By Dipo Olowookere

The multiple exchange rate system operated by the Central Bank of Nigeria (CBN) has been talked about and kicked against by several financial experts and economists in and outside the country. They have always argued that the system was absurd.

In the wake of this present administration, former CBN Governor and now Emir of Kano, Mr Sanusi Lamido, said the system was making few individuals millionaires and billionaires at the expense of the nation.

This is because the central bank has a rate of N305 per Dollar that is far lesser than the rates at the black market as well as the investors and exporters forex window of N363 to a Dollar.

The traditional ruler had argued that with the present system, it was easy for few powerful Nigerians to obtain forex at the interbank rate and make a profit of over N50 per Dollar selling to black market traders.

But the CBN has always argued that it would gradually unify the different rates at the forex market segments.

Business Post reports that the major market windows in the country are the Interbank, Investors & Exporters, Bureau De Change (BDC) and the black market.

Recently, renowned rating agency, Fitch, released a report, where it said the country’s apex bank will likely not carry out any forex reform this year but in 2020.

Before the February 2019 presidential, which was won by the incumbent President Muhammadu Buhari, his opponent at the poll, Mr Atiku Abubaker, had promised a unification of the rates to allow a more free-market.

With the election over, Fitch said in the short-term, “We believe that there will be little change to Nigeria’s current exchange rate regime in the immediate aftermath of the February 2019 general election.

“The official interbank rate currently sits at N305.87/$, while the ‘investor and export’ window (also known as the Nigerian Autonomous Foreign Exchange Rate, NAFEX) is trading at N362.68/$.

“The official interbank rate is officially pegged to the US dollar at the current level and used primarily as a reference rate for transactions by the state-owned Nigerian National Petroleum Corporation (NNPC).

“The NAFEX rate – at which investors, importers and non-state oil exporters buy and sell FX – is ostensibly free-floating but is also in effect managed.

“We believe that the authorities will remain determined – and able – to hold rates around their existing levels in the months ahead,” Fitch said in the report obtained by Business Post.

In terms of ability, Nigeria’s total gross reserves stood at $43.1 billion in late January – some 6.2 percent above levels seen at this point last year.

Import cover stands at more than 8 months, which although down from the October 2017 level of more than nine months is well above Nigeria’s recent low of 4.8 months in 2014.

“This level of reserves will give the authorities the resources to keep the market supplied in the context of slowing dollar inflows,” the agency stated.

Fitch said it has the strong believe that in the long-term, “We expect a shift away from the multi-tiered exchange rate and a consolidation of exchange rates, initially around the prevailing NAFEX level.

“However, this is unlikely to take place in 2019, and we thus expect the interbank rate – the rate that we forecast – to end the year at N306/$.

“Rather, we believe it is far more likely to take place in 2020, alongside the projected completion of the 650,000bbl/day Dangote oil refinery,” it said.

According  to  the  National  Bureau  of  Statistics (NBS),  Nigeria’s  downstream  oil  and  gas  sector imported petrol worth N1.02 trillion in the third quarter of 2018 alone. The coming online of the refinery will go some of the way towards easing the size of the import bill and making the effective devaluation of the interbank rate (which is used primarily for fuel imports) less painful.

“We thus expect the new Naira rate to end the year at some N370$.

“Following the unification, we believe that a gradual depreciation of the new Naira rate is likely. The authorities are likely to continue heavily managing its exchange rate regime.

“However, deteriorating fundamentals will put downward pressure on the currency. This underpins our forecast that the Naira will end 2020 at N370/$, and will continue to depreciate steadily thereafter.

“We expect the price of Brent crude to average $75.0/bbl in 2019 and $82.0/bbl in 2020, and while this is an improvement on the $71.7/bbl in 2018, oil prices will remain well below their 2011-14 highs, and risks are weighted to the downside,” Fitch said.

“Our Oil & Gas team currently see limited growth in the sector beyond 2019 given a very restricted pipeline of projects, although there is an upside risk that genuine reform of the industry will spur a resurgence in much needed investment.

“In the context of only muted growth in oil revenues, we expect the Central Bank of Nigeria (CBN) to allow the unified rate to devalue slowly in a bid to ease the pressure on reserves,” it concluded.