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Nigeria’s forex policy is “suicidal”, stockbrokers warn

1 year ago
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Nigeria’s forex policy is “suicidal”, stockbrokers warn

The Chartered Institute of Stockbrokers (CIS) has expressed concerns about the impact of recent foreign exchange reforms on companies with significant foreign exchange components, noting that many of these companies are posting losses or substantially reduced profits.

This statement was made by the CIS President and Chairman of the Council, Mr. Oluropo Dada, at the 2024 Vanguard Economic Discourse, themed ‘Reforms in an Era of Global Uncertainties: Whither Nigeria’.

Dada, represented by Council Member Mr. Adeyemi Aina, highlighted the challenges faced by businesses such as Nestle and MTN, which have been adversely affected by the forex reforms.

He emphasized that the government should take these concerns seriously as they reflect broader economic vulnerabilities.

“While these reforms are aimed at accelerating economic growth, they come with initial challenges due to the existing deterioration in the economic structures,” he said.

Dada reiterated the CIS’s support for the overall policy direction of the government but suggested that the implementation could be improved.

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He pointed out that no country operates a completely free-floating currency system; instead, advanced economies use a managed float system to protect their national currencies from market volatility.

“No country operates with a completely free-floating currency. Democratic nations typically employ a managed currency management system to prevent economic instability.

“The reality is that it is suicidal for any country to expose its natural currency entirely to the forces of demand and supply,” he stated.

He expressed concern over the impact of foreign exchange losses on the profitability of quoted companies and urged for proactive measures to mitigate these effects.

He noted that the financial results of companies like Nestle and MTN are indicative of the broader impact.

He noted that the institute has set expectations for major corporations, such as Dangote Group, the Nigerian National Petroleum Corporation (NNPC), and electricity distribution companies, to be listed on the exchange by the end of 2024. This move is anticipated to boost market activity and investor confidence.

The President highlighted the importance of significantly increasing the aggregate volume and rate of production in the economy as a sustainable method to strengthen the national currency, the naira.

“A sustainable way to strengthen our national currency is to produce what we consume domestically and reduce importation,” he said.

He called on the government and all economic stakeholders to work towards achieving a significant increase in local production.

He also advocated for multinational companies like Toyota and General Motors to establish production lines in Nigeria, which would facilitate the local manufacturing of car tires, batteries, engine oil, and other automotive parts.

However, he cautioned the federal government to reconsider the increase in Band A electricity tariffs, as this would likely raise production costs and make locally produced goods less competitive compared to imports.

Source: nairametrics
Via: norvanreports
Tags: Nigeria’s forex policy is “suicidal”stockbrokers warn
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