Economist and Managing Director of Financial Derivatives, Bismarck Rewane, has predicted that the recent directive from the Central Bank of Nigeria (CBN) requiring International Oil Companies (IOCs) to sell foreign exchange on the official market will bolster the naira.
Rewane made this statement during his presentation at the monthly breakfast meeting of the Lagos Business Desk, titled “Nigerian Economy on the Brink: Adapt or Collapse?”.
Rewane emphasized the need for an increase in telecommunications tariffs and price deregulation to reverse the stagnation in the sector.
“The telecommunications sector is losing its sheen. Once the poster child for fast-paced growth in a bumpy economy, Nigeria’s telecommunications sector is fast losing its spark due to economic challenges, inflation, exchange rate pressures, regulatory burden, right-of-way conundrums, and multiple taxations,” he stated.
He pointed out that despite the sector’s growth outpacing the annual GDP growth, inflation-adjusted figures reveal stagnation, with declining revenue and margins.
“The growth potential in the telecommunication sector is massive and Nigeria still has a lot to exploit in the sector. Market distortions arise from fixed prices, hindering competition and affordability for consumers,” Rewane noted.
He argued that price controls deter investment, negatively impacting service quality and infrastructure development, while overregulation stifles innovation and diminishes investment incentives.
“This results in economic repercussions such as job losses reduced GDP contribution, and setbacks in digital inclusion,” he added.
Rewane proposed a temporary increase in tariffs to cover marginal costs and ensure the effectiveness of the Consumer Protection Agency. In the long term, he advocated for price deregulation.
“Without immediate intervention, the revenue potential from telcos may start falling. Telecos are linked to many sectors, hence, any disruption in their operations will have a chain effect on other sectors of the economy.
“The telecommunications industry is interconnected with various sectors including banking, manufacturing, agriculture, trade, and even the electoral system, underscoring the importance of its stability,” he posited.
Discussing the first quarter of 2024 gross domestic product (GDP) figures, Rewane noted that while growth was positive, it was tepid, with many employment-elastic sectors either slowing or contracting.
He highlighted that only 14 (30.4 per cent) sectors expanded, with notable contractions in construction during the dry season and a slowdown in trade, reflecting a decline in real consumer income.
On the naira’s outlook, Rewane was optimistic. He stated, “The forex market is about to witness a turnaround as the CBN continues its efforts to bring stability to the market.
“Recently, the CBN permitted IOCs to sell 50 per cent of repatriated export proceeds directly to authorized FX dealers and eligible users of foreign exchange.
“This move is aimed at increasing forex availability in the market, thereby aiding in exchange rate stabilisation. The naira is likely to appreciate to 1,350-1,450/$ through June.”
He concluded that the impact of these measures is expected to become more pronounced towards the end of the year, potentially bringing significant improvements to Nigeria’s economic landscape.
