Diversify Export Earnings, Increase FDIs To Address Fx Liquidity Challenge -Uwaleke

Professor of Finance and Capital Market, Uche Uwaleke, has said that except the Federal Government diversify its export base and increased foreign direct investments (FDIs), the liquidity challenge in the forex market would persist. Uwaleke, who gave the advice Monday in Abuja, added that the country’s weak economic indices would make it difficult for the government to implement the naira float.  In a bid to address the widening exchange rate gap, the federal government resorted to a managed float of the naira on the I&E Window. However, this policy has failed to halt the fall of the naira.  The exchange rate for a dollar to naira at the official window is N751.1 as of Monday, 11 September 2023, according to the data published by CBN. While at the parallel market, the naira exchanged for N925 to a dollar in Lagos. Experts have said that with a larger part of Nigeria’s revenue still coming from oil, it would not be easy for the government to address supply side constraints in the FX due to the country’s inability to meet it’s OPEC quota. “The only sustainable solution to deal with the liquidity challenge in the forex market is to have multiple streams of forex comprising export proceeds and foreign investments. “Nigeria’s economy is not ready for a complete float of the naira due to weak economic fundamentals. “Regrettably, over 90% of forex inflows still come from crude oil sales. A diversified export base is required to check volatility in a forex market where the exchange rate is determined by market forces. This is still lacking in Nigeria. “On the demand side, I support the idea of curbing dangerous currency speculation by making the trading in forex outside the Banks and BDCs illegal. By doing so, the CBN can be in a position to monitor activities in the forex market,” he said. 

BRICS Bank to lend in Brazilian, South African currencies

The BRICS Development Bank has announced plans to begin lending in South African and Brazilian currencies in order to reduce reliance on the US dollar. The NDB was created in 2014, by the BRICS bloc of Brazil, Russia, India, China, and South Africa, as a Global South-oriented alternative to the US-dominated World Bank, which is infamous for imposing neoliberal economic reforms on impoverished countries, which hinder their development. Vice President Kashim Shettima is currently representing President Bola Tinubu at the 15th BRICS summit in South Africa. The conference, which commenced in Johannesburg on August 22, will focus on issues of trade and investment facilitation, sustainable development, innovation, and global governance reform. Rousseff explained, “It is necessary to find ways to avoid foreign exchange risk and other issues, such as being dependent on a single currency, such as the US dollar” “The good news is that we are seeing many countries choosing to trade using their own currencies. China and Brazil, for instance, are agreeing to exchange with RMB (renminbi) and the Brazilian real”, she said. “At the NDB, we have committed to it in our strategy. For the period from 2022 to 2026, the NDB has to lend 30 per cent in local currencies, so 30 percent of our loan book will be financed in the currencies of our member countries”, Rousseff added. “That will be extremely important to help our countries avoid exchange rate risks and shortages in finance that hinder long-term investments”, the new NDB president stressed. She said the NDB would issue debt in rand for lending in South Africa and do “the same thing in Brazil with the real. We’re going to try to either do a currency swap or issue debt. And also in rupees.” Rousseff said lending in local currency would allow borrowers in member countries to avoid exchange rate risk and variations in US interest rates. She said the bank has also tried to distinguish itself from the World Bank and the International Monetary Fund (IMF) by not setting lists of political conditions on loans. She also said the Shanghai-based lender was considering applications for membership from about 15 countries and was likely to approve the admission of four or five. Members of the NDB not only include the founders of the BRICS but also Bangladesh, the UAE, and Egypt. Uruguay is likewise in the process of joining, and many other countries have expressed interest. Argentina, Iran, and Algeria have formally applied to join the extended BRICS bloc, and according to the foreign minister of Russia, Sergei Lavrov, other nations that are interested “include Egypt, Turkey, Saudi Arabia, the United Arab Emirates, Indonesia, Argentina, Mexico, and a number of African nations”.