Nigeria urgently needs to work towards getting out of the present mono-product trap by developing other potential sources of forex. This is a lesson the country must learn from some other economies.
Abimbola Olashore, chief executive officer, Lead Capital plc, made this point at the 2015 seminar of the financial services group of the Lagos Chamber of Commerce and Industry (LCCI) held in Lagos last week.
According to Olashore, he arrived at this conclusion after looking at foreign exchange management in some selected emerging economies.
He noted that in July 2005, for instance, Bank Indonesia launched a new monetary policy framework known as the inflation targeting framework whereby the rupiah exchange rate is determined wholly by market forces of supply and demand. However, Bank Indonesia is able to take some actions to keep the rupiah from undergoing excessive fluctuation and the policy also favours exchange rate stability.
In South Korea, he said, inflation targeting is an operating framework of monetary policy in which the central bank announces an explicit inflation target and achieves its target directly. It also has a policy target of a stable exchange rate. The exchange rate is, in principle, decided by the interplay of supply and demand in the foreign exchange markets.
The Bank of Korea, Olashore said, on the other hand implements smoothing operations to deal with abrupt swings in the exchange rate caused by temporary imbalances between supply and demand, or radical changes in market sentiment.
In India, the exchange rate policy in recent years has been guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, coupled with the ability to intervene if and when necessary, he further said.
In the Brazilian case, he said, the Brazilian government has enacted several rulings aiming to reduce the complexity of its exchange market. Among these changes, rulings have been provided for the unification of the Brazilian exchange market, which is now no longer divided into different segments.
Olashore noted that the Brazilian Central Bank guidelines allow legal entities and individuals to purchase and sell foreign currency and perform international transfers in Brazilian Reais, regardless of the nature of the operation, with no restriction with respect to the amount involved.
South Africa during the apartheid era commenced with a fixed exchange rate system, he further said. Meanwhile, the country now has a floating exchange rate system. The South African Reserve Bank, however, still maintains some measure of exchange control as some have argued for its complete removal, he added.
From the perspective of exchange rate management, Olashore noted, Nigeria seems to have similar policies to the countries discussed above. However, Nigeria differs in the sense that policy changes here are more frequent than in those countries.
Due to imperfections and distortions within the Nigeria economy, demand for forex in relative terms appears to be more than in those countries. This, Olashore said, is amplified by the narrow source of Nigeria’s foreign exchange – which is crude oil sales proceeds.
“Countries discussed earlier either have a fast developing manufacturing sector (able to manufacture for exports – S. Korea, India) or enjoy capital inflows in for of FDI – Malaysia. Government must be a participant rather than being the sole supplier,” Olashore said.
Francis Ikenga, chairman, financial services group of the LCCI, said, “What we need is patriotism. Do you want your country of the future as Malaysia did? It could be hard, it could be painful but there is no gain without pain.”
HOPE MOSES-ASHIKE
