ECONOMY

Foreign Exchange Policies and Their Impact on the Naira

Published

1 year ago

Foreign Exchange Policies and Their Impact on the Naira

Foreign exchange policies shape the economic landscape of nations worldwide. Nigeria is no exception. The stability and value of the national currency, the Naira is tied to the effectiveness of these policies. The Naira is more than just a medium of exchange, it’s a symbol of Nigeria’s economic sovereignty and resilience. Therefore, it’s crucial to understand how various policies, decisions, and external factors can influence its strength, stability, and purchasing power.

Understanding Foreign Exchange Policies

Foreign exchange policies are important in the economic stability and growth of a nation. In the context of Nigeria, these policies are formulated and implemented by the Central Bank of Nigeria (CBN). To comprehend the significance, we must first understand what foreign exchange policies entail and why they are vital.

Definition of Foreign Exchange Policies

Foreign exchange policies is a set of rules, regulations, and strategies adopted by a country’s central bank or government to manage the exchange rate of its currency.These policies are not mere bureaucratic exercises but rather powerful tools that can dictate the course of economic growth, trade dynamics, and overall prosperity within Nigeria’s borders.They determine how the Naira is traded on the international market and influence its value compared to other currencies.

Foreign Exchange Policies and Their Impact on the Naira

The Central Bank of Nigeria (CBN) is saddled with the responsibility of formulating, executing foreign exchange policies, oversees the buying and selling of foreign currency, controls the foreign exchange market, and intervenes when necessary to stabilize the Naira’s exchange rate.

The Various Foreign Exchange Policies in Nigeria

Over the years, the Central Bank of Nigeria (CBN) has implemented various foreign exchange policies to address economic challenges and achieve specific goals. Here are the policies:

Fixed Exchange Rate System: Under this system, the CBN pegs the exchange rate of the Naira to a specific foreign currency, often the United States Dollar (USD). This provides a stable and predictable exchange rate and makes it easy for businesses to plan and invest. However, maintaining a fixed rate poses a challenge when economic conditions change leading to exchange rate misalignments.
Managed Float System: Here, the exchange rate is not entirely free-floating but the CBN allows the Naira’s exchange rate to fluctuate within a specified range which offers more flexibility than the fixed rate system. This system aims to strike a balance between stability and market-driven rates so CBN intervenes in the foreign exchange market to stabilize the Naira when necessary.
Multiple Exchange Rate System: Here different exchange rates apply to different sectors or transactions. For example, there may be one rate for essential imports like food and medicine and another for non-essential goods. This policy attempts to manage foreign exchange reserves and prioritize critical sectors but can lead to market distortions and arbitrage opportunities.

The effectiveness of these policies vary depending on factors like global economic conditions, government policies, and the CBN’s ability to manage them effectively. Additionally, public perception and confidence in these policies can greatly influence their success.

The implications of these policies extend far beyond the financial market, it touch the daily lives of ordinary Nigerians, affect prices of imported goods, the cost of living, and the overall economic stability of the country. Hence, understanding the impact of these policies on the Naira is not just an academic exercise but a critical aspect of Nigeria’s economic reality. It is therefore crucial for policymakers, businesses, and individuals in Nigeria to understand the intricacies of these policies and their impacts on the Naira as they navigate the complexities of the foreign exchange market.

Impact on the Naira

Here’s a detailed look at how foreign exchange policies impact the Naira:

Exchange Rate Stability: One of the primary objectives of foreign exchange policies is to maintain stability in the exchange rate. A stable exchange rate is important for businesses, investors, and consumers, as it provides predictability and reduces uncertainty. Policies that successfully achieve this stability will contribute to strengthening the Naira.
Exchange Rate Value: different exchange rate policies either appreciate or depreciate the Naira. For instance, a fixed exchange rate system may temporarily support the Naira’s value while a managed float system may allow it to adjust based on market forces. Evaluating how these policies affect the Naira’s purchasing power and competitiveness in international trade is very essential.
Inflation: Foreign exchange policies can cause inflation. An overvalued Naira due to policies aimed at propping up its value can lead to imported inflation making imported goods more expensive for consumers. A depreciated Naira on the other hand can contribute to domestic inflation. It is very important to assess how these policies strike a balance between exchange rate stability and inflation control.
Balance of Payments: Foreign exchange policies directly influence Nigeria’s balance of payments. Balance of payments tracks the country’s trade and financial transactions with the rest of the world. Policies that result in an overvalued Naira can lead to trade deficits as exports become less competitive. Conversely, a weaker Naira can boost exports but may also increase import costs.
Economic Growth: Impact of foreign exchange policies on overall economic growth is multifaceted. Policies that encourage an inflow of foreign investment and maintain a competitive exchange rate can stimulate economic growth. However, excessive currency devaluation can lead to economic contraction which may spur inflation and erode consumer purchasing power.
Investor Confidence: The stability and predictability of foreign exchange policies greatly influence investor confidence in Nigeria. Investors often seek environments where they can repatriate profits and investments without significant exchange rate risk. Policies that maintain a favorable investment climate can lead to increased foreign direct investment which can boost the Naira’s strength.
Foreign Reserves: this is impacted as policies that maintain an overvalued Naira often require substantial foreign exchange reserves to defend the fixed rate while policies allowing market forces to determine the exchange rate may reduce the need for extensive reserves.
Informal Markets: Policies that create large gaps between official and black market exchange rates lead to speculative activities and capital flight which negatively affect the Naira’s value.

