Category: Issues

The Central Bank of Nigeria’s (CBN’s) drive to achieve 95 per cent financial inclusion by 2024 has fuelled the growing adoption and popularity of Financial Technology (FinTech) firms. This, coupled with the COVID-19 lockdown, which forced a shift in loyalty by dis-satisfied bank customers to fintech players leveraging innovative platforms to offer similar but accessible and lower cost-services, may have inadvertently set the stage for a fierce battle for market share between fintechs and banks. Assistant Editor CHIKODI OKEREOCHA reports.

It’s no longer business as usual in the financial services market. As things stand, incumbent market players, particularly the traditional banks, urgently need to strengthen their digital capacity and embrace innovation in their product offerings to remain relevant, as the competition for customers’ patronage and loyalty between Financial Technology (FinTech) firms and banks gathers momentum.

Fintechs are firms disrupting the conventional banking model by using technology to make financial operations easier, faster and more accessible to businesses, institutions, and the general public at large (customers). They are products of creative innovation that grant consumers access to financial transactions such as online banking, investment, risk and wealth management, payments, online trade, and much more in the comfort of their homes, offices or while on the move.

The Nation learnt that in the aftermath of the COVID-19 pandemic and the Central Bank of Nigeria’s (CBN’s) intensified push to onboard the financially-excluded into the formal financial sector, there has been an upsurge in the adoption and popularity of fintechs in Nigeria. This, according to financial experts, means that a stiff competition for market share between fintechs and banks has ensued.

Indeed, in recent times, the global financial services industry, Nigeria inclusive, has come under intense competition from fintechs. And in Nigeria, particularly, where the COVID-19 pandemic has put significant pressure on banks, there has been an increase in the use of digital banking services and online payment platforms for financial transactions.

It is easy to see why this is so. Total or partial lockdown and other containment measures to curb the spread of the COVID-19 bug forced banks to close some of their physical branches and operate limited physical services to eliminate the risks of transmittal through interactions within the bank.The result is the huge gathering of customers at bank premises across the country, particularly those in the city centres.

Daily, as early as 5am, customers besiege bank premises, struggling, most times, unsuccessfully to enter the banking hall to make transactions. Those wishing to access the Automated Teller Machines (ATMs) are also not spared the harrowing experience of endless wait on the queues, under the elements, as the ATMs are, most times, out of service due to inadequate bank staff to load the machines with cash or to resolve technical faults.

As if this is not enough trouble for bank customers, the cost of banking services are said to have gone up, coupled with challenges in accessing loans, which, taken together, caused some dissatisfaction by customers with traditional banks, and, therefore, led to a shift in loyalty to fintech players offering similar but accessible and lower-cost services.

Consequently, transactions have naturally shifted to online platforms, with fintechs leveraging this opportunity to scale up profitability and growth prospects, especially with the World Health Organisation’s advice to consumers to utilise contactless payments. At present, mobile channels have become, perhaps, the most preferred way of making financial transactions in Nigeria.

However, the changing competitive landscape, ostensibly in favour of fintechs, is hardly unexpected. With the preponderance of affordable smartphones and the rise of e-commerce in the country, many people now prefer to shop and make payments online using mobile phones.

Professional services company PricewaterhouseCoopers (PwC Nigeria) brought the reality of the growing preference for online payments using mobile phones nearer home when it said that more than 377 million mobile phone transactions valued at about N5.1 trillion was posted last year, compared to 87.1 million valued at N1.8 trillion the previous year.

PwC in its report entitled: “Changing Competitive Landscape: Fintech and the Banking Sector in Nigeria”, also said by the end of last year, the volume of mobile money operations more than quadrupled, while the value processed was about thrice that of 2018. Payment for e-bills such as utilities also grew by 40 per cent, from N0.5 trillion to about N0.7 trillion in 2019.

Describing Nigeria as Africa’s second largest technology hub, after South Africa, the report, which was obtained The Nation, identified Nigeria’s youthful and tech-savvy population, increased smartphone and Internet penetration, emergence of e-commerce, large unbanked population, among other factors, as fueling the growing tech ecosystem.

For instance, Internet penetration in Nigeria, according to the report, stood at 51 per cent in 2018, which was higher than the African average of 34 per cent. “This was partly due to the proliferation and adoption of cheap smartphones by mobile phone consumers. Currently, there are over 20 million smartphone users in the country,” the PwC report said.

