From Uche Usim, Abuja
With poor economic diversification planks amid the rampaging COVID-19 pandemic, lower oil production and weak exports, Nigeria’s existential threats do not come as a surprise to industry analysts.
Over-reliance on crude oil receipts with its concomitant volatilities has constantly threatened Nigeria’s foreign reserves and regularly set the naira on a free fall mode, especially in the parallel market.
For this reason, the Central Bank of Nigeria (CBN) governor, Mr. Godwin Emefiele, in his efforts to attain price stability and economic buoyancy, has rolled out various intervention programmes since assumption of office, especially in agriculture, manufacturing, health and power.
Despite the multibillion-naira intervention programmes, the economy has continued to bleed largely due to insecurity that continues to retard the growth momentum.
In seeking solutions, the apex bank connected the nexus between rising insecurity and food prices to dollars accessed from some bad bureau de change (BDCs) operators who have been named as terror funders. So, the CBN governor recently shut off dollar sales to them to bring sanity and stability to the forex market ecosystem and the economy at large. Most recently, he came down on AbokiFX for its alleged illicit activities in the Nigerian forex market by dubiously milking his forex price determination influence to trade millions of dollars to his advantage.
Emefiele warned other dubious currency speculators to steer clear of the Nigerian forex market and vowed to take them on because he is no lickspittle for any establishment or individuals.
He said there was sufficient forex supply to banks for genuine dollar seekers to access upon tendering valid documents. He also said that the banks can exceed the $5,000 threshold if there was any genuine reason to.
Emefiele also warned forex round-trip seekers to await their day in court as security agencies will go after them.
He lamented that Nigeria was the only country where its Central Bank would dig into its reserves to sell forex to BDCs, insisting that such a practice was gone for good and that no amount of pressure will make it rescind its decision.
For these reasons, he has come under a barrage of attacks with many asking him to resign if he has no solution to immediately halt the fall of the naira currently selling up to N580/$1 in the parallel market.
But the spokesman for the CBN, Mr. Osita Nwanisobi, has faulted calls from certain quarters for the resignation of Emefiele over exchange rate matters.
Nwanisobi alleged that those behind such calls were only pursuing their selfish agenda fuelled by those who had long benefitted from rent-seeking practices in the parallel forex market, which he refused to recognise as a significant segment of the country’s forex market.
According to him, the CBN would not be distracted in its mandate by yielding to the selfish tendencies of a few to the detriment of the majority. He, therefore, urged the banking public to disregard claims aimed at impugning the reputation of the Bank, insisting that the Bank remained committed to carrying out its mandate for the good of the Nigerian people.
Nwanisobi assured that the CBN remains committed to meeting the foreign exchange request of travellers with legitimate needs as they relate to travel allowances, payment of tuition and medical fees among other invisibles.
He added that there was enough supply of foreign exchange to the banks to meet legitimate demands for foreign exchange.
Nwanisobi, who insisted that no customer requiring foreign exchange for genuine transactions would be turned back by their banks, urged the banking public to insist on their rights to be attended to as long as they possess all the requisite documents to validate their request.
Reiterating the stance of the CBN governor, Godwin Emefiele, on the willingness of the bank to meet the demands of customers, the spokesman said the CBN would not hesitate to approve foreign exchange for customers with legitimate demands that exceed transaction limit insofar as the application is supported with specified requirements.
While restating the decision of the Bank not to revisit the issue of allocation of foreign exchange to the operators of bureaux de change (BDC), Nwanisobi argued that such a practice was not sustainable in the long run, considering that many of the BDCs had since deviated from the purpose for which they were issued licenses in the first instance.
Insisting that the rate in the CBN-unrecognized parallel market was not the reference rate of the naira, Nwanisobi also urged Nigerians to be wary of the activities of speculators who sought to manipulate the market for unpatriotic reasons.
According to Mayowa Tijani, a seasoned finance journalist, the power AbokiFX wields is slightly unhealthy, at least for the naira.
“If naira trades at N550/$1 on Monday, and they buy $1m, the platform administrator(s) can decide to publish N580 per dollar on Tuesday, and go to the market to sell its $1m dollars for N580 million, making a profit of N30 million in a day for just running a trusted reference website. I have no evidence to show they have done such or that they do such. But Emefiele suggested it when he said AbokiFX sells tens of millions in FX to companies in Nigeria. If the CBN succeeds in shutting down AbokiFX, a number of other platforms will try to fill that void, but with little success initially. The shutdown will lead to various naira-dollar quotes across the country. But it would be temporal and would not solve the actual demand and supply problem we have with forex in Nigeria, which needs more structural, long-term solutions”, he said in a recent article.
