MAN Forecasts Import Cost Increases and Exchange Rate Volatility Amid Naira Float

The Manufacturers Association of Nigeria (MAN) has expressed its anticipation of increased import costs, economic uncertainties, and exchange rate volatility due to the recent float of the Naira. In an interview, the Director General of MAN, Segun Ajayi-Kadir, highlighted the difficulty in predicting future exchange rate movements, which has led to concerns among manufacturers.

Ajayi-Kadir projected mixed outcomes regarding the impact of the floating exchange rate regime on the Nigerian economy. While he foresees a deceleration of foreign exchange scarcity, he also highlighted potential challenges for manufacturers who heavily rely on imported raw materials.

Drawing upon the experiences of other economies with floating exchange rates, Ajayi-Kadir acknowledged that the outcomes of such policies have been varied. He emphasized that the impact on the Nigerian economy as a whole would be unique, but he expects a reduction in foreign exchange scarcity as currency arbitrage activities are likely to decline.

“On the challenging side, we expect increase import costs and currency depreciation may reduce import flows, which is bad for manufacturers that depend on raw materials not locally available.

“Also, we foresee economic uncertainties and exchange rate volatility due to the difficulty in predicting predict future exchange rate movements and planning accordingly. Also, floating exchange rates make economies more susceptible to external shocks.”

The MAN Chief, however, noted that in the long run, it would boost-competitiveness of Nigeria’s export and lead to improved market efficiency for adequate foreign exchange access and a rise in capital flows.

He noted that floating the Naira remains an important step towards resolving the crisis rocking Nigeria’s foreign exchange market as the official exchange rate was almost at par with the market-determined rate, adding:

“We are hopeful that the floating of the Naira will restore sanity in Nigeria’s foreign market and advise members to see this new development as a long-awaited opportunity to soften the lingering challenges of the foreign exchange crisis.

“Given a floating system, we are optimistic that the official and parallel market rates will eventually converge and will create headroom for investors to seamlessly have access at a competitive rate.”

Following the promise of President Bola Tinubu to unify the multiple exchange rate, the Central Bank of Nigeria directed Deposit Money Banks to remove the rate cap on the naira at the Investors and Exporters’ window to allow for a free float of the national currency against the dollar and other global currencies.

The exchange rate between the Nigeria Naira and the US Dollar appreciated at the Investors and Exporters (I&E) foreign exchange window to close at N663.04/$1 on Friday, 16th June 2023, representing a rise of 5.58 percent from the close of N702.19/$1 that was recorded in the last trading session.

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