Agric sector to benefit as CBN gives exporters free hand on FX

…holds benefit for agro-allied manufacturers

Non-oil exports from Africa’s largest economy may be well on the path of soaring, following the decision of the Central Bank of Nigeria (CBN) to allow exporters sell their export proceeds at the rate they choose.

“Exporters will now be allowed to sell their export proceeds in the interbank market at the ruling rate,” said Godwin Emefiele, the CBN governor, as he announced the foreign exchange market guidelines today.

The value of non-oil exports in the first three months of 2016 was outmuscled by oil exports which accounted for 64.7 percent (N821.9 billion), thus dimming the prospects of economic diversification away from oil.

Analysts told BusinessDay that the volume of exports had significantly dipped due to the FX policy by the apex bank, which was short-changing exporters and wiping out any incentive to export.

However, they say the FX policy shift, which will no longer subject the proceeds of exporters to the N199 official rate, will resuscitate non-oil exports and generate more revenue for the country.

“You can expect a correspondent increase in export volume and value following the CBN’s decision,” said Sheriff Balogun, president of Nigeria America chamber of commerce, in response to questions.

“It will also trickle down to the farmers because demand for their farm produce will increase and they will make more profit. All in all it’s a good development,” Balogun said.

Despite government’s constant emphasis on diversification of the economy, the country recorded a decline in revenue in non-oil exports to $1.1 billion in 2015.

Balogun said the decline in export value was not due to a slump in demand; rather it was due to the shrinking profit margins of exporters, who were struggling amid the draconian FX policy.

“Exports may have gone through the ports but were not recorded; or were smuggled out of Nigeria for exportation in neighbouring countries,” he added.

Agro-allied manufacturers have been unable to import most of its machineries required for production as foreign exchange hiccups deal blow on their capacity to import.

Businesses have been suffering from foreign exchange shortages due to slump in oil revenue which has crippled public finances and hit currency reserves.

Analysts believe that allowing the market set the naira’s value is likely to reduce the gap between the official and parallel market.

According to them, Nigerian products would become cheaper and competing imports more expensive, which should stimulate the domestic economy.

Emefiele also noted that the market will operate as a single market structure through the interbank and autonomous window which will be purely market-driven.

“To promote the global competitiveness of the market, the inter-bank FX market will be supported by the introduction of additional risk management products offered by the CBN and Authorised Dealers to further deepen the FX market boost liquidity and promote financial security in the market,” the governor said.

Emefiele also said the central bank will open a foreign exchange futures market to ease demand on spot trading, reduce volatility and give businesses more certainty.