Manufacturers in the country are under immense pressure from the negative impact of the persistent fall in value of the naira to the dollar, on their production and operational costs, which have increased in recent times and continue to rise by the day.
The naira rose to N570 to the dollar at the parallel market yesterday, amidst increasing demand and activities of speculators. Some analysts said if the current situation persists, the currency may drop to as low as N700/$1 before the end of next month.
Naira depreciation has pushed costs through the roof and made their products very expensive for local consumers, thus fuelling inflation, and uncompetitive for export.
The naira, which has seen a bashing at the parallel market in recent times following the decision of the Central Bank of Nigeria (CBN) to stop selling foreign exchange to bureau de change (BDC) operators in the country, has within four days this week, declined by N17 or 3.1 per cent.
As against N545 for which it sold last week Saturday, the value of the naira depreciated to N562 to the dollar as at Thursday morning. Analysts noted that this was due to the increasing demand for the greenback, activities of speculators as well as the insufficient supply of forex.
When asked if the government is not worried about the development, a source in the corporate communications department of the Central Bank of Nigeria (CBN) told LEADERSHIP that the apex bank does not have control over the black market.
„If any manufacturer needs foreign exchange, he should go to the official market, that is the banks. If he has any challenge with the banks he should report to the CBN and the CBN will address it.
„In any case, the BDCs do not have access to the CBN for foreign exchange,“ the source explained.
An economist and former director-general of LCCI, Dr. Muda Yusuf decried the current situation especially as it affects manufacturers, who hitherto have been struggling to operate competitively.
According to him, “The impact of the naira exchange rate depreciation and forex liquidity challenges on manufacturers have been very devastating. Production and operating costs have skyrocketed, profit margins have been eroded, sales have declined sharply and business sustainability is at risk.
“The exchange rate volatility has created profound uncertainty and unpredictability in the investment environment. Investor confidence has been correspondingly negatively affected. The forex situation has become a major driver of inflation.”
Also, the managing director of Lancelot Ventures, Mr Adebayo Adeleke added that “Things are getting very hard for manufacturers. Dollar is not readily available to manufacturers. Dollar comes in trickles and insignificant quantities through the banks.
“The current currency value is having a very negative impact and pushing the cost of input through the roofs. This trend will slow down production as prices may not be absorbed by the market. This may slow down production, cause job losses, higher poverty, and increased insecurity, among others.”
Reacting, national president, Association of Small Business Owners of Nigeria, (ASBON) Dr. Femi Egbesola said if the current economic trend is left unchecked, it will negatively impact on manufacturers and small businesses in the country.
He opined that the Nigerian government should make goods and services in the country exportable to attract more dollars and other foreign currencies into the country, urging the government to introduce punitive measures to check the activities of BDC operators.
He also pointed out that banning the BDCs operating through the banks is a form of palliative measure but the real thing is for the government to boost the economy such that Nigerians will have more exportable goods for business transactions to earn more dollars for the country.
„If we have our goods and services being exported, we will have more foreign currencies with us, the dollar, pounds and the rest, but if we are import-dependent, we will continue to chase dollars and the exchange rates will continue to rise,” Egbesola warned.
The ASBON boss charged the government to pay attention to how to revive the critical sectors of the economy and create a conducive environment for businesses to flourish such that it would attract more investors to do more exportation business and discourage importation of goods.
He said one thing is to pronounce a policy and another thing is to make such a policy work. He thereby stated that the government needs to pay critical attention to the economy and encourage local production, local manufacturing of goods, adding that if this is further encouraged, it will revive the economy.
On the business side, Egbesola projected that the unprecedented fall of the Naira will affect major business interest and Manufacturers in the country stressing that the price of raw materials will skyrocket, hence, they will find it difficult to access foreign currency, particularly dollars to the economy.
He hinted that the prices of goods will skyrocket with the current inflation trends and this will see manufacturers adding to the price of goods to sell and this will affect spending priorities and purchasing power of the consumers who depend solely on buying fewer goods.
He further said the cost of finished goods will rise again and sales by manufacturers will slump with low patronage.
Other economic experts also said the current situation where the naira is on a free fall at the parallel market is a serious concern that needs urgent action. The experts called on the authorities to deal with the alarming spate of insecurity to end disruptions in the supply segment of the market, and also issue a policy statement to practically discourage it.
The president, African Professional Freight Forwarders and Logistics of Nigeria (APFFLON), Otunba Frank Ogunojemite, said importation of goods into the country has gone down drastically, noting that the ember months importation will also be affected because the purchasing power of the final consumers has been eroded.
He said, “The implication is that prices of goods will go up and it is unfortunate that the government has lost control of the naira and this is not good for development. Importers cannot plan, forecast or predict any of their investments. Importation has declined because we need more naira to buy a few dollars that are in circulation and there is a lot to worry about.
“Anytime the dollar goes up, the purchasing power of the people will definitely go down and there will be scarcity of raw materials as well as goods in the market. So, the government must arrest the situation before it gets out of hand,” he said.
