The uncertainty surrounding who will win Nigeria’s upcoming presidential election is no different from that surrounding whether the three top contenders have a clear and complex plan to fix the troubled foreign exchange system.
As the manifestos show, the plans of All Congress Progressives (APC), in Labor Party (LP) and People’s Democratic Party (PDP) for foreign exchange management is at best a promise with no clear path to achieve.
Africa’s largest democracy will elect a new leader on February 25. Last year, the currency was ranked the best in the world, only surpassed by the Ghanaian cedi and the Sri Lankan rupee.
The black market rate of the Naira, the basis of the ruling, had fallen by 37 percent on that date compared to just 4 percent for the official rate.
The parallel market is the most accessible market in the country for people looking for forex, even though the government labels it “illegal”. It offers the most market-driven rate, meeting the dollar needs of some manufacturers and users who cannot access currency in the spot market.
The value of the naira has been rising, as the official rate has lost more than half its value against the dollar since President Muhammadu Buhari took office in 2015.
International investors will only hold 16 percent of stocks listed on the Nigerian Exchange in 2022, down from 58 percent in 2014, signaling that the flow of dollars into the market is quickly drying up.
“No investor wants to buy into a market where they can’t sell stocks and make money,” Steve Pollicino of US brokerage Auerbach Grayson told Reuters.
The news agency said Mr. Pollicino believes overhauling the Nigerian foreign exchange market is the main concern of international investors. One of the big consequences of the crunch was the ordeal it created for manufacturers who wanted to import raw materials but could not access the greenback at the I&E Forex Window.
The dollar was exchanged for N461.67 in the market and, according to parallel market rates tracker @naira.rates, N746.71 on the street on February 14, leaving a spread of 61.7 percent, a gulf that has been the main driver of inflation. .
Whoever wins the next election will have exchange rate volatility to contend with the dollar crisis that is driving up the price of imported goods.
That’s not to mention the urgency of returning to the many foreign portfolio investors who have left the stock market in droves since the scarcity of dollars came to a head shortly after the outbreak of Covid-19.
Bola Tinubu (APC)
APC presidential hopeful, Bola Ahmed Tinubu, has not specified whether he will use the foreign exchange market where demand and supply forces drive exchange rate movements if elected to power.
However, it is safer, they prefer to support the current model where the government controls the official forex market known as the I&E Forex Window or the spot market.
“The exchange rate affects import costs, export competitiveness, and net capital flows among others. It cannot be ignored or left to the vagaries of the unrestrained market,” Mr. Tinubu’s manifesto said without stating the direction the government will take this.
If the former Lagos State governor opts for a government-controlled currency market, the naira-to-dollar exchange rate from the official market will continue to be unreliable, failing to reflect the true picture of market dynamics.
The APC admitted in its manifesto that the foreign exchange regime in Nigeria is ineffective and unworkable, and acknowledged its implications for arbitrage and currency speculation.
“To ensure that the exchange rate policy is in line with the objective of optimal growth and job creation driven by the expansion of industry, agriculture and infrastructure, we will work with the Central Bank and the financial sector to carefully review and optimize the exchange rate regime,” he said. the document said.
No mention was made of the form of collaboration planned with the central bank and the financial sector.
The manifesto says “Our history shows that the oil and gas sector is not the answer to our country’s economic problems.” But it went on to say that the same sector “must play a major role in generating the foreign currency earnings needed to finance the twin industrialization and infrastructure push.”
According to the document, Mr. Tinubu plans to reduce gas flaring in order to boost oil and gas revenue from exports to the European Union during the Russia-Ukraine fury. He wants to reduce foreign debt and use it as a tool to “protect our exchange rate, keep inflation down and maintain foreign currency reserves.”
The manifesto says “Our government will exercise extreme caution in contracting debt in foreign currency. Our policy will be that new foreign currency debt obligations will be linked to projects that generate cash flows from which the debt can be repaid.
Under Import Substitution, Mr. Tinubu hopes to wean Nigeria off its dependence on imported goods by discouraging the importation of non-essential products and imposing luxury taxes, higher processing fees and higher tariffs.
He wants to incentivize foreign investors who set up manufacturing plants in the country by way of rebates and tax credits.
