Much ado about AbokiFX

SOME days ago, the Central Bank of Nigeria accused AbokiFX of manipulating the exchange rate of the Naira in the parallel market.  The CBN’s allegation is comparable to the case of a medical doctor who attacks the radiographer for producing images of patients from X-Ray machines and CT Scanners. The latter is just doing its job. The Central Bank should stop chasing shadows and focus on how to reinvent our naira. The online publications of foreign exchange rates by AbokiFX will become irrelevant if the Central Bank continues to meet the demands of genuine users of foreign exchange through commercial banks. Let the CBN ensure sufficient supply of dollars to all legitimate economic agents that approach the banks for Personal Travel Allowance, Business Travel Allowance, foreign exchange for school fees, overseas medical expenses and Letters of Credit for imports. Once the banks enable people to meet their valid foreign obligations through the official foreign exchange window, there will be a drastic decline in the volume done in the parallel market.

I have not suggested that the BDCs and the black market operators will cease to exist. They will continue to operate as a section of the population will keep on patronizing them. Nigerians who come from overseas will sell their Dollars, Pounds and Euro to such operators. Contractors who have to pay kickbacks to public officials will always buy dollars from the black market for that purpose. Such people can never approach the banks for such purchases. When our anti-corruption war records the expected victory, that segment of the market will dry up. Hence, it is not a war that the CBN can singly fight. In order to restore confidence in the market, the Central Bank should not be tempted to rig exchange rate towards what AbokiFx announces at  the parallel market. The official rate should not rise above N410  to a dollar even if the Bureaux de Change continue to deal above N550/$. If demand goes down, the operators of Bureaux de Change will be forced to bring down their rates.

The Central Bank must create antidotes against arbitrage transactions in the foreign exchange market. In other words, measures must be put in place to prevent round tripping of dollars in the market. Foreign currencies purchased at a lower exchange rate through commercial banks must not be resold at a higher exchange rate at the BDC end. Companies must not be allowed to over-invoice their imports in order to transfer funds to shell companies abroad. Every dollar purchased from the official window must be properly tracked. Deviants must be prosecuted with a view to establishing sanctity in the market.

How do we re-invent the naira? In my opinion, economic development is not a brain surgery. It is as easy as licking ice cream. The government and the CBN can achieve this vital economic goal by doing the following: First, there must be upward review of interest rate on deposits. If the interest rate paid on deposits by commercial banks is higher than inflation rate, Nigerians will begin to keep their deposits in the bank. Currently, the Naira has lost its quality as an economic store of value. Rational investors hold their savings in dollars and pounds. They buy their foreign currencies from the black market. A good review of the interest rate on deposits will help in checking this practice and also reduce the demand for foreign exchange. Secondly, the government must have a consistent economic policy. This will create confidence in our equity and bond markets. Foreign portfolio investors will no longer approach our market with hot money. Their investments will stay long enough for us to have stability in the market. Similarly, there must be  concerted efforts to attract foreign direct investments into Nigeria. Large inflows of FDIs and FPIs on a monthly basis will help improve the exchange rate of the Naira.

Thirdly, tourism must be approached with all seriousness. Let us transform Nigeria into a great destination for tourists. This will involve the elimination of cows and other animals from our streets. We do not see such animals in the foreign cities that we visit. Terrorists and bandits must be driven out of our society. Visitors must have the assurance that they are safe when they visit Nigeria. In addition, there is a need to create captivating sceneries for tourists for them to repeat their visits. Inflows of foreign currencies from tourists can help improve the external value of the naira. Next, the Government must promote export-led manufacturing. Our agricultural produce must be transformed into semi finished products so that they can command higher prices in the international market. Consumer goods such as food products, apparels, shoes, home appliances, mobile phones, laptops, etc must be produced in Nigeria for the export market. The African market is waiting for us.

The deployment of the right skills by the economic managers at the Central Bank and Federal Ministry of Finance is a critical success factor here. There must also be a resounding political will for the pursuit of appropriate economic programmes. The government and the Central Bank must get it right without passing buck. I look forward to seeing a strong naira soon.

  • Adesuyi is Managing Director, Wealthgate Advisors
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