During a webinar earlier in the year which was organised by the Association of Bureaux De Change Operators of Nigeria (ABCON), in partnership with the CBN and other financial regulatory bodies, its president, Aminu Gwadabe said, “ABCON is working with its consultants to revamp the naijabdcs.com to MyBdc.com.
“This will make the site transactionary, informative and to finally nip abokifx.com in the bud.”
Also commenting on the development, Nigeria’s first professor of the Capital Market and former Imo State Finance Commissioner, Prof. Uche Uwaleke told Daily Sun that naira is on a free fall in the parallel market and not in the Investors and Exporters window which is the officially recognized forex market.
He added that the depreciation in the black market should be expected given the recent stoppage of indirect funding source by the CBN, which justifiably discontinued the sale of forex to BDCs.
He said: “The CBN has directed all genuine demand for forex to go through the I&E window where it has assured of reasonable supply at least in view of the current size of our external reserves. The reality is that the current fate of the naira is not the making of the CBN.
“Bear in mind that the major source of forex supply is crude oil sales which account for over 90%. The CBN has no control over this.
“The other sources include foreign Investments which are a function of many factors including security, infrastructure, ease of Doing Business and so on. Again, these factors are exogenous to the CBN.
“So, the major challenge is arising from the defective economic structure exercerbated by import dependency. This, in my view, makes it difficult to completely float the naira which is why the CBN is adopting the managed float system.
“In the circumstance, the CBN can only increase supply of forex subject to the size of the country’s external reserves. If foreign reserves grow on account of rising crude oil prices and output, then massive interventions by the CBN becomes necessary.
“However, given that external reserves serve other purposes, the CBN’s intervention power becomes constrained whenever reserves come under threat either from uncertainties in the International crude oil market or from unbridled forex demand.
“It’s against this backdrop that the CBN’s action against BDCs should be understood. It’s vital to inject sanity and improve transparency in the forex market. It’s equally important to have measures in place against destructive speculation and forex market manipulation which hurts the economy”, Uwaleke explained.
Economic analysts insist that the current high inflationary situation in the economy exacerbates the erosion of purchasing power. This, they note, poses a concern for speculative and foreign investors who would be expecting their investments to surpass the inflation rate to earn real profit. The fact that the inflation rate does not reflect the true circumstances of things in the broader economy coupled with the issues of unstable inflationary rates, has seen many investors turn their backs on the Nigerian economy and ultimately, the naira. Hence, saving in naira can be a futile effort, especially when high inflation acts as a major catalyst in reducing the real value of your wealth.
According to recent CBN reports, only Abuja and seven Nigerian states were able to attract foreign investments in the first quarter of 2021, implying that the remaining 29 states received no foreign investments. The overall value of capital inflows fell to 9.7 billion dollars in 2020, down from 24 billion dollars in 2019, a 59.7% decrease.
This decline reflects foreign investors’ strong scepticism about investing in the country. These concerns typically revolve around situations such as banditry, farmers clashing, an increase in kidnapping and the murder of innocent citizens.
On way forward to tow the Nigerian economy out of the doldrums, an analysis by Nairametrics foresees a rise in crude oil prices amid a possible lifting of the OPEC cut, which ultimately means higher oil revenue for Nigeria and boosting confidence in the economy for both domestic and foreign investors.
The second solution adduced by the medium is to allow a more flexible exchange rate at the FMDQOTC by freeing banks to quote two-way quotes when bidding for forex. Today, forex bids are anything but market determined as the price is collated from banks rather than determined independently via trading systems. A two-way quote allows both bidders and sellers of forex to get a fairer view of what the market is willing to pay for exchange rate and not what the central bank wants them to report. This flexible system leads to the third point.
With a flexible system in place, oil and non-oil importers are then required and incentivized to sell their dollar inflows via the official market. This will increase forex liquidity in the market driving away speculators and leaving behind genuine demand for forex. It also eliminates the multiple exchange rate windows currently in place by the central bank where forex is sold at different prices to small scale importers, BDC operators and those seeking for forex to travel or pay school fees. A uniform market is established that captures the real demand for forex.
Nairametrics believes these three actions will increase confidence in the forex market and stop the slippery slide of the value of the naira against the dollar. It will also attract foreign portfolio investment into the country, a major source of dollar liquidity in times of shortages. Foreign portfolio investments are currently at an all-time low as investors abandon Nigerian equities and fixed income markets for fear of not being able to repatriate their money whenever they want.
The Economic Sustainability Committee, headed by Vice President Yemi Osinbajo, has proposed a unified exchange rate to increase FAAC payments to address the economic challenges of the COVID-19 pandemic.
The proposal becomes important given the disparity between the official I&E window and the parallel market exchange rates, which difference can be as much as N90. This disparity in rates has made investing in naira a riskier proposition, which is why investors are fleeing despite the bullish oil prices. Again, more and more savvy investors are dumping the naira in exchange for more stable currencies.