Valentine Okafor
Nigeria will soon begin to witness huge investment as waning investors confidence would gradually be restored with the decision of the President Bola Tinubu to put in place a unified exchange rate regime.
Reacting to the announcement by the new President , the Centre for the Promotion of Private Enterprise [CPPE] stated that it should be clarified that this is not a devaluation proposition but a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market which allows for rate adjustments as and when necessary.
Chief Executive Officer, of the Center, Dr. Muda Yusuf, explained that ,”It is a model that is predictable, transparent and sustainable, a policy regime that would reduce uncertainty and inspire the confidence of investors and a policy framework that would minimize discretion and arbitrage in the foreign exchange allocation mechanism.”
According to him the unified exchange rate regime would enhance liquidity in the foreign exchange market and reduce uncertainty in the foreign exchange market and therefore enhances the confidence of investors.
Yusuf, views is as more transparent as mechanism for forex allocation, which would also minimize discretion in the allocation of forex and reduces corruption vulnerabilities as well as reduce opportunities for round tripping and other sharp practices.
He observed that the current foreign exchange policy regime on the other hand has created multiple exchange rates and results in distortions and negative outcomes.
Yusuf, identified the regime to have widened gap between the official and parallel market exchange rates which allows forex roundtripping to flourish.
It also caused collapse of liquidity in the foreign exchange market resulting in acute forex scarcity as well as fueling demand for forex because of the incredible rent opportunities created by the huge parallel market premium.
It also created a major disincentive for forex inflows into the economy, thus suppressing forex supply, mounting trade debts, increased factory closure as many manufacturers are not able to access foreign exchange for raw materials and other inputs.
Furthermore, he said many investors are not able to meet offshore obligations creating credibility problems with their offshore suppliers, with mounting inflationary pressures and sharp drop in capital inflows
