Professor of Macroeconomics at Pan-Atlantic University, Professor Perekunah Eragha, has said that there aren’t fundamentals available to support unification of exchange rate and that deregulation of the oil sector will not benefit the economy.
In an interview with ARISE NEWS on Wednesday, Eragha agreed with the need to unify the exchange rate, but said that the fundamentals to support it aren’t available.
He said, “The major export product that we have today, because all other products are not tradeable and they are not export competitive or globally competitive, is oil, and oil today, the price is not a function or the demand is not a function of adjustment in exchange rate.
“Therefore, when you adjust the exchange rate, the export earnings that should come to mop up your reserve for stability will not happen, and you will see the effect going into domestic prices and what you call purchasing power being declined.”
He emphasised, “Ensure a proper managed float within a band, so that unification will bring it back to close to what you call the parallel market, but also ensure that the market has transparency, BDC, commercial banks and all of that, because the major supplier to the market is still CBN vis a vis from the oil proceeds.
“We need to monitor that properly for transparency. If those things are not going to happen, then we should not expect the desired effect.”
Eragha also said that a deregulated market, considering the current market in the oil sector, will lead to an oligopolistic market which will not benefit the economy.
He said, “I support the idea of subsidy removal, but my first point is that if you remove subsidy, which is deregulated market, it means that there is no price control.
“For the kind of market that we have in the oil sector, are we going to have a perfectly competitive market? Because that is where demand and supply will be so reflective to determine price for proper allocation of resources. I don’t think that will happen.”
He stated that there will be more of two cases of an oligopolistic market. On one hand, there might be a collusive oligopolistic market where the suppliers (sellers) collude to determine the price, and on the other hand, there might be a price leader that other suppliers follow. He said that the latter will occur more in Nigeria with NNPC being the price leader.
He added, “If we are going to have all of these two, which are the types of market structure we are going to have in this system, then I don’t think that deregulation will benefit us.
“As of today, our consumption per day is not known. NNPC will give us a figure, and customs will come out and tell us that those figures are not right. That then implies that there are still issues around transparency with regards to the demand which is consumption.”
Eragha further stated his expectations of a scenario analysis of devaluation at different time periods and its effects across different macroeconomic variables before taking a decision on unification.
He said, “In the past, we have had devaluation, so one way before taking a decision on unification is to say can we look at periods where we have large devaluation.
“Look at the different episodes, and then do some scenario analysis that will tell us that if you take this level of unification, this is the dimension of effect it will have across the different macroeconomic variables. That is when the decision should have been taken.”
Frances Ibiefo
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