MAN Welcomes CBN’s Unification of Exchange Rates

The Manufacturers Association of Nigeria (MAN) says the unification of the country’s exchange rate is a welcome development that will engender increased investment inflow in the real sector of the economy. Mr Mansur Ahmed, MAN President, made this remark in a report made available to newsmen on Friday in Lagos.

Ahmed said that the association had, over the years, been advocating for a unified exchange rate to promote a market-friendly rate in the country. The unified rate, he said, is capable of facilitating stable production planning and engender sustainable economic growth.

He said that drawing from basic knowledge of the transmission mechanism of exchange rate management and experiences of Cuba and India, the current forex unification agenda would entrench a convergence and enhance exchange rate stability.

“It is, therefore, gratifying as it appears that the Central Bank of Nigeria (CBN) has now unified the country’s exchange rate.

“Clearly, this is a welcome development and a laudable initiative that has come at the right time. This is more so, particularly, now that the economic outlook is gloomy in light of the impact of the ravaging COVID-19 pandemic that has culminated in uninspiring macroeconomic situations,” Ahmed said.

He recalled with delight that the IMF and World Bank had at different times advised the country on the need to unify the multiple exchange rate windows to prevent distortions in investment decisions in the public and private sectors of the economy.

“In fact, the World Bank had attributed the country’s loss of Foreign Direct Investment (FDI) to investors’ exasperation from perceived manipulation of the foreign exchange market.

“The unification will also boost investors’ confidence, control rising inflation and promote transparency, entrench better exchange rate management and eradicate distortions to the barest minimum.

“It is expected to also eliminate the notorious socially destructive rent-seeking activities, halt the incidence of round-tripping, ensure better allocation of resources, facilitates income expansion and stimulate the inflow of foreign investment into the economy.”

The CBN had on July 7 made an adjustment that moved the rate at the Special Secondary Market Intervention Sales (SMIS) to N381 per dollar. The MAN President, however, stressed the need to recognize the existence of the unavoidable pains that naturally came with the transition from a multiple exchange regime to the domain of a single exchange rate.

Particularly, he said, there is the burden of dollar-denominated loans and offsetting existing credit commitments to foreign suppliers of raw materials. He advised that the CBN put a measure in place to minimize the intensity of the pain by considering the outstanding obligations of manufacturers from the second quarter of 2019 to date.

“Given at N345 to a dollar prior to unification and allows such to settle at between N330 and N360,” he said.

According to him, this will enable banks to redeem these obligations to foreign suppliers of manufacturers. He said that many factories might close and the CBN stimulus packages to the manufacturing sector would suffer a huge setback as cash flow crunch becomes the order of the day.

Ahmed also recommended that the apex bank should develop an appropriate implementation strategy that would engender a successful transition from the current multiple windows to a single efficient one.

“The CBN should also ensure that the strategy pursues two fundamental objectives. The first is to limit the short-term pains until efficiency gains materialize by responding swiftly with an inward-oriented rescue guideline while the second should seek to boost the pace at which such efficiency gains materialize.

“It should also submit all the instruments of exchange rate determination gradually to the unseen forces of demand and supply as a matter of necessity,” Ahmed advised.

He also urged the apex bank to completely avoid the temptation of interference in order to fully harvest all the benefits that foreign exchange unification can offer.

Ayooluwa Joshua