Naira fair value should settle between N640-N680/$ – Bismarch Rewane

The Managing Director /CEO at Financial Derivatives Co Ltd (FDC), Bismarch Rewane, has said the fair value exchange rate to the dollar should range between N640 and N680/$. He said this during an interview on Arise TV.

He said from every model he has seen; inflation would begin to taper down at 27 or 28% because the demand for goods will begin to drop and the supply of goods will begin to increase. He added that the currency will soon begin to appreciate.

“Today, everybody is buying the dollar-priced at between N750 and N800/$. Our purchasing power parity (PPP) model value shows that the naira should be trading at about N654 to N680/$. Currencies normally move towards their PPP value over three to five years,” he said.
He added that if you add speculative activities, you add another 20%.

“So, if you take 20% of 800, it brings you back to N640. So, the true fair value is about N640 to N680/$. That’s where there is unification,” he said.
He stated that the discipline to intervene at fair value to make sure that currency is not overpriced or underpriced is what goes into the institutional reforms so that there is a discipline rather than creating different windows for arbitrage and regulatory trespass.

He noted that palliatives and other interventions are to help clean up the distortions that take place from time to time, but the global economy is not run on a distortionary basis, but on a normal basis, stressing that you only have cyclical downturns and upturns.

Benefits of needed reforms on the economic system
Citing the benefits of needed reforms in the economic system, he said the Nigerian economy is the largest in Africa, producing about 19% of the continent’s goods and services. He said Nigeria will benefit significantly from the African Continental Free Trade Agreement (AfCFTA) by exporting cement and other aggregates to other countries.

He noted that Nigerian banks have a presence in many African countries and export cash crops to countries on the continent, stressing that there are so many opportunities out there to latch on to.

He, however, said those opportunities will either never come to fruition or will come to fruition sub-optimally as long as the country keeps suffering the distortions and bottlenecks in the economy.

“We’re going to dismantle it little by little, followed by institutional reforms. A few people that have deviated from the norms of society out of all of the abuse that has taken place need to be brought out and penalized so that it becomes a deterrent to others who may have that tendency in the future,” he said.
He said that generally speaking, the future looks a lot brighter than before because the government is now dealing with the structural problems, adding that the challenge is to maintain the discipline to just take it from the contemporary problem and get the people’s confidence back.

Rewane also noted that from the projection of FDC, with the price of fuel being put N511, from N200, the Federation Account Allocation Committee (FAAC) allocation to the states should rise from N712 billion last month to about N1.2 trillion in the coming months.

He said with more resources being allocated to the states, the citizens should begin to see more social goods as they are making all of the sacrifices now. He stated that if the states go on with business as usual and do not deliver the benefits of subsidy removal, then the people will begin to kick back.

In a related development, the Director General/CEO of the Manufacturers’ Association of Nigeria, Segun Ajayi-Kadir, on the same show, said the new government has been saying the right things but needs to follow up to ensure that its words are followed up by appropriate action.

The Way Forward
He called on the Tinubu government to align its fiscal policies with monetary policies. He cited that some low-hanging fruits make sure that multiple taxations that stifle businesses are removed to have a more business-friendly environment, stressing that such bottlenecks can be achieved in a few months.

Kadir cited how unscrupulous persons have created an industry around the port gridlock and made it impossible for manufacturers and businesspeople to get their goods out on time.

He stated that the cost of transporting a 40ft container from Singapore to Apaoa Port is virtually the same to transport it from Apapa Port to the Industrial Estate of Agbara, which is just a distance of 27 kilometres; and it takes weeks to clear such goods from the ports.