

He warned that we shouldn't import what is not absolutely necessary, saying we can't spend what we cannot afford.

He said there was no point in parents sending their wards to foreign institutions in view of the scarcity of foreign exchange.
According to him, the situation has got to a stage when households have to check what they eat. "If you are used to butter, this is the time to go for margarine and if you can't afford this, you can eat your yam with palm oil. During the war, we had to eat what we could find," he recalled.

Rewane had said that the devaluation of the naira was inevitable considering the margin between the value of the currency at the official market and the parallel market.

Another financial sector player who spoke  was the Chief Executive, Financial Market Dealers Association of Nigeria (FMDAN), Mr. Akinwale Abe.

Abe, who said he was not speaking on behalf of FMDAN on the issue, noted that globally, economies have been facing a serious challenge occasioned by the collapse of oil price. He said this was so because a lot of economies rely on oil.

According to him, many Nigerians in the Diaspora have not been able to send money these days because of the economic conditions prevalent in their various countries of abode. He recalled that, the United States Federal Reserve had just increased its rates at a period when Nigeria decided to cut its own rates. This, he said, makes it more profitable to keep money in US banks.

Abe said, "What we also noticed is the fact that the current arrangement has made it difficult for people who cannot defend sources of their money to move it into Nigeria. Again, the CBN's foreign exchange rules appeared to have shut down many areas where foreign exchange could be got easily."

Businesses have been struggling to access dollars as the CBN rations the greenback to preserve the country’s external reserves, which stood at $29.46bn as of December 15.

Analysts said the continued fall of the naira against the US currency at the black market could cause further inflation and affect businesses negatively with serious backlash for the economy.