“We will also implement new policies to exploit the framework provided by the African Continental Free Trade Agreement (AfCTA) to increase production and domestic production,” the manifesto said.
Peter Obi (Labour Party)
Unlike his rival APC, Peter Obi of the Labor Party is pro-liberalization of the foreign exchange market and expressed his ambition to “remove the opaque multiple exchange rate regime that effectively subsidizes the privileged few, while reducing the government’s need for profits .”
Interestingly, the former Anambra State government did not lay out the layout of how they would do this in their manifesto.
“We will also strive to simplify the exchange rate regime, while also striving to boost the supply side, instead of continuing to focus on demand management,” the manifesto said.
There is no part of the document that highlights the specific actions that Mr. Obi will take to increase the supply of dollars. The two broad and concise ideas mentioned above are just the foreign exchange plans mentioned by Mr. Obi in the document.
In Import Substitution, Mr. Obi arrived at the election warm-up stage, riding on the mantra to move “Nigeria from consumption to production,” the second of his 7-point agenda. He hopes to achieve this by expanding the $440.8 billion economy through an “agrarian revolution and export-oriented industrialization.”
His manifesto said increasing exports would be achieved by developing strong linkages between Nigerian and overseas markets for these goods. It will also participate in building structures including trade missions and strategic investments and trade missions in the country aimed at creating markets for goods made in Nigeria.
“We will complete the political entrepreneurship to directly lead the mission to the Original Equipment Manufacturers (OEM) and the main headquarters of the Global Value Chain, lobby and give all the necessary incentives to expand the value chain of production and manufacturing to our country to connect us to the important global value chain which increases income and generates employment,” the manifesto said.
The Labor Party promised to incentivize companies and industries that take clear action to switch from fossil fuels to clean energy “not only for local consumption but also for export.” Among the agenda is the need to cut steep trade costs resulting from high port, border and road logistics costs, which are recognized as barriers to a competitive business environment.
“We will implement an entrepreneurial government to break down barriers to free trade and ease of doing business,” the Labor Party said.
Mr. Obi also expects to ensure quality assurance to ensure the standards of Nigerian products to attract attention in the African Continental Free Trade Area.
“We will incentivize the mid-stream segment in the petroleum sector by facilitating gas processing plants and small and medium-scale boutique refineries, with the aim of reducing the import of refined petroleum products, and eliminating the gasoline subsidy regime, which has become a huge burden on the budget,” said the manifesto.
Atiku Abubakar (PDP)
Atiku Abubakar, who oversaw the privatization of state assets as Nigeria’s vice president in the first eight years of the republic, is known as an advocate of liberalization and free markets.
The manifesto noted that the PDP would give the market greater freedom to determine prices if elected to power.
“In this way, we will eliminate the persistent price distortions caused by the current intervention exchange rate management policy. Government intervention, if it is necessary, will be done responsibly and prudently,” the document said.
The manifesto also said “Monetary and fiscal policies will ensure a low inflation rate, a stable exchange rate and an interest rate that will support efforts for credit.” However, no game plan will follow.
In Import Substitution, Atiku expects processed goods to be 25-40 percent of total exports, hoping this includes processed agricultural goods, factories, gas products and refined oil.
The manifesto states that support will be provided through the Nigerian Export Promotion Council and the Nigerian Investment Promotion Commission.
The PDP candidate hopes to review the efficacy and accessibility of the non-oil export simulation facility and strengthen the Nigerian Export Processing Zones Authority in setting up special economic zones in the six geopolitical zones.
They also want to review “import duties on raw materials available in the country and imported machinery for local production.”
The manifesto says there are plans to reduce food imports as a share of total imports to 5-10 percent from 20 percent.
Rabiu Musa Kwankwaso
Rabiu Kwankwaso proposed to address the issue of achieving a fixed exchange rate, independent monetary policy, and free movement of capital.
The proposed solution involves the use of a disciplined and managed float exchange rate regime with some degree of capital controls.
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The former Kano State governor also suggested finding an exchange rate system that encourages exports, discourages imports, and reduces the need for harsh adjustments to stabilize the Naira.
He also suggested that the CBN choose an inflation target to achieve single-digit inflation, manage monetary policy rates to achieve this, and focus on its core mandate of managing inflation and financial system stability.
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