Nigeria is allowing its struggling currency, the naira, to trade freely in a move to tackle the financial crisis in Africa's most populous nation. Financial blogger Feyi Fawehinmi looks at how it will affect people's lives.

1. Petrol prices will remain stable
Refined petrol is Nigeria's single biggest import. The story of how an oil exporting nation has to import almost all of its refined products is well told.

According to the National Bureau of Statistics, refined petrol imports in the first three months of 2016 amounted to 226bn naira ($1.1bn, £791m) or 15.6% of the total imports.

Last month, petrol subsidies were removed and a new price band of 130 naira to 145 naira per litre was recommended by the government.

Petrol was in short supply this year until the petrol subsidy was removed last month
This new price assumed an exchange rate of 285 naira to $1, compared to the official rate of 199 naira to $1. Remarkably, Nigerians took this price rise with no more than a shrug and the attempt by labour unions to force a price reversal with strikes flopped spectacularly.

In the short term, the Central Bank of Nigeria (CBN) is likely to continue to be the main supplier of dollars to the market until foreign investors return.

With one eye on the petrol price, it is likely to kick start the market at a rate that keeps petrol prices stable i.e. somewhere below 285 naira to $1.

2. Still no imported tomatoes, rice - or tooth picks
In June last year, the CBN came up with a now infamous list of 41 items that would no longer be eligible for foreign exchange from official sources.

A tomato pest has wiped out much of the local crop and prices have rocketed. Items on the list ranged from Indian incense to private jets. Importing those items were not actually banned so since the list came into effect, anyone who wanted to import them had to source foreign exchange from the black market.

The CBN said last week that those 41 items remain ineligible to access forex at the new interbank market. You can still import toothpicks but you will have to source dollars from the black market to do so. Based on this, prices of those items are unlikely to be affected. This is a shame because Nigeria could do with some tomato imports right now after the tuta absoluta pest devastated harvests in northern Nigeria.

Nigerian palm oil producers have benefitted from the importation restrictions. Allowing rice imports wouldn't be a bad idea either given how rice prices have spiked in recent times. Rice importation has always worked on a quota system - those with political connections usually getting the right to import it. The current policy restricting the imports is tied to goals of national pride in achieving self-sufficiency. Given this, it is unlikely to be lifted.

Not everyone is unhappy about this list, though. The Nigerian palm oil producing company, Okomu Oil, posted a 98% increase in profits for 2015. Palm is of course on the list of 41 ineligible items.

3. Inflation should eventually fall
Latest figures from the National Bureau of Statistics show that inflation is rising steadily in Nigeria. Given how Nigeria is dependent on imports for a lot of basic items, a floating currency is likely to further increase prices, at least in the short-term.

In reality, however, the policy of rationing foreign exchange in the last one year meant that those who needed it the most hardly ever got it. President Muhammadu Buhari took office last year with a promise to boost employment. As such, even as the official rate remained stable at 199 naira to $1, prices of imported everyday goods have been reflecting black market exchange rates for a while now.

Nigerians have already endured the equivalent of a gut punch from soaring prices and are unlikely to be in the mood for any more. Further price increases might just force consumers to eliminate demand for some products altogether. A more stable and open foreign exchange regime should also eliminate a lot of the uncertainty that has been pushing up prices.

Given what has already happened in the last year, a floating naira, somewhat counter-intuitively, can be expected to start bringing down inflation.

4. Bad news for banks and businesses with forex loans
The CBN says that 10.1% of all the loans in Nigeria's banking system have gone bad. A lot of these loans are foreign currency loans extended to local oil and gas companies when crude oil prices were $100 per barrel. Between 2012 and 2014, an estimated $10bn was lent to local oil companies to purchase assets from foreign oil majors.

The oil and gas industry is Nigeria's main foreign exchange earner. Once the naira starts to float, banks will have to adjust the value of these loans on their books. In turn, the increased burden on the borrowers is likely to push more of them into bad loan territory. A couple of weeks ago, the Nigerian government bizarrely asked banks to stop sacking workers. More bad loans will almost certainly trigger more sackings.

It remains to be seen how the government will react to more sackings if and when they happen. Or perhaps the banks will use it as a bargaining tool to extract another round of bailouts from the government.

5. Foreign airlines will be back in business
Another effect of rationing foreign currency in the past year is that it has allowed a backlog of unmet demand for forex to steadily build up.
The CBN says this backlog is now at $4bn and will take four weeks to clear. Others say the backlog is at least double that amount.

Nigeria's elite has been forced to travel less because it has been difficult to get forex. Included in that backlog is the $600m owed to foreign airlines which has caused a number of them to either stop serving Nigeria entirely or put the route under review. If nothing else, this has been embarrassing for Nigeria and has drawn unflattering comparisons with Venezuela. Once that backlog is cleared, foreign airlines should continue their business as normal.

Of course, trapped funds are not their only worry - the economic situation has done its bit to dampen demand for foreign travel by Nigerians. Still, solving one of two problems is not a bad deal.

The verdict?
Ultimately, Nigerians have reason to hope that the worst of the last year is now over.
With a floating exchange rate, foreign investors can have more confidence in the country and Nigeria should see an uptick in the foreign investments it so desperately needs.

http://www.bbc.com/news/world-africa-36561237

We are watching. I'm tired of all these pocket economic theories. Though the source of this particular article is a reputable one but the truth remains that the complexity in Nigeria's economic realities have timelessly contradicted all conventional academic economic tales hence the CBN Governor and his crew have resorted to trial and error economics.

