PLANS FOR MANAGING FOREIGN EXCHANGE ARE UNCLEAR FOR NIGERIA'S MAJOR CONTENDERS IN 2023

The three major parties' plan for managing foreign exchange is, as evidenced by their manifestos, at best a jumble of pledges without a clear path to fulfillment.

The uncertainty around who will win Nigeria's upcoming presidential election is fundamentally no different from the uncertainty surrounding which of the top three candidates has concrete, elaborate proposals to address the nation's unsatisfactory foreign currency system.

The All Progressive Congress' (APC's), the Labour Party's (LP's), and the Peoples Democratic Party's (PDP's) strategies for managing foreign exchange are at best a jumble of promises without a clear plan on how to get there, as seen by their manifestos.

On February 25, the largest democracy in Africa will elect a new president. Its currency had among the poorest performance last year, trailing only the currencies of Sri Lanka and Ghana.

The naira's black-market exchange rate, which formed the basis of that decision, had fallen by 37% as of that time compared to the official rate's decline of only 4%.

Despite being labeled “illegal” by the government, the parallel market is the country's most accessible market for those wishing to buy foreign exchange. The most market-driven rate is offered, and it satisfies the demand for dollars from a number of manufacturers and end users who are unable to buy the currency on the spot market.

The official rate of the naira has lost more than half of its value versus the dollar since President Muhammadu Buhari assumed office in 2015. As a result, the naira's value is steadily declining.

Only 16% of the shares listed on the Nigerian Exchange were held by foreign investors in 2022, compared to 58% in 2014, indicating that the market is rapidly losing access to dollars.

No investor will want to invest in a market if it is impossible to sell stocks and withdraw money, according to Steve Pollicino of US brokerage Auerbach Grayson, who spoke to Reuters.

According to the news agency, Mr. Pollicino thinks that foreign investors' top concern is the need to reform the Nigerian foreign exchange market. The difficulty it causes for manufacturers looking to import raw materials but unable to access the dollar at the I&E FX Window is one major effect of the crunch.

On February 14, the dollar was worth N461.67 in that market and N746.71 on the street, according to the parallel market rates tracker @naira.rates. This difference of 61.7% has been a major contributor to inflation.

Whoever wins the next election will have to deal with both exchange rate instability and a dollar shortage that is driving up the cost of imports.

Not to mention the pressing need to win back the countless foreign portfolio investors who have been fleeing the stock market in great numbers since since the dollar shortage peaked immediately after Covid-19 broke out.

Tinubu Bola (APC)

Bola Ahmed Tinubu, the presidential candidate for the APC, isn't sure if, if elected, he'll create a foreign exchange market where supply and demand determine exchange rate movement. Under the existing system, the government regulates I&E FX Window or spot market, therefore it makes sense he will want to keep it. The exchange rate affects net capital flows, export competitiveness, and import pricing in addition to other aspects. According to Mr. Tinubu's platform, without outlining the approach his administration will take in this regard, this issue cannot be ignored or left to the whims of an unrestrained market.

Paul Obi (Labour Party)

Peter Obi of the Labour Party, in contrast to its APC rival, is in favor of liberalizing the foreign exchange market and has stated his desire to “dismantle the opaque multiple exchange rate regime which effectively subsidises a few privileged persons, while denying government.”

Notwithstanding how wonderful that sounds, the former Anambra State government did not outline his plan of action in his platform.

Instead of continuing to focus solely on demand management, the manifesto promises that “ a simplification of the exchange rate regime, while also aiming to help increase the supply side.”

The document does not contain any information about the exact steps Mr. Obi will take to increase the dollar supply. The only foreign exchange strategies addressed by Mr. Obi throughout the text are the two general, succinct proposals mentioned above.

Atiku Abdulkarim (PDP)

Throughout the first eight years of this republic, Atiku Abubakar, Nigeria's vice president, oversaw the privatization of state-owned assets. He is renowned as a proponent of market liberalism and liberalization.

According to his platform, if elected to power, the PDP will grant the market more freedom to set pricing.

The ongoing pricing distortions brought on by the existing interventionist exchange rate management strategy will be eliminated in this way. Instances where government action is unavoidably required shall be handled carefully and sensibly, the statement states.

“Monetary and fiscal policies shall maintain low inflation rate, stable exchange rate, and interest rates that will support firms' desire for credit,” the manifesto adds. But it makes no mention of the strategy that will be used to achieve this.

Kwankwaso Rabiu Musa(NNPP)

Rabiu Kwankwaso has provided a solution to the problems with achieving a fixed exchange rate, independent monetary policy, and unrestricted capital flow.

One of the suggested possibilities is to implement a managed, controlled float exchange rate regime with some level of capital controls.

The former governor of Kano State also advocated for a system of currency rates that encourages exports, discourages imports, and reduces the need to stabilize the naira.

The CBN should select inflation targeting, he added, in order to achieve single-digit inflation, control interest rates accordingly, and focus on monitoring inflation and the stability of the financial system.