Single exchange rate, lower borrowing cost top Tinubu’s priorities

President Bola Tinubu has highlighted the need for a unified exchange rate and a reduction in interest rates to drive up investment in the country.

Tinubu, in his inaugural speech on Monday, said the Central Bank of Nigeria (CBN) must work towards a unified exchange rate.

“This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy,” he said.

He described interest rates as too high, and therefore “need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level.”

“Whatever merits it had in concept, the currency swap was too harshly applied by the CBN given the number of unbanked Nigerians. The policy shall be reviewed. In the meantime, my administration will treat both currencies as legal tender.”

Tinubu said his administration will target a higher Gross Domestic Product growth rate and significantly reduce unemployment.

He said: “We intend to accomplish this by taking the following steps: First, budgetary reform stimulating the economy without engendering inflation will be instituted. Second, industrial policy will utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency.

“Third, electricity will become more accessible and affordable to businesses and homes alike. Power generation should nearly double and transmission and distribution networks improved. We will encourage states to develop local sources as well.”

Speaking on investment policies, Tinubu said he would work to attract more investors, both local and foreign.

“Our government shall review all their complaints about multiple taxation and various anti-investment inhibitions,” the former governor of Lagos State said. “We shall ensure that investors and foreign businesses repatriate their hard earned dividends and profits home.”

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On jobs creation, Tinubu said his administration must create meaningful opportunities for the youth. “We shall honour our campaign commitment of one million new jobs in the digital economy.”

“Our government also shall work with the National Assembly to fashion an omnibus Jobs and Prosperity bill. This bill will give our administration the policy space to embark on labour-intensive infrastructural improvements, encourage light industry and provide improved social services for the poor, elderly and vulnerable,” he said.

Tinubu also unveiled his agricultural policy, adding that rural incomes shall be secured by commodity exchange boards guaranteeing minimal prices for certain crops and animal products.

“A nationwide programme for storage and other facilities to reduce spoilage and waste will be undertaken.”

He said his administration will create agricultural hubs throughout the nation to increase production and engage in value-added processing.

Tinubu said: “The livestock sector will be introduced to best modern practices and steps taken to minimise the perennial conflict over land and water resources in this sector.

“Through these actions, food shall be made more abundant yet less costly. Farmers shall earn more while the average Nigerian pays less.”

He said his administration will continue the efforts of the Muhammadu Buhari administration on infrastructure. “Progress toward national networks of roads, rail and ports shall get priority attention.”

Commenting on the speech, Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said the single exchange rate will happen as soon as the President sets his cabinet and sets the direction.

He said the CBN and the fiscal authority can make it happen, adding that the market has been asking for this. “It is a good development and the market is going to receive it,” he said.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, welcomes the decision of Tinubu to put in place a unified exchange rate regime.

“It should be clarified that this is not a devaluation proposition. Rather it is a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market which allows for rate adjustments as and when necessary,” he said.

Taiwo Oyedele, head of tax and corporate advisory services at PwC Nigeria, said Tinubu has touched on the most pressing business issues in his inauguration speech, especially exchange rate harmonisation, multiple taxation, and high interest rates, among others.

He said it will be interesting to see how these critical issues are addressed in the coming days and months ahead.

“Clearly the approach to be adopted will be essential in driving the desired outcome without creating further market distortions,” he said. “For instance, how do you harmonise FX rates without pushing up the parallel market rate in a way that sustains the margin for arbitrage? How do we reduce interest rates without fuelling inflation?”

According to him, these are not easy problems to solve but are necessary even if it means that things will get worse initially before getting better.