Forex instability caused by ineffective policy
By Jeph Ajobaju, Chief Copy Editor
Naira closed at N435 to the dollar on December 31 in a year of high volatility in the foreign exchange (forex) market despite interventions by the Central Bank of Nigeria (CBN). There is nothing to suggest the pressure will abate in 2022.
Nigeria spends 80 kobo of every N1 on foreign imports, from food that vast arable land can produce locally to computers and smartphones the country does not yet have the capacity to manufacture.
Indeed, distortions in the forex market will persist in 2022, predicts the Centre for the Promotion of Private Enterprise (CPPE) in its Economic Review for 2021 and Agenda for 2022 report.
CPPE Chief Executive Officer Muda Yusuf, who signed the report, explained that the challenge of forex to investors in 2021 was multidimensional.
The report said the forex challenge will be a key issue for investors in 2022 based on the following:
- Sharp depreciation of naira depreciation over the last one year.
- Liquidity crisis in the forex market, which manifests in the acute shortage of forex in the official window.
- Volatility of the exchange rate which creates considerable uncertainty and unpredictability for investors.
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Impact of policy rigidity
“Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term,” the report said, quoted by Nairametrics.
“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement [CRR] on financial intermediation would also persist in 2022 with a dampening effect on the growth outlook.”
Investors this year will have to grapple with the barriers to international trade as they did in 2021, the report stressed.
“These are problems relating to the Lagos ports, the traffic gridlock, port congestion, bureaucratic documentation processes, extortions and the prohibitive charges by terminal operators and shipping companies which are unlikely to abate in 2022.
“Investors would have to grapple with these constraints in 2022.”