BY Victor Ahiuma-Young
LAGOS—NIGERIAN Employers’ Consultative Association, NECA, weekend, called for the adoption of floating exchange rate, saying attempts to fix it and impose administrative controls or rationing had failed.
NECA President, Mr. Larry Ettah, who made the call in a statement in Lagos, contended that evidence from other economies was clear and compelling to the effect that floating exchange rate systems enabled economies respond best to declines in the value of their exports.
He argued that this would also provide a natural adjustment mechanism to preserve foreign exchange reserves and change incentives and behaviour of economic actors.
Ettah said: “Nigeria’s attempt at a fixed exchange rate system and administrative controls or rationing of scarce foreign currency has clearly failed and produced foreign exchange market arbitrage and “round-tripping,” corruption, multiple exchange rates and acted as a deterrence to investment.
“We commend the recent reforms adopted by the CBN based on the recommendation of the Acting President/National Economic Council and urge the CBN to take these reforms to the logical conclusion, a floating exchange rate system.
“One of the major deficiencies of current policy is the “body language” that suggests an aversion for private capital and investment and a seeming preference for government control of the economy.
“The evidence from most of the countries examined, especially Saudi Arabia, Egypt, Indonesia and even Russia, however, indicates the opposite.
“Most oil dependent economies have anchored their post-oil strategies on private capital and investment in oil and non-oil activities. Most investors are interested in the Nigerian economy, but they have been deterred by lack of policy clarity and the confusion over foreign exchange.
“We understand that ERGP articulates a clear policy preference for private capital and expect government to implement clear strategies for promoting such.”
“Nigeria missed the opportunity of high oil prices between 2010 and 2014 failing to accumulate sufficient sovereign savings to provide a buffer against oil price shocks.
‘’We did not learn the lesson that one major reason Nigeria avoided more severe consequences of the global financial crisis and recession in 2008-2009 was because of the over $65billion accumulated in both foreign reserves and “excess crude account” in that period.
‘’This failure to save was in spite of the fact that the nation had created a Sovereign Wealth Fund, SWF, through legislation. Going forward, we must ensure that we save a portion of our commodity-related revenues in view of the inevitability of future declines.”