New FX policy will boost foreign direct investment to Nigeria – Economist

Elizabeth Christopher

On Jul 12, 2023

The new foreign exchange policy in Nigeria will boost government earnings and increase investment into the country, an economist has said.

Speaking on the implication of the policy, the Chief Economist at SPM Professionals, Mr. Paul Alaje said the move will improve the potential of investments in Nigeria and significantly boost government revenue.

“Before now, exchange rate remains four six nine and it means whatever government had sold on crude upon this devaluation or unification of FX what we saw was that 750 was exchanged $1. The implication is that every dollar that goes to government other things being equal would also grow by nearly 300 Naira, which is more than 65% of revenue to government,” he explained.

“Now some of us are of the opinion that by the time FAAC is sharing July revenue, which will be late July or early August it should be near 1 trillion naira. So is big news for the levels of government, Federal, State or Local governments, more money will come in Naira terms to government, it might really not increase in dollar terms, but definitely Naira terms,” he added.

The Central Bank of Nigeria (CBN) recently announced the unification of all segments of the forex exchange (FX) market.
In a circular, the apex bank said all FX windows are now collapsed into the investors & exporters (I&E) window.

The Apex Bank said the move was part of a series of immediate changes to operations in the Nigerian FX market, the circular signed by Director, CBN Financial Markets Department, Angela Sere-Ejembi, said.
Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks, it added.

The economist added that more revenue will go to government as a result.

“So Nigerian market is further opened up for investors who are concerned that coming into Nigeria, they will be exchanging their currency at the rate of 461 to $1 those individuals might now say well, since there seems to be a little gap between official and the parallel markets, doing business in Nigeria, may attract them,” he noted.

Mr. Alaje who expressed concerns on the country’s debt profile emphasised the need to improve the supply of FX to Nigeria.

“Number one is what is making those demand for dollar, we need to study carefully the report of the National Bureau of Statistics, we look at the pattern of what we are buying, which includes spending over 300 billion naira every three months to import antibiotics into Nigeria.

“We have competent hands by now for these antibiotics to be produced in Nigeria and there are quite a number of other things that we buy, that really we should look for import substitution or produce them, so there’s something that seems to be very key, power and technology, we must combine them, we must operate them at the most efficient level.

“It’s also important to know that when Nigerians are going abroad, we should ask, are they going as expatriates who is going to earn money abroad, and most of the time make remittances back home or just going abroad, to realise that all the expectation and things they thought would work out may not work out, coming back to Nigeria, we have psychological effects and emotional effects on them.

“So when we say if people want to travel, we should ensure that we equip them with enough mental capacity that is required within the global space so that when they get abroad, they become an essential commodity and not a commodity that is default in itself,” he explained.

Mr. Alaje called on the authorities to make economic stability the focus of their policy thrust.

“My advice to the new administration is that stability should be the goal in making any policy or endorsing any policy at all, as a country, we have to look at what’s the viral effect, can we draw an effects table online or chart to see when we make a policy, what will be the effect on the rich, on the poor or the middle class.

“So when government says that there will be reform, reform that will lead to stability within the sectors is welcome, reform that will lead to stronger Naira is welcomed, reform that will boost our capacity as a country is welcomed, reform that will reduce inflation significantly, is welcomed, reform that will push real income is welcome reform that will expand credit in Nigeria. And more importantly, the reform that will make lending relatively easier for small scale businesses are all very important right now.

Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks, it added

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