Corroborating his view, the national vice president, Association of Nigerian Licenced Customs Agents (ANLCA), Kayode Farinto, said importation of goods into the country‘s seaports have gone down, noting that the solution to the astronomical increase in the value of the dollar is for the country to start producing.
He said „elementary economics says if the dollar goes up, the naira weakens and the purchasing power of the people reduces. Also, if foreign exchange rises, importation will reduce which is what we are experiencing now and I have said during the Covid-19 pandemic that the government should provide palliative for the economy but nothing was done.“
“The naira will continue to fall because we have some Nigerians who still hoard dollars and if the dollar supply is low, the nation‘s currency will weaken. Those behind the economy should do something about the free fall of the naira and we should also be a producing nation and stop being import-dependent,“ Farinto said.
On her part, the director-general of Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, said “Speculators engage in buying currencies when they estimate that the value of such a currency will rise in the future. What this practice can do to the economy is that the speculative demand for dollars can make the dollar appreciate against the naira which deepens the forex scarcity that businesses are already suffering.
The dollar rate is already reaching N550 per dollar from the rate of N510 per dollar in July when the CBN stopped the sale of dollars to BDCs.” She added that “even the rate of dollar at the Investors’ and Exporters’ window has depreciated marginally too, standing at 411 per dollar from 410 per dollar.
“This is likely going to worsen the high rate of inflation which stands at 17.01 as of August 2021. “Forex scarcity has been one of the major factors driving the high inflation rate and with hoarding and speculative demand, the rate of dollar will likely appreciate against the Naira, forcing manufacturers to source forex at a higher rate and produce at a higher cost.
“These costs will eventually be transferred to consumers.”
According to head, Financial Institutions at Agusto &Co, Ayokunle Olubunmi, there is a huge demand for forex that is yet to be met by supply. Whilst noting that the dollar inflow from the International Monetary Fund (IMF) $3 billion Special Drawing Rights (SDR) did not have much impact on improving forex supply in the country, he said that the proposed Eurobond by the federal government could alleviate some of the pressures of demand.
“Also, remember that not all businesses can apply for forex at the CBN window, those businesses are pushed to the black market.”
He further stated that because of the low yield environment as well as the high rate of inflation, many individuals are opting for keeping their funds in foreign exchange and investing in Eurobonds and other dollar denominated investments.
He however, did not rule out the activities of speculators who have been mopping up the scarce forex, further pushing up demand and depreciating the value of the naira.
Professor of Economics at University of Ibadan, Olanrewaju Olaniyan said it would be difficult to strengthen the naira with the current situation where Nigeria spends more dollars on importation than it earns from crude oil dominated export. “If everybody wants to import and we are all looking for the forex to do so whereas Nigeria’s export is way below her import, the exchange rate will keep increasing.”
Professor Olaniyan said the food price index is increasing because of insecurity. He said “let’s deal with insecurity to build buffers for the naira.
“We also need to deal with exchange rate depreciation. We need to look at how we generate foreign exchange and how we are spending what we earn as forex. To be able to generate foreign exchange, we need to export more. It then means we need to strengthen our manufacturing sector to be able to export.”
He maintained that insecurity has affected Nigeria’s export capacity in the agricultural sector.
On diaspora remittances, Olaniyan said there have been conflicting policies and statements from the central bank on diaspora remittances, which have made it difficult for people in the diaspora to consistently remit their money back to Nigeria. That has resulted in the reduction of foreign remittances to Nigeria, a development he said has contributed to the pressure on the naira. We need a consistent policy on foreign exchange and domiciliary accounts.
Also, economic analyst and lecturer at Babcock University, Tayo Bello said the security problem has consumed a lot of Nigeria’s economy. “It’s a serious problem. All those ones are currently affecting the naira.”
“Before the end of this year, the pounds sterling will rise to N1000, and the dollar will hit N800.
“All the changes in policies are not working.
“In as much as we believe – as a country – that we should still rely on foreign goods; we will continue to undermine the value of the naira,” he stated.
In the short to long term, Dr Bello said “we have to discourage importation.” His concern however is that a policy in that regard would not be implemented. Corruption and sentiments are some of the factors sabotaging trade policies and economic growth in Nigeria.
By and large, Bello said “until there is sharp reduction in insecurity, Nigeria is not going anywhere. The naira will become worthless very, very soon if nothing serious is done soon. The borrowing will finish us. Government is just gambling. They should discourage unnecessary trips abroad where they spend the naira as though it does not affect its value.
An economic expert, Dr Timi Olubiyi said that “The naira was around N288 in 2014 to £1. As at September 15, 2021 as seen on Abokifx (black market rate) £1 is N760.” He explained that a short illustration on the impact of the forex situation is that if a manufacturer or business operator earned a monthly income of N500,000 in 2014 that was £1,736.
But with the recent rate, the same income has been reduced to £658. Even with a double income of N1 million, the equivalent is still £1,316, saying that this goes to show the negative impact of devaluation because just like the income, more naira will be required to source for forex which is even not readily available.