SIX BENEFITS OF FX REFORM FOR NIGERIA'S ECONOMY

In comparison to prior years, the second quarter of 2023 saw the federal government undertake policies that made the year more difficult for businesses and consumers.

The naira saw a significant devaluation as a result of the foreign currency regime being liberalized as part of efforts to boost the economy.

In June, the Central Bank of Nigeria reinstated the willing buyer, willing seller paradigm and combined all FX market sectors under the Investors and Exporters window.

Since then, the value of the naira has decreased in relation to the dollar and other significant foreign currencies.

As of December 15, the official exchange rate dropped from N463.38/$ to N889.86/$. The value of the naira dropped from 762/$ to 1,186/$ on the black market.

In terms of the allocation made by the Federation Account Allocation Committee (FAAC), the devaluation has raised government revenue. The managing director and chief business officer of Optimus by Afrinvest Limited, Ayodeji Ebo, stated that the solution has also been successful in closing the budgetary deficit in government income.

If the money is used wisely, he said, it will have an effect on the economy, particularly for the states.

Adeola Adenikinju, president of the Nigerian Economic Society and an economics professor, stated that “the devaluation has brought in more revenue which has enhanced the capacity of the government to do their commitment in terms of interventions, infrastructures, and reducing the amount that state governments owe in salaries.”

CORPORATE TAX COLLECTION MORE THAN DOUBLED IN A SINGLE YEAR.

The federal government's revenue from corporate income taxes was more than doubled by taxes paid by overseas corporations. The overall revenue increased by 115.9 percent to N1.75 trillion in the third quarter of this year from N810.2 billion during the same time last year, according to data from the National Bureau of Statistics (NBS).

It also increased from N1.53 trillion on a quarterly basis by 14.3%.

From N505.9 in Q2 to N1.10 trillion in Q3, the highest since 2015, payments from foreign corporations rose by 116.9%. However, those from domestic businesses fell by 36.4 percent, from N1.02 trillion to N651.6 billion, reflecting the challenging economic climate in the nation.

Abubakar Bagudu, the minister of budget and economic planning, disclosed last month that the federal government's revenue for the first nine months of this year was N8.65 trillion, rather than the pro-rata target of N8.28 trillion. This information came during the public presentation of the country's projected 2024 budget.

N1.42 trillion of the N8.65 trillion in revenue came from oil, and the remaining N2.50 trillion came from non-oil sources.

Yomi Olugbenro, partner and Deloitte's West Africa Tax Leader, stated that “the impact of foreign exchange unification has continued to have a positive impact on the overall tax revenue of the government.”

Depreciating naira increases international demand for domestic goods

The West African CFA franc, which is accepted as legal money in Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, has increased in value compared to the naira, which has continued to decline.

As a result, some commodities made in Nigeria were more affordable than those made in other African nations. The naira fell in value at the official market on June 9 to 888.35/$ on December 18. The value of the naira in relation to the West African CFA franc has decreased; as of December 18, it was worth N1.31 to CFA1, down from N0.76 on June 9.

Wemy Industries Limited's managing director and chief executive officer, Paul Odunaiya, told BusinessDay that his company's exports are benefiting from the dollar's decline.

“When your currency is weak, your goods become more affordable, making it easier for a nation with a stronger currency to purchase your goods. The CFA made it easier for us to enter the market,” he stated.

More naira is available for manufacturers to purchase inputs for their manufacturing as a result of the rise in demand for goods from other African nations.

“Devaluation is assisting exporters in reintroducing foreign exchange into the nation, resulting in increased naira for them. According to Odiri Erewa-Meggison, the chairman of the Manufacturers Association of Nigeria Export Promotion Group, ”you have to keep in mind that their cost of production is rising.

TRADE SURPLUS REACHES A FIVE-YEAR HIGH

The trade surplus of the largest economy in Africa reached its greatest level in five years and three months. A nation has a trade surplus if its exports are greater than its imports.

The NBS reports that for the fourth consecutive quarter, the nation's trade balance was positive at N1.89 trillion in Q3, a 166.2 percent rise from N708.9 billion in the previous quarter. It improved from an N409.4 billion trade imbalance on an annual basis.

According to Israel Odubola, a research economist based in Lagos, the country is essentially receiving more naira from export revenues per dollar, which is why there is a greater trade surplus.

The current account benefits from a good trade surplus because it lessens external pressure. A trade surplus has a major impact on the composition of the current account.

BANKS' BUMPER PROFITS

Nigerian banks with overseas assets have seen a sharp increase in earnings after the devaluation.

Zenith Bank, United Bank for Africa (UBA), FBN Holdings, Fidelity, Wema, Stanbic IBTC, Fidelity, and Guaranty Trust Holding Company (GTCO) were the banks that were examined.

FBNQuest's portfolio manager, Gbolahan Ologunro, pointed out that banks benefited from the present administration's currency adjustment.

This level of adjustment has never been witnessed before. The banks would benefit from the increased earnings since they would be able to pay their shareholders a bigger dividend per share.

UBA increased its interim dividend from 20 kobo per share during the same period in 2022 to 50 kobo per share in H1 2023.

While Fidelity Bank's interim dividend climbed to 25 kobo per share from 10 kobo per share, GTCO's increased to 50 kobo per share from 30 kobo per share.