Also, Nigeria has about 200 million people, which is the largest in Africa. More than half of the country’s population is under 35 years, with the future of fintech in Nigeria hanging, among other things, on the country’s population strength and providing the talent and the market for fintech services and product offering.

More importantly perhaps, more than one-third (36.8 per cent) of the over 99 million adult population in Nigeria were excluded financially in 2018. In other words, over 30 million adult Nigerians do not have or use formal and/or informal financial services/products.

CBN’s financial inclusion stokes competition

The CBN under Governor Godwin Emefiele’s charge has never hidden its intention to expand the financial inclusion space. The apex bank, through its National Financial Inclusion Strategy (NFIS), is seeking to achieve a financial inclusion rate of 95 per cent by 2024.

West Africa Financial Services Leader/Chief Economist, PwC Nigeria, Dr. Andrew Nevin, and Partner/Experience Centre & Emerging Technologies Leader, Femi Osinubi, lead authors of the PwC report, were emphatic that achieving the target will require collaboration with industry stakeholders, including fintech companies.

In the report, which evaluated the current and future trends in the banking sector in Nigeria, particularly in fintech and digital banking, Nevin and Osinubi also said Mobile Money Operators (MMOs) such as Kongapay, Paga, and Fetswallet are key to driving the actualisation of a financially inclusive society as envisaged by the CBN.

The afore-mentioned attractive fundamentals, as well as CBN’s financial inclusion drive, are believed to be responsible for why, as at 2018, over 100 fintech firms were engaged in a broad range of product offerings spanning payment solutions, investment, online banking etc.

Armed with an investment size of $204 million over the past eight years (2011-2018), according to PwC, the 100 Nigerian fintechs, which had secured about $103.4 million in funding by end year 2018, are poised to give Nigeria’s commercial and microfinance banks, numbering 23 and 940, a run for their investment.

Already, the CBN appears to have further stoked the fire of the competition when, last week, it announced the approval of final licenses to three Payment Service Banks (PSBs). The three PSBs granted final approval to operate, following compliance with licensing requirements, are Hope PSB, Moneymaster PSB, and nine PSB.

The PSBs are expected to leverage mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services.

It was also envisioned that the PSBs will facilitate high-volume low-value transactions in remittance services, micro-savings, and withdrawal services in a secured technology-driven environment to further deepen financial inclusion.

Are banks under threat?

According to industry analysts, the CBN’s introduction of the PSB initiative appears to be a shot in the arm of fintechs and Mobile Network Operators (MNOs) such as MTN, Airtel, 9mobile, and Globacom to challenge the dominance of the market by traditional or commercial banks.

That is not all. An August 2019 report by United States’ rating agency Moody’s also warned that banks may lose their services to the growing popularity of fintechs and MNOs due to their lack of infrastructure to rival new web payment solutions.

New web payment solutions allow customers to hold deposits and carry out transfers with an e-wallet, disregarding the need for on-counter business transactions or even the need to be close to a bank, especially on retail banking.

Apart from lack of infrastructure, experts also say that banks that don’t seek collaborative ways and are not innovative in their product offering may come under serious threat by fintechs as the competition gets more intense.

However, a banker with one of the banks dismissed such threats, noting, for instance, that in practice, Nigeria’s thriving fintech ecosystem is not the exclusive domain of fintechs.

According to him, many traditional banks, microfinance institutions and development organisations also make use of financial technology.

The banker, who declined to be mentioned, said banks and other financial services providers are important actors in scaling up fintech solutions. “Scale is important, both financially and digitally, to include the vast amount of people and companies at the bottom of the pyramid,” he stated.

Indeed, as PwC observed, “Banks have been increasingly collaborating with fintechs to improve customer experience and enable faster and seamless access to financial services’’.

According to PwC, such collaboration has the potential to increase the performance of the industry at large, as both combine their unique attributes for greater success.

As promising as fintech is, PwC, however, said there is the need to develop a robust regulatory structure for the fintech sector in Nigeria. It specifically recommends creating a unified regulatory system for coordinating the activities of fintechs.

