LCCI reiterates call for review of Nigeria’s foreign exchange policy framework

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…Seeks extension of CBN’s Naira for Dollar scheme to other sources of foreign inflows

The Lagos Chamber of Commerce and Industry (LCCI) has reiterated its position that Nigeria’s foreign exchange policy framework needs to be reviewed to expand the scope of market mechanism in the determination of exchange rate.

The President, LCCI, Mrs. Toki Mabogunje who stated this during an address on the state of the economy held at the Chamber’s headquarters in Lagos on Wednesday observed that it was critically important for policymakers to harmonise the multiple exchange rates into a single market-reflective rate, which according to her was imperative in strengthening investor confidence and engendering macroeconomic stability.

Mabogunje noted that unification of exchange rates would complement recent efforts by the Central Bank of Nigeria (CBN) geared at enhancing liquidity at the supply segment of the foreign exchange market adding that ensuring clarity on the country’s foreign exchange policy direction among participants in the investment environment was even more imperative in attracting private investments into the economy.

She however pointed out that many investors in the economy, including those in the real sector were lamenting the difficulties in accessing foreign exchange for importation of raw materials, equipment and some critical inputs for production and processing in-spite of the notable recovery in crude oil prices.

“This situation is a taking a huge toll on capacity utilisation, business turnover, sales, and profitability.  Sustainability of some of these investments are currently at risk with dire implications for retention of jobs.  All these underscore the need to review the current foreign exchange management model”, she stated.

The President noted with concerns the divergent positions of both the fiscal and monetary authorities regarding the country’s foreign exchange framework adding that lack of cohesion among policymakers sends a negative signal to the investment community, worsens uncertainty and further dampens investor confidence.

She said, “It is important for the fiscal authorities, CBN and Economic Advisory Council to be on the same page as far as the country’s foreign exchange policy framework is concerned.”

On the CBN Naira for Dollar scheme, the LCCI boss acknowledged the efforts of the Central Bank of Nigeria towards boosting dollar inflows into the Nigeria economy through the scheme.

According to her, “The scheme is valid for two months through May 8, 2021 and recipients would get N5 for every dollar of their proceeds as an incentive, in addition to their original remittance proceeds.

“In our view, the scheme is designed to complement the bank’s recent remittance policy that mandates international money transfer operators (IMTOs) to pay beneficiaries in foreign exchange. This bodes well for foreign inflows which consequently should support accretion to external reserves.

“The Chamber wants this privilege to be extended to other sources of foreign inflows especially export proceeds.”

On Monetary Policy Development, Mrs. Mabogunje noted the decision of the Monetary Policy Committee of the Central Bank of Nigeria to retain (1) Monetary Policy Rate (MPR) at 11.5%; (2) Asymmetric Corridor around the MPR at -700/+100 basis points; (3) Cash Reserve Ratio at 27.5% and (4) Liquidity Ratio at 30%, during its March 2021 meeting.

While appreciating the fact that the committee was faced with a policy dilemma as it tried to strike a balance between stimulating growth and curbing intensifying inflationary pressures, she, however, stated that considering recent developments in the economy, holding policy stance seemed to be most appropriate decision at this moment.

“We understand that the bank’s policy focus currently anchors on output growth given that the economy narrowly exited recession in the fourth quarter of 2020. Economic growth remains fragile with weak employment levels in the manufacturing and services sector.  Tightening monetary policy stance would stifle access to credit and undermine the pro-growth agenda of the CBN.  More so, policy tightening would have a muted impact on domestic price growth as major inflationary drivers are basically cost-push factors.

“We expect the impact of the bank’s intervention to be limited on the real economy on account of several structural bottlenecks stifling productivity in these sectors.  We endorse the position of the MPC on need for fiscal authorities to expedite actions in addressing the structural challenges and other investment climate issues fuelling inflationary pressures. Deliberate attempt at addressing these constraints would make the bank’s developmental finance agenda more impactful on real sector productivity.

“Looking forward, we believe 2021 first quarter GDP performance will influence the committee’s decision at its next meeting in May. The Lagos Chamber enjoins the committee to give more attention in its deliberations to the country’s foreign exchange policies as foreign exchange framework is key to its price stabilization mandate”, she said.

Photo: L-R: Mr. Gbenga ismail, Vice President, Lagos Chamber of Commerce and Industry (LCCI); Dr. Muda Yusuf, Director General, LCCI, Mrs. Toki Mabogunje, President, LCCI and Dr. Michael Olawale-Cole, Deputy President, LCCI during the Quarterly Press Conference of the Chamber in Lagos on Wednesday.

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