Business

Economists, Manufacturers Criticise Dual Forex Rates

Published

8 years ago

February 26, 2017

Economists, Manufacturers Criticise Dual Forex Rates

Economists and manufacturers have joined the call for the abolition of the dual exchange rate policy currently being operated in Nigeria.

They say the present arrangement is a breeding ground for corruption and suggest floating of the naira so that everybody can buy the dollar at the same rate.

A professor of Economics at the University of Uyo, Leo Ukpong, advised against the practice of maintaining a dual forex exchange rate.

He said, “Dual exchange rate regime creates room for illegal profit-making by those who have access to buy at the lower (the CBN official rate) and turn around to sell at the high (parallel market) rate.

“This practice ends up increasing the cost of the FX to legitimate businesses that play by the rule; increases the cost of consumer goods to the larger population; causes the FX shortages due to hoarding; and distorts the true value of exchange rate.

“The CBN cannot design or implement any efficient or meaningful foreign exchange policy until we get rid of dual (or multiple) exchange rate regime.”

A Lagos-based leading manufacturer told our correspondent that the dual exchange rate was a very corrupt system that made millionaires out of a few Nigerians and impoverished many.

The manufacturer, who spoke on condition of anonymity, said the dual exchange rate regime was fraught with corruption.

“Since most people want to access forex at the official rate, there is usually a long queue that lasts for months, but you can avoid this by parting with a percentage of the money you want to access,” he said.

An economic strategist with the Manufacturers Association of Nigeria, Mr. Ambrose Oruche, supported the floating of the naira.

He said, “Allow naira to find its level. It will allow for more supply because there will be free entry and exit. More people will come into the market to trade. In the short run, there will be inflation but it will eventually ease off.

“All the efforts geared at protecting the naira can only have a short-term effect, it is not sustainable. The naira will still lose value in the long run while the cost of living for the ordinary man continues to go up.”

A former CBN governor and the Emir of Kano, Alhaji Muhammadu Sanusi, argued that no economy could thrive with dual/multiple forex rates.

A key operator in the manufacturing sector, Chief Eric Umeofia, accused the CBN of exploiting the dual forex regime to allocate forex to those he called cronies of the apex bank’s chiefs and importers of frozen fish while local manufacturers were forced to buy dollars at exorbitant black market rates.

He supported the claim with documents showing forex utilisation from one of the commercial banks.

A recent report by Bloomberg attributed the nation’s current woes to the dual forex regime, noting that it had refused to allow its currency to trade at its market value.

The report titled ‘A tale of two currencies: Egypt sets itself apart from Nigeria’, drew a comparison between Nigeria and Egypt, two countries that were in the same situation in early November, in search of dollars to revive their sinking economies as well as trying to curb rampant currency-trading on the black market.

According to the report, Egypt’s strategy was to ditch a currency peg, leaving its pound open to market forces.

It read in part, “Egypt is still short of dollars, but the situation is changing, and investors are gradually returning.

“Nigeria, in contrast, isn’t letting the naira trade at its market value, insisting that is the only way to protect the poor from a further surge in inflation, which is already at the highest level since 2005. Traders argue that this has left the currency overvalued and say they’ll avoid Nigerian local markets until it weakens.”

It added that Egypt’s strategy had caused the Egyptian pound to gain 16 per cent against the dollar even as the naira fell 40 per cent in value against the greenback.

The National Bureau of Statistics in its January report stated that the inflation rate had gone up to 18.72.

Currently, the prices of consumer goods, according to the Chairman, Ikeja Shop Owners’ Association, Mr. John Okonkwo, increase on a daily basis.

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Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Merger and Acquisition

FBN Holdings Clarifies Merchant Banking Divestment, Retains Other Subsidiaries

Published

1 hour ago

September 11, 2024

Samed Olukoya

FBN Holdings has sought to clarify the recent divestment from its Merchant Banking business.

According to the lender, all its businesses and entities apart from the Merchant Banking business are not included in the divestment deal.

It said, “We wish to clarify that all other entities and businesses listed below are not included in the divestment, and they remain subsidiaries of FBNH and are well integrated into the Group’s strategic focus.”

The subsidiaries are FBNQuest Capital Limited, FBNQuest Asset Management Limited, FBNQuest Trustees Limited, FBNQuest Funds Limited, and FBNQuest Securities Limited.

“We reiterate that the divestment pertains solely to FBNQuest Merchant Bank Limited, with no impact on the continued operations or strategic positioning of our other subsidiaries within the Group,” the bank stated in a release signed by Adewale L.O. Arogundade, Acting Company Secretary.

Business

Border Trade Plummets 80% as Naira Devaluation Hits Hard

Published

23 hours ago

September 10, 2024

Samed Olukoya

Business activities at Nigerian borders have dropped by 80 percent due to the depreciating Nigerian currency.

