The execution of foreign exchange reforms to regain the confidence of investors in the economy is a prerequisite for Nigeria’s pursuit of rapid economic growth and greater foreign exchange inflows.
As the head of the Standard Chartered Bank‘s Research for Africa and the Middle East, Razia Khan, noted in her remarks at the Global Research Briefing held in Lagos, foreign exchange reforms are the most urgent, particularly in light of the global economic headwinds that make it difficult for Nigeria and other emerging countries to access external borrowing as they grow economically.
Khan noted that while there has been an element of foreign direct investor interest in Nigeria already, concerns around the forex regime have discouraged a longer term commitment from foreign investors.
“With respect to foreign portfolio inflows, nobody’s going to be investing at a time when there’s so much global market volatility and certainly not into a market that isn’t properly functional, or one in which investors know that they can put money in and get money out as well”, she said.
While allaying fears that forex reforms will lead to further increase in inflation, Khan said: “Inflation in Nigeria is currently being pressured because the parallel forex market determines pricing for many items consumed in Nigeria, so the sooner we see foreign exchange reforms prioritised, make the FX market functional, allow the Investors and Exporters ( I&E) window to have more price discovery”.
“We don’t believe looking at what we’ve seen in the past that this in itself is going to be that inflationary because anything that takes activity away from the parallel market and brings it back to official channels could actually lead to the smooth functioning of that market and reining in of potentially runaway inflationary pressures”.