May 13, 2016 - 5:10 PM EDT
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Naira Won't Crash On Subsidy Removal, Say Energy Economists

The Nigerian Association for Energy Economics (NAEE) on Friday dispelled anxieties over possible crowding out of the Naira by the US dollar on account of the government's recent removal of subsidy on petrol.

NAEE said at a press briefing in Abuja that the development would not lead to further crash of the naira against the dollar, insisting that oil marketers have multiple options to sources for vital foreign exchange to fund their fuel importation.

The association's position was also buttressed by the Petroleum Products and Pricing Regulatory Agency (PPPRA) which stated that oil marketers could explore the parallel market or interbank exchange rates in their imports.

NAEE's President, Prof. Wumi Iledare, explained that while some macro-economic shock is to be expected following the development, it would however not result to the naira further sliding drastically against the dollar because the oil marketers would not be sourcing forex to import from the Bureau De Change (BDC).

He stated that there are dedicated markets where such huge demand for forex can be sourced, adding that with the nature of oil business, offshore sources are readily available to close such transactions.

"You can expect some macro-economic shock. I do not expect that the place where the marketers will be getting forex is where furniture importers will have to go. It depends on the volume of forex you need that will give you power to negotiate.

"The price we pay for a dollar is not necessarily uniform across the sectors, even without going through the government it's still possible for marketers to source the dollar independent of the bureau de change. That's why the minister wasn't using forex rate obtainable in the bureau de change to calculate the price of petrol imports because there are other alternative sources for this type of market," said Iledara.

He noted smart and business savvy oil marketers can secure forex at a cheaper rate if they can convince those who deal in forex of their ability to repay them with premium.

He maintained that offshore traders know that there is no better place to invest than Africa right now, adding: "all we need to work is the rule of law, the governance structure and empowered institutions, as this will enable the market take care of itself."

Iledara further explained: "When I talk about parallel market I'm not talking about bureau de change, I'm looking at alternative sources of forex that do not necessary have to be resident in Nigeria. "

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Source: Equities.com News (May 13, 2016 - 5:10 PM EDT)

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