Roundup: Currency depreciation, oil crisis affect Nigeria's economy

This is not the best time for Nigerian economy as it is degenerating into a serious crisis unless something urgent is done to safeguard the country from the shock of the falling crude oil price.

The acute scarcity of foreign exchange, especially the U.S. dollar, made the naira to fall further on Tuesday to 352 against the greenback at the parallel market.

The increasing pressure on the naira is caused by high demand for the dollar by importers and speculators.

Around 90 percent of the nation's foreign exchange earnings come from crude oil exports, but mismanagement of the refineries means the country must also import expensive refined fuel.

The naira has depreciated by over 13 percent in less than two weeks.

The local currency had weakened to 345 at the parallel market on Monday, having hit 338 last Friday as importers scrambled for the dollar to meet overseas obligations

The central bank has left its official rate unchanged at 197 to the dollar on its inter bank window.

Some experts believed that the pressure on devaluation of naira by the Central Bank of Nigeria (CBN) will have positive and negative ripple effects on the economy.

But while on a state visit to Kenya, President Muhammadu Buhari declared that he was yet to be convinced that Nigeria and its people will derive any tangible benefit from an official devaluation of the Naira.

Buhari maintained that while export-driven economies could benefit from devaluation of their currencies, devaluation will only result in further inflation and hardship for the poor and middle classes in Nigeria's import-dependent economy.

The president added that he had no intention of bringing further hardship on the country's poor who, he said, have suffered enough already.

He said that he was optimistic that the Nigerian economy will stabilize soon with the efficient implementation of measures and policies that have been introduced by his administration.

Mustapha Adigun, a Lagos-based banker told Xinhua that the devaluation would encourage local industries and also bring about closure of many that depend mainly imported raw materials.

He said once a currency is devalued, there are negative and positive effects to the economy, especially at the value chain of every nation state, but the negative effect supersedes the positive effects.

According to him, the negative effect is that it will increase the rate of importation and so many industries will be shut down as they will not afford to import some raw materials.

"It will also lead to unemployment and lower the production capacity and thereby bring about inflation as the Growth Domestic Production (GDP) growth rate will fall," he added.

"Our GDP growth rate is measured by the activities in the economy, so by the time inflation is going on, the economic activity of the country will fall," the banker said.

Ayo Teriba, an economist told reporters in Lagos, Monday that there were several ways the government could attract forex into the country to stabilize the naira.

He said there were deliberate actions the government could take to attract forex in the long and short terms.

However, Bureaux de change (BDC) operators in Nigeria are targeting the annual 21 billion dollars average forex inflow from Nigerians in Diaspora for their continued operations.

The 2016 World Bank Migration and Remittances Factbook showed that Nigerians living abroad sent home 20.8 billion dollars in 2015. The figure is by far the largest volume of remittances to any country in Africa and the sixth largest in the world.

Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), said the body has already made a proposition to the Central Bank of Nigeria (CBN) to allow its over 3,000 members operate correspondence bank account.

The accounts, he said, would allow the BDCs receive over 21 billion dollars annual Diaspora remittances and also allowed to operate like money transfer agents.

He said the CBN is currently reviewing a proposal from the ABCON, and is confident of getting positive feedback because of the need to raise the dollar liquidity position in the market which will also boost naira stability.

Earlier this year, Godwin Emefeile, the apex bank chief had told reporters that the bank is evolving additional measures to boost the nation's economy and stabilize the naira.

The CBN boss said the Nigerian economy was not as bad as being portrayed when compared with other economies in Africa.

He advised importers to restrict their imports to raw materials and equipment rather than finished products and food in order to reduce the pressure on the nation's scarce foreign exchange.

He blamed unscrupulous businessmen who engaged in illicit activities for exerting intense pressure on the dollar and other currencies.

According to him, the apex bank has ensured reasonable stability in the value of the naira by keeping official exchange to the dollar between 196 and 197 to the dollar.

Emefeile advised Nigerians to always approach their banks for their request for foreign exchange at the official rate as against patronizing the black market operators.

The CBN boss, however, insisted that the 22 percent depreciation of the naira was reasonable when compared with other emerging economies adversely affected by global economic recession.

"Zambia, for example, has depreciated its currency by about 48 percent, Angola by 25 percent while Brazil depreciated its currency by about 48 percent from October last year till now," he said.

"Our situation is not as bad as people think. When you devalue, there must be a structural adjustment. We have never followed up with structural adjustment," he added.

"The approach we are adopting at the moment is that, having done a 22-percent adjustment in the currency, let us structurally adjust our position," he said. Endit