Economist and Managing Director of Financial Derivatives, Bismarck Rewane, has stated that the latest directive of the Central Bank of Nigeria to International Oil Companies on the sale of foreign exchange on the official market would strengthen the naira.
Rewane said this during his presentation at the monthly breakfast meeting of the Lagos Business Desk, which he titled ‘Nigerian Economy on the brink: adapt or collapse?’
He also called for an increase in telecoms tariffs as well as price deregulation to reverse the stagnant growth in the sector.
He said, “The telecommunications sector is losing its sheen. Once the poster child for fast-paced growth in a bumpy economy, Nigeria’s telecommunications sector, a catalyst for future growth, is fast losing its spark. This is due to economic challenges, inflation, exchange rate pressures, regulatory burden, right-of-way conundrums, and multiple taxations crunching the once vibrant sector.
“Although the sector’s growth outperforms annual GDP growth, after discounting for inflation, it becomes evident that the sector is stagnating as revenue and margins decline.
“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.”
According to the economist, price controls deter investment, impacting service quality, and the decline in telecom sector investment limits infrastructure development and technological advancements.
“Overregulation stifles telecom innovation and quality, distorting markets and diminishing investment incentives, economic repercussions include job losses, reduced GDP contribution, and digital inclusion setbacks,” he noted.
He mentioned that the best course of action to address the challenges in the sector is to temporarily raise tariffs to cover the marginal cost and ensure the effectiveness of the consumer protection agency. In the long term, there should be 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,” he posited.
The telecoms industry is connected to other sectors of the economy, including banking, manufacturing, agric, trade and even the country’s electoral system.
Speaking on the recently released gross domestic product figure for the first quarter of 2024, Rewane said that while the growth was positive, it was tepid with most of the employment-elastic sectors either slowing or contracting
“Only 14 (30.4 per cent) sectors expanded. Contraction in construction during the dry season raises and slowdown in trade (wholesale & retail) was bookended by a decline in real consumer income,” he highlighted.
On the fate of the naira, Rewane said, “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 authorised 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.
“However, due to the lags, the impact is likely to be more pronounced towards the end of the year,” he concluded.