“Currently, the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) provide oversight for certain segments of the fintech sector in Nigeria, though ambiguities still exist in the extant laws, which need to be addressed,” it said.

The firm added that there is need to level the playing field for both fintechs and banks to compete or collaborate efficiently.

Some countries shut their air borders to Nigerian carriers during the COVID-19 pandemic. The Federal Government, in reaction, threatened to invoke the reciprocity clause in its Bilateral Air Services Agreements (BASAs) with those countries. Does Nigeria have the competitive advantage, industry and political will to fully implement reciprocity principle in BASA? KELVIN OSA-OKUNBOR reports.

 

As Nigeria opened its air borders to international flights at the weekend,  her strength as a member of the international aviation community passed the litmus test as it invoked the principle of reciprocity in her Bilateral Air Services Agreement (BASA) with over 93 countries some of which shut their air spaces to Nigerian carriers during the COVID-19 pandemic?

The government barred Air France, KLM, Etihad, RwandAir, Lufthansa, TAAG Angola Airlines, Air Namibia, , Royal Air Maroc, South African Airlines and Cape Verde Airlines from flying into Nigeria.

But, it gave approval to 14 airlines, including Air Peace, British Airways, Emirates, Delta Airlines, Middle East Airlines, Qatar Airways, Egypt Air, Ethioipian Airlines, Virgin Altantic Airways, Asky Airlines, African World Airways,Turkish Airlines, Air Cote d’ voire and Kenya Airways to fly into Lagos and Abuja Airports.

The Federal Government, a few weeks ago, threatened that it would not grant entry to carriers from countries that banned Nigeria and her airlines from flying into their countries.

The Director-General, Nigerian Civil Aviation Authority (NCAA), Captain Musa Nuhu, who issued the threat at a recent briefing, reaffirmed the government’s resolve to enforce the principle of reciprocity in granting permission to foreign carriers to fly into Nigeria.

He said the NCAA was working with the Ministry of Aviation to draw a template that would only allow airlines from countries that allowed flights from Nigeria during the pandemic.

Nuhu said the government’s decision was informed by the ban placed by some countries on flights from Nigeria, and that Nigeria’s decision was taken in the interest of its citizens.

The aviation ministry said airlines from the European Union (EU) would not be allowed into Nigeria as the EU recently banned flights and visitors from Nigeria.

The Council of the EU, last month, drew the battle line with Nigerian aviation authorities when it opened its borders to 15 countries, excluding Nigeria, from the countries it allowed into its airspace.

The EU said the flight ban became imperative as an exercise of self-responsibility amid global surges in COVID-19 pandemic. And, according to information obtained from the EU website at the time, Nigeria was not part of the countries from where visitors were allowed into Europe.

Expectedly, the EU’s action did not go down well with Nigerian aviation authorities. Nuhu said: “We are working on the comprehensive list of countries that were banned, but the main one that came up is when the EU opened their borders effective July, and Nigeria was among the list of 54 countries that were not allowed to enter the EU.

“To my understanding, as the situation changes, we are going to look at the list. But, so far, we don’t have any contrary information to that first one that Nigeria is banned from going to the EU. So, as we open our airspace, we are going to apply the issue of reciprocity to those countries.”

The approved airlines will not fly more than 1,280 passengers into the Lagos and Abuja aerodrome temporarily cleared as ports of entry.

Regulatory data as at last year indicated some of the countries Nigeria had BASA with. With Republic of India as one of the latest, according to the data accessed by The Nation, the Federal Government, last year, also signed air agreement with Algeria, Congo, China, Qatar and Singapore.

A BASA, according to experts, is an air transport agreement between two countries facilitating commercial civil aviation services between the concerned countries, covering transportation of passengers and cargoes.

Apart from agreements with countries outside the continent, Nigeria also has an Open Skies treaty known as the Single African Air Transport Market with about 27 member states of the African Union (AU) as well as other potential signatories.

However, over the years, stakeholders have lamented that most air agreements between Nigeria and other countries have been one-sided. According to them, Nigerian airlines have been unable to reciprocate the agreements. Minister of Aviation, Hadi Sirika, however, said many of the BASAs had been reviewed to create opportunities for domestic carriers.

