Re: USA Africa Dialogue Series - Nigeria Adopts New Forex Policy As Economy Faces "Imminent Recession"

The most effective way to strengthen the Naira is to significantly improve the environment for wealth creation and economic growth in Nigeria. That must include helping create an environment that is conducive to economic diversification away from near total dependence on oil and oil-related industries. As the economy diversifies and produces goods that are competitive globally in both price and quality, international demand for those goods will not only help diversify the country's export sector, but will also strengthen the value of the Naira, vis-à-vis other international currencies. 

Tourism is another way to to enhance the Naira's value. Unfortunately, tourism is being hampered by high levels of political instability, corruption, poor infrastructure, and other institutional problems. 

The new road from Enugu to Bamenda (Cameroon) has significantly increased trade between Cameroon (CFA Franc) and Nigeria (Naira). Nigeria and its neighbors (Cameroon, Niger, Equatorial Guinea, Benin Republic, Chad, and Gabon) need to invest in regional infrastructure programs that would enhance more trade and hence, provide an opportunity for economic diversification--the larger regional market would provide Nigerian manufacturers the opportunity to benefit from technological economies of scale, a process that could help accelerate further diversification of the country's manufacturing base. 

Of course, for this to work, Nigeria must first "put its house in order" and that calls for the people and the Government to deal effectively with some critical issues, which include (i) environmental degradation in the Niger Delta; (ii) income and wealth inequality; (iii) extremely high levels of poverty, especially in the rural areas and the urban periphery; (iv) insecurity, especially for urban dwellers;  (v) Boko Haram and other forms of religious and cultural extremism; (vi) poor and dysfunctional institutions; and (vii) hopelessness among many youth. 

On Wed, May 25, 2016 at 1:40 AM, Kola Fabiyi <fabiyi@live.com> wrote:

Nigeria Adopts New Forex Policy As Economy Faces "Imminent Recession"

Premium Times

By Bassey Udo

To begin to reverse what its governor, Godwin Emefiele, called "imminent recession" in the Nigerian economy, the Central Bank of Nigeria on Tuesday announced a new policy that would guarantee more flexibility in the management of the foreign exchange market.

The CBN governor, who made the announcement at the end of the Monetary Policy Committee meeting in Abuja, said details of the new policy would be released in the coming days.

He said the new policy would guarantee improved access to foreign exchange for business to boost the economy.

Analysts believe the government is planning to officially devalue the naira from its current 197 rate to the dollar, in a desperate move to strengthen the ailing economy.

Recent data from the National Bureau of Statistics indicated that the economy contracted to about 0.36 per cent in the first quarter of the year, the first time in over a decade.

Experts say the economy might shrink again in the second quarter which ends in June, a development that will effectively usher in recession in the economy.

A country is said to be in recession when its economy shrinks in two consecutive quarters.

The CBN governor said the new policy would not involve the return of the bureau de change operators, as they would continue to source their foreign exchange from the autonomous market.

"It is time to introduce greater flexibility in the management of FOREX market," the CBN governor said.

"After assessing the various risk profiles available, the committee resolved to adopt the least risky option by adopting a flexible foreign exchange policy to restore the automatic adjustment properties of the exchange rate.

During the meeting, monetary policy rate, MPR was retained at 12 per cent; Cash Reserve Ratio, CRR at 22.5 per cent and liquidity ratio at 30 per cent.

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JOHN MUKUM MBAKU, ESQ.
J.D. (Law), Ph.D. (Economics)
Graduate Certificate in Environmental and Natural Resources Law
Nonresident Senior Fellow, The Brookings Institution
Attorney & Counselor at Law (Licensed in Utah)
Brady Presidential Distinguished Professor of Economics &  John S. Hinckley Fellow
Department of Economics
Weber State University
1337 Edvalson Street, Dept. 3807
Ogden, UT 84408-3807, USA
(801) 626-7442 Phone
(801) 626-7423 Fax

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