Licensed customs agents at the borders said the plunge in the Naira’s exchange rate to the CFA franc is the reason for the declining business activities at the nation’s borders.

In the last three years, the Nigerian Naira has dropped from N300 for 1,000 CFA francs to N2,660 for 1,000 CFA francs.

According to Ogonnanya Godson, Vice Chairman of the National Association of Government Approved Freight Forwarders, Seme Chapter, business activities at the border began declining in 2021.

“The Cotonou CFA franc is now N2,660 for 1,000 CFA francs. It started increasing from N300 for 1,000 CFA francs three years ago until it reached its current level, which is affecting our businesses. The rate at which the exchange rate has been increasing since 2023 is alarming,” Godson stated.

He further noted that some importers have begun boycotting the borders, especially Seme, due to the exchange rate.

“Importers no longer patronize these areas because, after clearing and paying for everything, they end up losing. So activities have dropped by between 70 to 80 percent, and the exchange rate of the dollar is also affecting this area.

“The volume of activities here is now between 22 to 30 percent. This applies to other borders as well because of the exchange rate,” he stated.

Lasisi Fanu, a former Seme Chapter Chairman of the Association of Nigerian Licensed Customs Agents, corroborated Godson’s statements and admitted that activities at the border have declined.

“That is the simple truth and fact about the situation. You can’t get anything less than what you’ve been told about the drop in activities at the borders. Every day, the CFA franc appreciates while the Naira depreciates.

“Today, I was informed that the CFA franc has increased to between N2,650 and N2,700 for 1,000 CFA francs. This began three years ago and has worsened since 2023,” Fanu stated.

Fanu explained that the Naira’s depreciation against the CFA franc is similar to its depreciation against the US Dollar.

“Whatever 1,000 CFA francs could buy in the Republic of Benin two years ago, it still buys the same amount now. It’s the Naira that is depreciating.

“That’s the reason there is no business. The people who used to go to Cotonou for business said there is no more business because their customers there have said they can no longer trade due to the high exchange rate against the Naira,” he explained.

Company News

Dangote Refinery Targets Nigeria’s $267.7 Million Polypropylene Market from October

Published

2 days ago

September 9, 2024

Investors King

Dangote Oil Refinery, the largest in Africa, has set its sights on capturing Nigeria’s $267.7 million polypropylene market starting next month, Aliko Dangote, president of the group said, as its largest oil and gas project edges closer to full operational status.

The refinery, part of the vast Dangote Industries conglomerate, is expected to reduce Nigeria’s reliance on imported polypropylene—a crucial raw material in various industries, including packaging, textiles, and automotive parts.

“Let me assure you of one thing, Nigeria from October will not import any more polypropylene, which used to be about a quarter of a million tons,” he said. “No more imports of polypropylene.”

Polypropylene, a versatile plastic used in a wide range of applications from packaging and textiles to automotive parts and medical equipment, is currently imported in large quantities by Nigerian manufacturers.

Annual polypropylene import into Nigeria is estimated at $267.7 million, according to TradeMap, which peaked at $407 million in 2022.

The latest data by the National Bureau of Statistics (NBS) revealed that the country brought in the product valued at N99.6 billion in the first quarter (Q1) of this year, placing it at number 12 on the top 15 products imported by Nigeria from the rest of the world.

“We will satisfy the market 100 percent,” said Dangote. “This is so because these industries that are struggling and having to go and look for FX that they will not get and still have to keep stock for four or five months because it’s not easy shipping, clearing, and whatever, can buy as they need.”

He noted that the refinery is determined to do this because it will reduce the cost of importation and scramble for foreign exchange.

“We are also in the business. And our demand also as Dangote is huge. We have Dangote Packaging and are one of the biggest demand users of polypropylene,” he added.

Saudi Arabia, South Africa, South Korea, China, and Vietnam were the top importers of polypropylene into Nigeria in the first quarter of 2024, covering 90 percent of Nigeria’s demand.

Polypropylene is a versatile plastic used in a wide range of packaging applications. It’s often preferred over materials like cellophane, metal, and paper due to its flexibility, durability, and cost-effectiveness.

It is used in food and confectionery, tobacco, and clothing industries in flexible form while in rigid form, polypropylene can be found in caps, closures, pallets, crates, bottles, JIT storage solutions, and containers for products like condiments, detergents, toiletries, and yogurt.

Polypropylene’s versatility and benefits make it a popular choice for packaging across many industries.

“The polypropylene market is growing rapidly owing to the rising demand from the packaging industry. This high demand is associated with the increasing consumption of packaged food and beverages,” said Fortune Business Insights, a research firm.

“It also helps in reducing the possibility of food deterioration and quality loss.”