Foreign exchange policies determine the Naira’s value, stability, and overall economic health. Its impact is multifaceted, affecting not only the financial sector but also the daily lives of its citizens. It is therefore necessary to craft an effective policy required to balance and ensure the Naira remains competitive while maintaining macroeconomic stability.

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ECONOMY

The Pan African Farmers’ Organization (PAFO) and African Development Bank Strengthen Partnership to Support Small-Scale Farmers

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The Pan African Farmers' Organization (PAFO) and African Development Bank Strengthen Partnership to Support Small-Scale Farmers

The Pan African Farmers’ Organization (PAFO) and the African Development Bank (www.AfDB.org) are strengthening their collaboration to enhance support for small-scale farmers across Africa. A PAFO delegation led by its President, Ibrahima Coulibaly, visited the Bank’s headquarters on December 13, 2024, to advance the implementation of the Memorandum of Understanding (MoU) signed in October 2023.

Dr. Martin Fregene, Director of the Agriculture and Agro-industry, reaffirmed the Bank’s commitment to the partnership, highlighting its investments in agriculture, which have benefited over 14 million producers through initiatives that provide inputs and improve market access. He acknowledged persistent challenges in the sector and welcomed ideas from civil society organizations like PAFO to enhance the Bank’s impact.

The Pan African Farmers’ Organization (PAFO) and African Development Bank Strengthen Partnership to Support Small-Scale Farmers

Coulibaly outlined PAFO’s mission and strategic priorities to empower smallholder farmers and advocate for their rights, stressing the need for greater strategic support from the Bank to address challenges in agriculture, which has the potential to solve 80% of the continent’s problems.

The meeting culminated in plans to jointly host a High-Level Conference on Financing Small-Scale Farmers in the second quarter of 2025. This event will rally stakeholders to discuss the financial needs of small-scale farmers and explore sustainable solutions to improve livelihoods. Additionally, the two organizations agreed to develop a comprehensive action plan focusing on capacity building, technology integration, and access to finance, particularly for women and youth farmers.

“The Bank’s ‘Feed Africa’ strategy is an important step toward transforming Africa’s farming sector, and we are excited to work with the Bank to help shape this vision,” said Coulibaly. “Through this partnership, we are committed to helping farmers gain the support and resources they need to succeed, especially women and youth.”

This partnership aligns with the Bank’s ‘High 5’ priorities, particularly “Feed Africa,” and builds on its commitment to fostering collaboration with civil society organizations. The Bank recognizes the crucial role of such organizations in driving sustainable development.

Distributed by APO Group on behalf of African Development Bank Group (AfDB).

BUSINESS

Afreximbank and Ecobank partner to simplify trade and compliance for African businesses

Published

2 months ago

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Afreximbank and Ecobank partner to simplify trade and compliance for African businesses

African Export-Import Bank (Afreximbank) and Ecobank Group (www.Ecobank.com) have embarked on a collaboration aimed at simplifying trade and compliance for businesses in Africa by integrating Ecobank’s Single Market Trade Hub and Afreximbank’s MANSA Digital Repository Platform.

Afreximbank and Ecobank partner to simplify trade and compliance for African businesses

With the collaboration, African businesses will benefit from seamless shared services across the two platforms, with users of the Single Market Trade Hub able to easily leverage MANSA’s comprehensive database for efficient know-thy-customer (KYC) and customer due diligence (CDD) checks while MANSA platform users would, in turn, be able to directly connect to the Single Market Trade Hub to explore trade opportunities to expand their businesses across Africa.

The Ecobank Single Market Trade Hub connects registered businesses across Africa on a single platform, helping them benefit from opportunities in the unified market of 1.4 billion people created by the African Continental Free Trade Agreement (AfCFTA). It serves as a one-stop repository for the AfCFTA by providing small and medium-scale enterprises (SMEs) and corporates with insights about the agreement while its online match-making feature enables importers and exporters to upload their profiles and showcase goods and services they offer, or wish to source, with the aim of finding partners within Africa. Once a match is found, connections are made via the platform and the transaction can be concluded leveraging on Ecobank’s trade and payment solutions in 35 African markets.

