By; KAYODE ATOFOLAKI, Lagos.
The potentials and prospects of the Nigeria economy are still intact and promising despite the continued slide in crude oil prices, Managing Director, Cowry Assets Management Limited, Johnson Chukwu has said.
Speaking during a Bi-Monthly Forum organized by the Finance Correspondents Association of Nigeria (FICAN) in Lagos, he said the economy is still a huge market for consumer goods, capital goods, financial services, information and telecommunication services, agricultural goods, oil & gas products.
Chukwu who spoke on the theme: ‘Policy Options for Nigeria Economy Recovery’ said the country’s trade, real estate, transport infrastructure, power infrastructure, entertainment potentials remain a plus for the economy.
“There is no single sector of the Nigerian economy that has fully developed, talk less of being matured,” he said.
He said a look at the movement in exchange rate of other oil dependent economies indicate that most of them have allowed their currency to adjust to the strength of their export earnings apart from Venezuela and Egypt.
Chukwu said the Central Bank of Nigeria (CBN) has been engaged in aggressive demand management with the disqualification of 41 items from accessing the foreign exchange market so as to keep the naira exchange rate within the N197 to a dollar and a band of plus or minus three per cent.
He said that trade policies are better tools to use in discouraging the importation of goods whose import hurt local manufacturers.
“We have proven cases of successful use of appropriate trade policies to develop specific industries in the country. A classical example is the Cement industry where local manufacture has grown from 2,000 metric tonnes per annum, to more that 40,000 metric tonnes per annum in 15 years. Nigeria has moved from a net importer of cement to a net exporter as a result of targeted use of trade policy in the sub-sector,” he said.
Speaking further, he said the ongoing naira volatility in the parallel market is being triggered by the inability of the CBN to meet legitimate demand for foreign exchange, adding that while the regulator has effectively maintained the official exchange rate at N197 to dollar, it has been impossible for the apex bank to meet all legitimate demand at the official window.
A backlog of unmet demand which has spilled over to the shallow parallel market he said, is driving down the naira to its current levels.
“With legitimate importers of raw materials and equipment migrating to the parallel market to satisfy their demand, the parallel market has effectively become the ruling market for pricing of imported goods and services within the country, with the exception of refined petroleum products, which seem to enjoy some preference in the allocation of forex by the Central bank,” he said.
He said the shallowness of supply in the alternative markets and huge demand are already driving importers to a state of hysteria, as they seem to be ready to pay any price to meet their demand.
“We suspect that ordinary folks and foreign residents have joined this flight to safety and may be converting their naira assets into dollar to mitigate additional loss in value. The danger of an unmitigated progressive depreciation of naira is that our national currency may lose one of the most critical attributes of money, which is “as a store of value”. And should this happen, the concerns about the dollarization of the economy will become real,” he said.
Chukwu said that besides the drawbacks, the current exchange rate policy focuses only on demand management.
“At best, it ignores supply improvement and in worst case scenario discourages alternative sources of supply. Since inflows for investment and other legitimate transactions would be converted at official price as against the ruling rate on the street, which will serve as the transaction rate, investors feel shortchanged to sell their inflows at the official rate hence their decision to stay away from the market pending when the official rate is reflective of the market situation,” he said.
