Many stakeholders, including financial experts, economists, and manufacturers from various sectors, have called on Nigerian authorities to step up their assistance as global and national price increases start to bite.
The call has been made to the Federal Government to introduce new fiscal and forex measures to help the country’s economy and vulnerable members of society. In particular, they are looking for the prioritization of policies that will help boost the country’s export trade as foreign exchange issues persist.
Companies that make products for export are most at risk of issues within the forex market as they need to buy in raw materials from abroad. The instability of the dollar against local currency has led to a plethora of issues in the country. In addition, some manufacturers have been driven towards the black market to source items as the Central Bank previously prevented some companies from importing into the country.
Nigeria’s forex market
Nigerian legal tender is the naira, and it is issued solely by the Central Bank of Nigeria. It comes in coin and note form, while in October 2021, the eNaira was launched by the government, making it one of the world’s first central bank digital currencies. The Central Bank is solely responsible for deciding how much foreign currency is available, and it sets the exchange rate.
This level of control has driven many Nigerians to look to the forex market themselves. Nigeria has witnessed a big increase in the number of professional and amateur forex traders looking at currency trading locally and internationally. It also helps with understanding about the impact geopolitical and economic stimuli have on exchange rates and may, in part, fuel further demands for change.
A statement at the time noted that for the foreign exchange system to work correctly and to encourage local production of items, a number of suppliers would be banned from accessing the system. A total of forty-four different importers were essentially excluded, including importers of chicken, wheat, fertilizer, processed food, edible oils, and cement.
In this context, the Manufacturers Association of Nigeria (MAN) called for the set up of a fund that would help them better access the foreign exchange. They highlighted that currently, over 90% of items needed for the manufacturing sector come from abroad.
Representing MAN was Matthew Azoj, who called on the government to pay attention and spoke of struggles in his pharmaceutical company related to foreign exchange. Others in attendance at the press conference said that it was necessary to invest more in local production. Manufacturers should be supported in creating local products, using local raw materials, and reducing dependence on imports. While some materials have to be imported and access to the foreign exchange is necessary, a balance should be struck, they argued.
At the end of April, the alarm was sounded over the exchange rate and dropping foreign exchange reserves. This was further exacerbated by increased and unsustainable demand for foreign exchange and solutions were put forth, including deregulation of the foreign exchange market.
Several stakeholders at the time called on the Central Bank to take a more hands-off approach to forex and allow exchange rates to be set by market forces, not them. They said this was necessary to create balance, something that is missing. Others went further and said that the forex market should function in a similar way to the commodities market where everyone involved buys and sells at the market rate.
There are plenty of suggestions for ways to fix the problem, but the government has so far been slow to react. With time ticking, it seems that pressure from stakeholders is not going to let up any time soon.