Andersen Nigeria: Petrol Subsidy Removal Will Enable CBN Adopt Pro-Market FX Management

Dike Onwuamaeze

Andersen in Nigeria, a global tax and business advisory firm, has stated that the eventual removal of petrol subsidy and expected coming into operation of the Dangote Refinery and the Port Harcourt Refinery would enable the Central Bank of Nigeria (CBN) to adopt a pro-market foreign exchange rate management that would close the gap between the official and parallel market rates.
The Partner and Head of Transfer Pricing, Andersen Nigeria, Mr. Joshua Bamfo, expressed this view yesterday, in Lagos, while unveiling the Andersen’s inaugural “Nigeria’s 2023 Economic Outlook.”

Banfo said: “If you decide to peg your currency, you need to have a lot foreign reserve to maintain it else that peg will collapse. There is an incentive presently to maintain the peg because Nigeria imports a lot of fuel.  
“In my view, with Dangote Refinery coming in, with the Port Harcourt Refinery coming in and with the removal of subsidy, Nigeria will have no business pegging Naira’s exchange rate to the dollar because the rationale behind the peg is already eliminated. If you then take away the peg, then the market forces more or less will determine the exchange rate.

“This will initially hurt us but the truth of the matter is that those who have need for it are those who are going to demand it.  But when you create artificial lower rate those who do not have the need are the ones having access to it, which is misallocation resources.”
The Andersen’s economic outlook also stated that the wellbeing of the Nigerian economy would largely depend on the ability of the CBN and its Monetary Policy Committee (MPC) to curb inflation rate within the first half of 2023, in order to be able to implement expansionary monetary policy that would boost the economy later in the year.

It said: “The growth of the Nigerian economy from a monetary policy perspective is going to be dependent on the ability of the CBN to and the MPC to successfully curb inflation rates earlier in the year to enable them to start implementing an expansionary monetary policy by reducing the MPR thereby boosting the economy through reduced cost of borrowing by businesses for investment purposes.”
The firm also predicted that the Nigerian economy would slow down in 2023 as a result of the overarching domestic and global economic challenges and uncertainties.

“Continued high inflation rates way above the nine per cent means that the MPR will remain high even if it reduces marginally in the second half of when the inflation rates are expected to taper off and start a gradual decline.
“The relative high cost of borrowing means investments by businesses will be hampered contributing to the slowdown of economic growth,” it said.
The borrowing, according to Andersen in Nigeria, would arise from financing the 2023 national budget’s deficit of N11. 34 trillion, which is expected to be financed significantly financed through domestic borrowings that has ‘a potential unintended adverse effect of crowding out funds that would have gone into businesses for investment purposes.”

It identified infrastructural development as one of the places President Muhammadu Buhari’s administration has made appreciable impact.
Yet, Andersen in Nigeria noted that the political outlook for Nigeria in 2023 was unstable in view of the impending general elections that would take place on February 25 and March 11.

“It said: “With a tight and unprecedented race for the presidency, the political outlook for Nigeria in 2023 is unstable. The elections may hinder the current administration from committing fully to some of its policies, including the removal of fuel subsidy in mid-2023.”
 The unveiling of the economic outlook was witnessed by Associate Director, Financial Advisory Services, Mr. Mayowa Salami; Partner and Head, Business Advisory Practice, Mr. Lateef Surakatu and Partner, Commercial Practice, Mr. Adeyemi Adeduran, amongst other management staff of Andersen.