How some pastors be like each time the hear sometin new on Forex

Ok

speculation no de work for this country

Dottore:
We are watching. I'm tired of all these pocket economic theories. Though the source of this particular article is a reputable one but the truth remains that the complexity in Nigeria's economic realities have timelessly contradicted all conventional academic economic tales hence the CBN Governor and his crew have resorted to trial and error economics.

All economies in the world are complex. Though some have their peculiarities. The G8 for instances make and influences policies to their advantage. We live in a dynamic world and not one that is static. Hence, policies must be adapted or change to suit challenges as they arise. The United States lowered interest rate to boost productivity, offered incentives to business owners and also made bail out to Banks. The Eurozone has the lowest interest rate and even a negative yield on Government bond.

The CBN, in view of the challenges currently being experienced, has decided to review the policy on FX. This policy made be reviewed or withdrawn if abuses are noticed or the required positive change is not felt. Hence, it is not a trial or error economics, but one to addressed the current challenges and dynamics of our environment.

is it only me or is someone else out there feeling optimistic about this floatation stuff? I don't really understand the whole economics gimmicks but certainly I'm seeing a lot positivity in this new policy.

God bless Mr president.

God bless Nigeria.

God bless the good people in it.

Naija go better..

when did bbc know so much about our economy more than we do?


and the writeup kind of looked like a mockery of the present state of nigeria,well i don't blame them,we have been lead by some useless and greedy leaders who only knows their pockets.

Nobody should write any more article on this Forex stuff until we see the new exchange rate biko

Its already affecting my business

Lordjiggs09:
is it only me or is someone else out there feeling optimistic about this floatation stuff? I don't really understand the whole economics gimmicks but certainly I'm seeing a lot positivity in this new policy.

God bless Mr president.

God bless Nigeria.

God bless the good people in it.

God bless Mr President? Why? Do you know when he was pressured to float the naira?
Abeg

CzarRex:
when did bbc know so much about our economy more than we do?

Idiotic question

I want to earnestly hope this is not just a paper forecast?.......................

Who ask them

Na Dem sabi...bad news everyday! More hardship, people suffering...that's all we've gotten from this govt!

I leave every to God cus I don tire for them!!!

CzarRex:
when did bbc know so much about our economy more than we do?

When they quoted a Nigerian expert.

Read the article again

...please I have a question.. That relates to foreign exchange



Say I want to write an exam... And the payment is to be made to a big coy in the US


Will the Nigerian banks charge 199/$ since am not really doing any banned importation??

Please I need answers

Nice Writeup

Atmmachine:
Please, I need answers to these questions
Goodluck Jonathan was accused of stealing billions of dollars, he saved no money for the incoming government.

When Buhari got into power, the price of oil went down, the economy went bad, there's no source of income for the government.

Where are all the money this present government spends come from ??

From oil sales,no doubt.Of course....we are not making enough money....and we may even have to borrow more.Perils of a Dutch diseased economy.

Plus....thanks to corruption....we were not able to save far more than we actually did.

Still....it makes no difference.If GEJ saved.....it just means that our economic crisis would have kicked off next year. Oil money....and for that matter.....agric, mining....are not stable forms of revenue.

I don't even understand all this stuff.

My own is that...

They should just try and make items cheap and affordable to the common man.

#shikenan.
#lobatan

Buhari should have done this months ago but a combination of lack of education and hearing problems caused the delays in initiating a policy that could have prevented the current recession.


Anyway better now than never! Better days ahead.

God bless PMB and the Federal Republic of Nigeria

How Zombies will jump into conclusion

We have already experienced the worst the naira can go which is around a price of N375. The CBN allowed all manner of unrestricted trading activities like round tripping, hoarding, pricing fixing etc on the FX market and the worst the market was able to push the naira was N375 to a dollar.

With the current policies, we will experience better volatility and liquidity and Naira should eventually improve over the weeks ahead. The economy will receive a boost from this policy because the market sentiment is currently bullish.

Better days ahead!!

ok

Lordjiggs09:
is it only me or is someone else out there feeling optimistic about this floatation stuff? I don't really understand the whole economics gimmicks but certainly I'm seeing a lot positivity in this new policy.

God bless Mr president.

God bless Nigeria.

God bless the good people in it.

Zombie spotted. Whatever the administration does is OK. Floating is OK, obviously you don't know why. If Buhari suspends it, you'll also be first to praise the move

Sfvalentine:
I don't even understand all this stuff.

My own is that...

They should just try and make items cheap and affordable to the common man.

#shikenan.
#lobatan

The only way we can get there is by becoming a pure industrial society, not a oil revenue dependent society....or an agric dependent society.

I wil be very gullible to believe this article's verdict........


First due to it affliation with the western media and second, it suggestion were lame and one-sided.


With our current economic situation, how will a sane fellow encourage importation? Ric prices are high due to lacl of forex, their is no shortage in supply, so why importing rice.


How can we be sure the diseases killing our tomatoes are not spreaded by the importers of tomato paste?


This article I can say is sponsored by importers.

BBC is now Pro-APC- Wailing Wailer

All these wack economists