The single market Forex market opened for the first time yesterday in Nigeria.
Although the stock market tanked by NGN163 billion due to an expected sell-off for profit taking by portfolio investors, we think the Forex market might be having a quiet time any time soon.
The Central Bank of Nigeria, CBN made good its promise that “Nigeria’s Forex reserves supasses pent-up dollar reserves”. The CBN had yesterday clear the USD4.02 billion backlog of various Forex demands from companies, individuals and parties who needed access to foreign reserve for genuine reasons.
As the market closed yesterday, the Naira has now adjusted itself falling by at least 20%. There were discordant rates bandied across various media channels which further aggravated speculations in the market. A market that officially opened at NGN260 to 1USD, closed for trading at NGN288 to 1USD
While the crash in the official rate of the Naira from NGN197 to NGN288 is a let down for an economy that imports over 80% of its consumption and essential goods, it is a pathway to a stable economy that investors can bank on to either invest in or get out of. The cloud of uncertainty that overshadowed the economy will give way for clear cut business environment.
A major positive consequence is that the massive market four arbitrage will also fizzle out as the difference between the parallel market and interbank market will close up. The reign of arbitrage was brought about by the fact that official market until now traded at NGN197 compared to the parallel market that used to trade at NGN360. That is a difference of 45%. The massive gain for various parties involved in the Forex market made many overnight millionaires at the expense of the economy.
Also, the frivolous demand for Forex to purchase various items that can be manufactured locally in mass quantity and standards would also taper. Many Nigerians consume foreign products for the fun of it. A driven by the illusion wealth and exposure. The resultant effect comes back to bite them when they need Forex for genuine needs and the rates are bloated.
As regards Nigeria’s fight against corruption, the market would also be a stop gap for those who launder funds abroad. Apart from systemic checks and balances in the banking system, money launders now have to approach a transparent market to buy Forex, oil and water still do not mix till date.
As for the Nigerian government, the time is right to limit its interference with the market and let businesses sort out themselves.
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