Tony Elumelu, group chairman of Heirs Holding and United Bank of Africa (UBA) Plc has pointed out that excessive demand for the U.S. dollars arising from a lack of confidence in Nigeria’s economy is responsible for the slump in naira.
On Friday, the Nigerian currency suffered its worst one-month slump since it replaced the British pound in 1973. It fell from N903 at the start of the month to N995 at the parallel market, information gathered from foreign exchange operators revealed. This decline represents a more than 10 percent drop in the value of the domestic currency in exchange for the greenback.
Elumelu made this statement about the slump in the local currency when he appeared as a guest on Bloomberg Television on Friday, answering questions about the state of the Nigerian economy.
“The reason people are accumulating dollars is not because they need it now but because of a lack of confidence,” the Group Chairman said. “When they see that the new government is taking the right policies, as they have started to harmonise the exchange rates and they have also removed petroleum subsidy, which used to be a major drain on our natural resources.”
He added that once the current administration fixes some pertinent fundamental issues, the aggressive speculative demand currently witnessed will fizzle out and everybody will start to have confidence in the currency again.
“Fix the insecurity issues, make sure the oil theft is addressed, make sure the petroleum pipelines are strong, and I think it is a matter of time before the country takes off. The rate will ultimately improve because the kind of speculative demand we see today will fizzle out,” he said.
When asked if the confidence-boosting momentum that President Tinubu brought in when he was sworn in as president is fading, Elumelu replied that the recent appointment of Yemi Cardoso as Central Bank of Nigeria governor and recent policy statements from the president would restore that confidence.
“Two things have happened. First, there’s been a change in the leadership of the Central Bank, and the new Central Bank governor resumed today because the Senate had to clear the new appointment. We have a new Central Bank governor based on his credentials and his team, and we believe that they will correct things,” he said.
“Number two is that people are panicking because they don’t know where the rate will go. And what you see in the headlines today is a reflection of what has happened for the past couple of days. But from now on, we have a new leadership at the helm of affairs at the Central Bank, plus the president signalling a strong commitment to actually making decisions that will help the economy rebound.”
He emphasised that the current administration’s commitment to fixing fundamental challenges such as oil theft and fuel subsidy which have cost the country so much in foreign exchange, will pave the way for economic stability and growth.
“We believe that is a matter of fact. But most importantly, fixing the fundamentals, making sure that oil theft is addressed, making sure that there is consistency of policies, making sure that there is good discipline, and the audacity that the new leadership has put in place continues because it is big audacity to converge the rate as well as making sure that the fuel subsidy is removed,” he said.
“These are things that used to cost a lot of currency in the country. So with that gone and with new leadership and people continuing to see the direction and discipline, I think it’s just a matter of time for things to be corrected. I think a little bit of patience and things will smoothen out.”