Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, says the biggest pressure on the foreign exchange market is illicit demand.
Oyedele made this observation on Saturday at The Platform Economic Outlook for 2025 event organised by The Covenant Nation, where he was one of the speakers.
Segments of the foreign currency market had been harmonised in June 2023, leading to a free fall in the value of the naira. At the close of Friday’s trading, the naira stood at 1547.58/$ on the NAFEM domiciled on the FMDQ and was 1,660/$ at the parallel market.
Oyedele said, “Nigeria’s biggest problem with FX is not the supply of FX; it is the illicit demand for FX. If I want to be politically correct, I will say it is the discretionary demand for FX in both the public and private sectors. In the public sector, there are people who control our resources and feel that, first and foremost, it is their own money for the time that they are there. They collect those monies, and they are chasing dollars to buy. Even the Central Bank said that when they release FAAC, the exchange rate just seems to misbehave during that period. One million here, two million here, and that is still going on. We don’t need that dollar, but we are still buying it. That is an artificial demand, or, put differently, discretionary demand.
“The bigger the size of corruption, the bigger the impact of that discretionary demand. It is happening also in the private sector. A majority of the average Nigerians have not seen a dollar banknote in their life, but the elite, the high-net-worth individuals, the super-rich, and some of the middle class have. There is a self-fulfilling prophecy when you think that naira will lose value. You are converting all your savings to dollars. The domiciliary account balance has increased by more than $6bn in the last 18 months. The balance is over $30bn. I was with a billionaire during the Christmas break, and he told me, ‘Taiwo, you know this is a big issue that you people have to solve?’ I responded, ‘Tell me more about it,’ and as we talked, one thing led to another, and he said to me, ‘Do you know I needed N50m, and I didn’t have naira?’ because he’d converted everything to dollars. He called his friend, and that one too didn’t have naira.”
“I said, ‘Sir, how are we supposed to solve this problem? It is all of us together.’ The public sector has part of the blame, and so does the private sector. Imagine that we just take off that demand from the market. Then Nigeria can be at the level of South Africa and Kenya. If you go to South Africa and you want to pay for a hotel and you bring out dollars, they will send you back to find rand.”
On the economic outlook for the naira, Oyedele said that he expects stability and growth.
“We expect stability in terms of where we are now, and we expect growth to start setting in. I’m not talking about three per cent growth. It needs to be more than that, and it needs to be inclusive. In terms of the outlook, we expect that the worst is behind us. We are turning the corner, whether it is inflation you look at or not. Inflation expectation can become your reality because every time you sell one thing, you add a little bit to it because when you are replacing it, you don’t want to be out of money. Output will increase from agriculture and industries; we have seen oil and gas, and it is getting better. We expect that the monetary policy rate will moderate, and we expect that the foreign exchange rate will be stable, even appreciate.”
On the tax reform bills, Oyedele revealed July 1 as the target date for implementation.
“We expect the tax reform bills to be approved. Our expectation is Q1, then we can give notice to taxpayers to prepare themselves and build capacity, and we begin to implement around the first of July. Those reforms are transformational. The reason I have the energy to keep going is the possibilities that I see in those reforms that haven’t been done since independence. Structurally, those reforms will help Nigeria and will reduce the pressure on the monetary policy authorities. There are provisions in those bills to help with naira stability to ensure that we don’t have that premium between the parallel market and the official market.
“Nigerian businesses are being asked to pay levies, duties, fees, and taxes in dollars worth over $3.5bn a year. Who does that? You send your people to the forex market to look for dollars to pay the government. It doesn’t add one dollar to your supply but adds $3.5bn to your demand. We are fixing that. That is the pressure off the market. The tax system that we have now cannot take us forward. It is holding us back, and that is why we need to fix it,” Oyedele asserted.