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Nigeria won’t achieve forex rate convergence until there are multiple suppliers, says Johnson Chukwu



Nigeria must outwit China, India, Vietnam, others in FDIs -Chukwu

Mr Johnson Chukwu, Managing Director, Cowry Asset Management Ltd and financial and economic analyst, Xrays some monetary and fiscal policies of the government in this interview with FELIX OLOYEDE. Excerpt:

What is your view on the position of the southern governors, especially regarding the proposed 3% allocation, to the host communities?

I think the general feeling among the southern governors is that the version of the House of Representative, where provision was made for 5%, should have been what the senate should have also adopted. The governors felt the 3% was too meagre for what oil producing communities are going through, the level of pollution in those environments, the need to compensate them for being oil-bearing, for being the communities that are actually bringing in the country’s major revenue. So, they felt, from what they said, that 3% was too low. The key thing is that I believe that this will be addressed at the point of harmonization of the House of Representatives version and the Senate version. I want to believe there is still a window for that issue to be addressed.

The government recently said that the concession of the airports is in its final stage, despite labour opposition to this. Will this confession bring the turnaround we need in our aviation sector?
Well, I have seen the terms of the concession but clearly, our governments have not shown the capacity to manage infrastructure effectively. We have seen deterioration in MMA1 (Muritala Muhammed Airport) until recently that there were some levels of renovation. We have seen arrival and departure halls that were built, the very low quality of materials that were used, including the inconvenience areas that are so small and so inconvenient. So, I want to believe that Nigeria seriously needs the intervention of the private sector in managing some of our critical infrastructures. We have turned an aero field, where literally the airport will be a commercial centre. But I don’t think there is any push to achieve that and I don’t think the government has the money to do that. So, I strongly subscribe to the idea of concessioning the airports to private sector operators to run. Labour needs to realize that you can continue to do the same thing time and time and you will expect different results. Today, Ghana, a country as small as Lagos in terms of population, has become the West Africa aviation hub, whereas Lagos should be occupying that position. In the national interest of all of us, labour should shield its sword and see the wisdom in the government concessioning the airports to private sector operators.

The CBN has said that basing the value of the naira on the parallel market rate was unfair. So, between the parallel market and the I&E Forex window, which do you think is appropriate to base the value of the currency on?
For me, it has to do with where your source your foreign exchange from. If you have access to the I&E window, and you can meet your demands from there, then you should use that to price your import and use that as the basis for the valuation of the stocks that you are bringing in. If the market where you can access your forex is parallel, there is no way you will use the I& E window as a basis to value your stock or value of goods. If you do that, you are going to make a straight loss. For those who are fortunate enough to access all their funding through the I&E window, then the ideal exchange rate should be the I&E forex rate.

Do you think we can achieve a convergence of the two windows?
Yes, we can. But we must then be ready to allow for further depreciation of the naira at the official windows, that is the I&E window because I don’t think we have achieved equilibrium at the I&E window, where demand has been met with supply. You have to move up the rate to a level that demand will meet with supply. But we must recognize the difficulties of our own foreign exchange management. And that is the fact that we have only one commodity that we are largely exporting and all our foreign exchange earnings are coming from that commodity export. So, you don’t have the latitude you have in other countries where multiple export earnings and then you have multiple suppliers of foreign currencies and multiple buys. We have a market situation where you only have a single supply which is the Central Bank. So, you will not achieve that perfect market condition that most people are looking at when they are asking for convergence. Until you have multiple suppliers, you are not going to have convergence in the market because you will always have a shift as long as demand outstrips supply.

How do think the issue of our inflation rate can be addressed?
The high inflation rate can only be addressed by improving productivity. If you revert to food, inflation, which was 22.28% in June. You recognize that the major factor driving food inflation is the dislocation of farmers due to heightened insecurity in the country. The basic things that are driving food inflation are those food items that are produced, locally. So, if you do not address the displacement of farmers so that they can go back to their farming zones and improve productivity and improve the production of those food items, you are not likely to be able to tame food inflation. So, the key thing is improving the productivity of food items and to improve the production of these items has to do with restoring peace and tranquillity across the country.

How would you assess the performance of the economy in the last six months?
In the last six months, we have seen marginal improvement when, I, was, seen, we, have, seen, some, marginal improvement, although the improvement is still very fragile. If you consider the fact that in the last quarter of last year, the economy recovered by 0.11%. In the first quarter of this year, it recovered by 0.51%. That is an improvement. We have also seen a moderation in the inflation rate. At some, point, we were dealing, with an inflation rate, of 18.75%. Today, we are dealing with an inflation rate of 17.90%. So, we have seen an improvement in the inflation rate. So, these factors are indications of a recovering economy but not recovering at the pace that Nigerians desire. But if you have to measure the economy in the past six months, it is an economy that is gradually improving.

What would be your projection for the final quarter of the year?
A lot will depend on the policy decision of the government as well as the extent they go in addressing the insecurity in the country. If you can put a stop to the heightened level of insecurity in the country, you could see a faster economic growth rate. But if the insecurity situation worsens, that means all bases are off. For anybody to predict what the economy would look like, you have to consider what the government does in taming the country’s insecurity to restore productivity across the country.

SEC recently approved the trading of derivatives on the stock exchange. What impact do you think this would have on the market?
It will improve the market breadth in terms of the number of commodities and the number of securities traded on the exchange will improve and that will also attract a lot more investors to the market, particularly those who are interested in derivatives. I think the objective is to further deepen the market.

We have the prices of crude oil climb over $70 per barrel. Should Nigerians begin to rejoice or is it a tale of woe for them?
Ideally, with over $75 per barrel, we should increase our external reserves and hopefully, help moderate the pressure on the reserve rate. On the converse, we should expect that a lot of government resources will be expended on subsidizing fuel, which government has put a cap on the price, despite the increase in landing cost has not been any adjustment in pump price. So, it will be a situation where we gain on one hand and lose some part of it on the other hand.

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