Charles Soludo, the governor of the Central Bank of Nigeria, defended new foreign exchange controls on Wednesday as a “temporary measure”. However, he sought to reassure investors concerned that the government was rolling back market reforms in response to the global economic crisis.
By Matthew Green in Lagos
Currency traders and foreign investors say the measures announced by the central bank on Tuesday recall restrictions last seen in 1994, when Nigeria was under military rule. At the time, the existence of a parallel foreign exchange market fostered corruption and damaged the integrity of the financial system.
In his first public comments since the policy was announced, Mr Soludo told the Financial Times that the measures would be reversed as soon as the naira began to strengthen.
“The very first thing that you have to understand about the policy is that it’s a temporary measure,” Mr Soludo said. “It may be weeks, it may be months, but I can’t see it lasting much longer.”
The naira has shed about 20 per cent against the dollar over the past two months as Nigeria, Africa’s biggest crude exporter, suffered a rapid loss of export earnings as world oil prices fell.
Until recently, Nigeria was basking in the glow of a remarkable turnround in its image in the global investment community. A series of reforms introduced in the decade since military rule ended in 1999 to clear foreign debt, save windfall oil earnings and sanitise state finances helped the country earn a short-lived moment as one of the world’s best performing frontier markets.
Mr Soludo has taken much of the credit for overhauling the country’s banking sector by weeding out smaller players and allowing national champions to emerge.
But doubts have emerged over the central bank’s strategy for halting the depreciation of the naira and policies adopted by regulators aimed at halting a collapse in the value of the Nigerian Stock Exchange.
“There seems to be a lack of clear long-term thinking from the central bank and this is very worrying for investors,” said Matthew Pearson, head of Africa Research at Renaissance Capital.
Market players in Lagos, the commercial capital, fear the currency controls will lead to the re-emergence of a parallel market for foreign exchange. In the past, this led to widespread abuses as banks and well-connected politicians exploited the gap between the official and unofficial rates to make instant profits in a process known as “round-tripping”.
Mr Soludo said such concerns were overblown. “If the foreign investor is dealing in legal or legitimate activities, the retail window is there, and the banks will bid on their behalf and sell to them,” he said. “We will meet all effective demand [for dollars],” he said, adding Nigeria’s foreign exchange reserves stood at about $50bn (€39bn, £35bn).
Mr Soludo played down the impact of the measures on Nigeria’s free market credentials, saying investors could still bring dollars in and out of the country.
