How CBN can restore confidence to drive FX inflows — Zeal Akaraiwe
As the CBN’s newly appointed governor assumed office, the primary task before the leadership of the apex bank will be to fix the foreign exchange rate as well as stabilize the naira against dollars.
Amid the mounting FX crisis, financial expert, Zeal Akaraiwe, has offered some insights on how the Federal Government can restore the lost confidence in the market to drive both local and foreign investment.
Akaraiwe on Saturday made this disclosure while speaking on a webinar hosted by Nairametrics tagged “Economic Recap of the Current Administration’s First 100 Days.”
According to the financial expert, the first thing the CBN needs to do is to ensure a calculated monetary policy that is centered around transparency as well as confidence in the market. He stated that no investor, whether local or foreign, will infuse capital into a system that lacks liquidity and trust.
He said,
- “The key thing we need to highlight is that investment in general will be direct to two or three factors.
- “One, confidence in the economy is driven by policies. Two is liquidity. If I bring money into the economy, the one question is can I get my money back? If that answer is not an unequivocal yes, then confidence will begin to deplete. As confidence depletes, inflows from investors have to go down. The value of the currency starts to depreciate.
- “But beyond the foreign investment figures, we need to pay attention to net flow into the economy.”
Speaking further, he observed that the CBN monetary policies must prioritize FDI over portfolio investment since the former is geared towards infrastructural development and employment opportunities.
He stated,
- “FDI importance is not just the foreign exchange in print. It’s a structured investment into the economy. When a company comes and builds a 300bn dollar plant in Nigeria, the plant will work, and operate. You will see the effect on the economy. Hence, FDI is far more important regarding infrastructural development. They bring employment opportunity, the creation of value.”
Past FX Reforms
Referencing the past foreign exchange reforms that drove the economic recovery, Akaraiwe said that CBN must imitate a similar template to resolve the incessant crisis in the market.
- “For example, from 1999 to 2000, when we granted the GSM companies licenses, we were able to do something that I hope we’ll be able to repeat across all other sectors. In 1999 – 2000, we created an asset in bandwidth that the GSM companies bought, and we sold each license for about 285bn dollars. We sold three GSM licenses at that time. License is what we sold. And we got almost a billion dollars in FDI. That FDI helped the central bank meet demands.”
The Way Forward
Furthermore, the financial expert highlighted certain policy directions the central bank can implement to ensure that the net inflow of FX maintains an upward trend, thus boosting the economy and obliterating the pressure on the naira.
He said,
- “Regarding attracting investment, whether portfolio investment, local investment, or any other kind of investment, one of the things that we need to do is to restore the lost confidence in the system. We have a backlog of foreign exchange demand that has not been met. We have obligations through letters of debit remittances that have not been met.
You cannot restore confidence in the people you owe while you’re still owing them money. We need to find a way to create a transparent system that shows them a sinking fund or a sequential plan to eradicate all the backlog over a period. That will restore confidence
- “We also must review our monetary policy. For example, the 41 or 42-item bans by the Buhari administration is a bad policy because you are trying to use monetary policy to affect fiscal reforms. You don’t do that. It’s a very bad sequence.”
What you should know
The exchange rate between the naira and dollar quoted for around N1000/$1 on Wednesday evening as forex traders continued to grapple with dollar scarcity.
Nairametrics reported on Wednesday that the exchange rate had weakened to N983/$1 in the afternoon.
It is trading for N984 on P2P platforms as of this morning. The exchange rate also closed at N770.7/$1 on the official NIFEX window.
The newly appointed CBN governor and his deputies are set to have before them stabilizing the naira against the dollar and ensuring the inflow of supply in the foreign exchange market.
