This is a study in the realm of critical thinking, thus, it requires a concentrated attention. First, assume yourself as an individual who speaks and understands English language, then, presume a person was given a duty, to go to a sea bank and make an observation, the task, to observe a floating material, be it a ship, a boat or even a canoe.
The expectation is to project the positional placement of the floating object, not just in the immediate future, but, a much longer period, preferably, on a quarterly basis of an interval of three months. It is a virtual impossibility, to predict with certainty, the position of such a floating object.
Basically, if we subsume the above scenario, within the realm of financial lexicon of a foreign exchange floating regime, it would even make a more perfect sense. Now, let us presume that the experimental observant by the sea, as a manufacturing industrialist or a business entrepreneur, the sea should be the foreign currency exchange market, while the occasioned turbulence, probably caused by the movements of sharks abound, could be taken as the activities of player-speculators in the financial market.
Notably, the naira should be the floating object. It is just beyond the prism of common sense, to float an object and expect a rational human being, to predict its position in a distant future time.
Generally, that is what happened with the introduction of the flexible foreign exchange by Central Bank of Nigeria (CBN) in the middle of the year 2016, which is simply, a floating regime, that allows the value of the Nigerian naira, to change and exchange at the prompting of the market forces.
Evidentially, from the preceding months ahead of June 2016, manufacturing data went downhill into negativity, while exacerbating the impending recession in the country. Because, business entrepreneurship and industrial manufacturing are premised on future planning, on expenditure spending on raw materials and low inflationary base, which help to liquidate inventory stock.
Perhaps, this is the reason why Nigeria’s flexible floating foreign exchange regime, came with the foreign exchange (FX) futures, which gives a semblance of certainty for future transactions on forex, that is usually a rate cheaper (discounted) than the present price, also, it could be the reason that the apex bank is operating a multiple rate regime of currency valuation.
Selling at a much cheaper rate, to a certain segment of the market, most specifically, those sectors that represent the productive base of the economy, like the manufacturers, airline and any other sector which the government feels, deserves a preferential treatment.
But, isn’t such an action against the fundamental characteristic ethos of an efficient financial market, because, any showing of a preference to a particular customer or sector, distorts the market, thus, creating an avenue for corruption.
Now, please ask that market purist, what happens, when he goes to a market and was offered a discount on a purchased good, does he reject the distortion in pricing and return the much cheaper product, because, he does not want to be part of the seller’s ‘corrupting’ influence and motive of capturing greater market share. Indeed, what about festive seasonal sales, where supermarkets offer goods at up to 70% off price.
The simple truth is that, just like it is within the articles of trade to give discount for greater market share, it is also justifiable to give a discount to the productive sector of the economy and make sure it is not abused for personal gain.
Of course, the argument about such a fact, being the basis for the sustenance and sustainability of black market in currency trading, immediately crops up. However, since the early 1970’s, when Nigeria became a mono product economy, the Central Bank of Nigeria (CBN) has always been the principal provider of foreign exchange currencies, but most especially, it mostly relies on remittance from crude oil sales.
The fact that Nigeria is now in a recession and the price of crude oil is low in the international market, cannot automatically make the Nigerian currency exchange market, to become a private non institutional remittance driven, where parties other that country’s apex bank, would assume the majority in foreign exchange sales, to argue that is to pander into the realm of unproven economist fallacies.
Indeed, to assume that allowing the naira to become so low in value, that it could attract Foreign Direct Investment (FDI), which would augment activities in the forex market, is an unproven economic theory, that is yet to be physically presented, with such an example in an import driven economy.
In fact, it is the reason why the administration of President Muhammadu Buhari (PMB), came into office with the mantra of economic diversification into other areas of entrepreneurial productivity. It also came with the mantra of change, to accept the flexible exchange rate, which is a floating regime, in so far as, it is operated within the realm of giving protection, to areas and sectors that enhances the productive, growth and development of the Nigerian state.
What is most gladdening, the experiment has started to bear fruit and come into fruition, as the manufacturing data for the month of December 2016, which came out in the beginning of the year has confirmed. Mind you, the forex exchange (FX) futures, which usually attains maturation on quarterly basis and beyond, only “matured’ towards the end of last year, thus, enabling manufacturers to have the much needed foreign exchange currencies.
And the result is as shockingly evident as it glaringly positive, for the CBN Purchasing Managers’ Index (PMI), which was on an 11 months downward spiral, it came into positive territory and registered a 52.0 Index Point (IP) rise.
As for the FBN Quest Purchasing Managers’ Index (PMI) for December 2016, it registered an unexpected 60.0 Index Point (IP), from a negative territory and projection, which stood at 48.8 Index Point (IP) in the preceded month, when coupled with a rising price of crude oil in the international market, this could be the year that the Nigerian economy gains reasonable traction of growth, development and sustainability. This is me wishing everyone a happy and prosperous new year.
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