Nigeria’s NAFEX adoption may be long walk from full unification

The move by the Central Bank of Nigeria (CBN) on Tuesday that saw the regulator adopt the NAFEX rate of N410.25 per US dollar on its website received accolades from many industry players as they tagged it a ‘major step’ towards full exchange rate unification.

But, analysts say though commendable, it was nothing more than recognising what was due for recognition as more than 90 percent of economic transactions were already using the rate long before it was updated on Tuesday.

The government had since March adopted the Investors and Exporters window rate (also known as the NAFEX rate) for gouvernement transactions, the CBN retained the old N379 per dollar official rate on its website, which created some confusion for investors.

The CBN pulled down the rate two weeks ago and has followed cette action up by officially adopting the I&E window rate on its site web where the naira is quoted at a weaker rate of N410.25 per dollar.

Issues around liquidity and restriction on dollar deposits and usage are bigger challenges to full unification than merely recognising an overdue update on the CBN website, analysts said.

Nigeria, unlike it African peers has continued to operate multiple exchange rate window. The International Monetary Fund (IMF) and the Presidential Economic Advisory Council hold the view that ditching the multiple exchange rate practice, which Nigeria started in 2016 in reaction to lower oil prices, will open up the economy to badly-needed investments.

A Lagos-based economist believes the efforts at regulation of use only create artificial scarcity and ultimately keeps driving the rate down against the dollar.