The MANSA Digital Repository Platform, or MANSA, is a one-stop-shop for due diligence matters on all African entities. As a centralised digital repository, MANSA seeks to eliminate information asymmetry and to increase intra-African trade and trade with the rest of the world. It drives and promotes good governance culture among African SMEs and creates visibility for their businesses while also supporting African entities to expand, diversify and add value to their export products at both the local and international levels. Entities onboarded unto MANSA are allotted an Africa Entity Identifier (AEI) code which enables them to leverage other Afreximbank products and initiatives.

MANSA is also a key digital solution at the Africa Trade Gateway (ATG) marketplace which houses a suite of digital platforms designed as a single window to enable Afreximbank better deliver on its mandate, providing critical services to support and promote intra-African trade and the implementation of the AfCFTA. The platform enables African entities to accelerate their business activities at the ATG marketplace by working with verified information on trusted counterparties.

The new collaboration is, therefore, enabling Ecobank and Afreximbank to provide a central solution to the key challenge of KYC compliance and access to business across 35 countries in Africa. The improved interoperability is expected to further streamline cross-border trade and compliance in Africa, fostering greater financial and economic integration on the continent.

Afreximbank is a pan-African multilateral financial institution established to finance and promote intra- and extra-African trade.

Ecobank Group is a leading private pan-African banking group with unrivalled African expertise.

Discover the Ecobank Single Market Trade Hub at www.TradeHub.Ecobank.com and MANSA at www.MANSAAfrica.com

BUSINESS

The 100 Most Influential Africans of 2024 announced

Published

2 months ago

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The 100 Most Influential Africans of 2024 announced

The London-based New African magazine (www.NewAfricanMagazine.com) today released its highly anticipated annual listing of the 100 Most Influential Africans of 2024.

The list celebrates the achievements and contributions of Africans from various fields and sectors who have made a positive impact on the continent and the world over the past year.

One of New African’s readers likened the Most Influential Africans feature to a ‘large family get-together, where we come together at the end of the year and share their various achievements throughout the year.’

The 100 Most Influential Africans of 2024 announced

Anver Versi, Editor of New African commented “I had never thought of our 100 Most Influential Africans (MIA) feature in quite that way but now I think our friend has really nailed it and given it a special African flavour, the Ubuntu motto – I am because we are. We need this because I cannot recall the world being so polarised, so divided, so stone-faced in the face of terrible man-made atrocities.”

Artificial Intelligence and Climate Change: Africa at the forefront

With Artificial Intelligence (AI) dominating the technology headlines this year, the Science and Academia section is replete with a number of African experts deeply involved in the subject.

While the technology can bring numerous opportunities to tackle some of the endemic issues, it is not without its pitfalls. Ethiopian-born, Abeba Birhane, conducted research that revealed how large-scale image datasets commonly used to develop AI systems contained racist and misogynistic labels as well as offensive images. Also addressing the ethical concerns around AI and inherent biases in the algorithm are fellow experts Rediet Abebe and Joy Buolamwini.

Climate Change remains a pressing issue, and Africa’s leaders, from Public Office to Business to Civil Society are fully engaged in tackling this vital concern.

For example, Senegalese Ibrahima Cheikh Diong entered the list after taking on the role of executive director for the newly formed Fund for Responding to Loss and Damage, which will have a direct impact on how developing nations will be able to respond to the worst effect of the climate crisis.

Michael Kakande was also nominated for being a fierce campaigner for climate justice and facilitating the participation of Africa’s youth in the global conversation.

A defining year for Development Finance Institutions

This year was in many ways a defining year for Development Financial Institutions, exemplified by the sheer number of entries in the Business section of the list. Dr Sidi Ould Tah from the Arab Bank for Economic Development in Africa, Samaila Zubairu from the Africa Finance Corporation, Thierno-Habib Hann of Shelter Afrique, Akinwumi Adesina and Hassatou Diop N’Sele from the African Development Bank, Prof Benedict Oramah from the African Export-Import Bank, Alain Ebobissé from Africa50 and Manuel Moses from African Trade & Investment Development Insurance, all feature.

Olympic Glory: Celebrating Africa’s sports heroes

In the year of the Paris Olympics, there is a special salute to the Olympic medallists in our sports category. Letsile Tebogo, who stole the show at the 200m final to bring Botswana its first Gold medal; Sifan Hassan, who became the first female athlete to win medals in the 5K, 10K and Marathon (Olympic Record) events in the same game; and also Imane Khelif, who’s gold medal was a victory not just in boxing but also racial prejudice.

The 100 Most Influential Africans of 2024 edition of New African offers an in-depth look at the lives and achievements of the extraordinary individuals shaping the African narrative on the continent and abroad. Their stories serve as a source of inspiration and a testament to the resilience and ingenuity of the African spirit.

See below the list in full or visit https://apo-opa.co/4iVuMqk

The 100 Most Influential Africans 2024 List

Politics and Public Service