Currently, 33 foreign airlines operate flights into Nigeria. They include British Airways, Virgin Atlantic Airways, KLM/Air France, Lufthansa German Airlines, Turkish Airlines, Emirates, Qatar Airways, Middle East Airlines, Egypt Air, Delta Airlines and others who operate daily flights under multiple entry policy.

While only one Nigerian airline, Air Peace,  operates internationally, one or two others, including Overland Airways and Arik Air, operate on regional routes.

Industry analysts said while BASAs were supposed to create opportunities for Nigerian airlines to expand their operations, the reverse has been the case as foreign airlines have rather been increasing frequencies and further suppressing domestic carriers.

They noted that while some of the agreements had been beneficial, others had barely provided an avenue for foreign airlines to feast on Nigeria’s market. For instance, analyst and Chief Executive Officer, Belujane Konsult, Mr. Chris Aligbe, said many of the agreements had not been reciprocated since they were signed.

His words: “Only one has been opening routes, but how many BASAs can one airline reciprocate? We need formidable airlines, at least three, because our market is open to foreign and regional airlines to scoop from, and we can’t respond. The only way we can do that is to have formidable airlines.”

The Director of Research and Strategy at Zenith Travels, Olumide Ohunayo, stated that, in principle, reciprocity remained one of the cardinal points of BASA. He said for Nigeria to adequately reciprocate the BASAs, there is the need for strategic planning.

“In planning, we don’t just go and scrap existing BASAs. What we can do is to provide a market and an environment that will strengthen our airlines and encourage investors to participate so that we can have airlines that are strong enough to start the process,” Ohunayo said.

He noted that BASA was not an issue that should be responded to spontaneously without recourse to the gestation period.

The Chairman and Chief Executive Officer, Air Peace, Allen Onyema, commended the Federal Government’s decision to enforce the principle of reciprocity in granting permission to airlines to resume operations in the country as it opens its airspace.

Onyema said the decision would elevate the image of Nigeria in the comity of nations and send signals to international airlines that it is no longer business as usual.

In a letter the Air Peace boss wrote to the Minister to commend him on the issue, he said: “You are causing a positive revolution in the aviation world. You have, by this action, brought so much respect to our people and our nation.

“Nigerians all over the world are walking tall with enormous pride since the news broke. This is the beginning of the end of the stigmatisation of Nigeria and everything Nigerian …”

Onyema said  the government needed to raise the stakes by reviewing the dual designation and multiple entry policies, noting that this has the potential to destroy aviation.

He said the minister had ensured that the industry is unencumbered.

According to him, Sirika has done so much to protect domestic airlines by spearheading earlier the policy that only Nigerian carriers should engage in evacuation by the Federal Government.

An analyst, Mr. Lanre Bamgbose, aligns with Onyema. He said government’s decision to invoke the principle of reciprocity was commendable. He and affirmed that going forward the policy would give indigenous carriers the opportunity to prove their capacity.

Bamgbose, however, said the government should take further steps and empower indigenous carriers to enable them play in the international arena. According to him, reciprocity should go beyond mere threat of invoking the clause, but initiating frequency review policies that will put indigenous carriers flying intercontinental routes in good stead.

For the President, Aviation Safety Roundtable Initiative (ASRTI), Dr. Gbenga Olowo, a review of the country’s BASA was long overdue to protect indigenous carriers.

He said it was time the Federal Government reviewed BASAs it signed with foreign countries to make them reciprocal and support the growth of airlines.

Olowo said the government must wake up from its slumber and come up with sustainable policy frameworks to grow the sector, adding that the industry needed a stable legal and regulatory framework to grow.

Olowo decried the multiple entry points for foreign airlines, describing it as “disastrous and deliberate annihilation of the domestic market.” He described the situation where some airlines fly to multiple airports in Nigeria without any Nigerian airline reciprocating as “a negative balance of trade”.

Olowo has an ally in the President of African Airlines Association, Mr. Nick Fadugba, who said a situation where 90 per cent of the Nigerian market was controlled by non-Nigerian airlines “was damaging to the economy.

“Nigeria needs to urgently review its BASA policy. An air route is like an oil bloc. You don’t just give it out without something in return,” Fadugba said.

The President, Airline Operators of Nigeria (AON), an umbrella body of indigenous carriers, Captain Nogie Meggison, urged the government to put a stop to the extra flight frequency it granted some foreign carriers, describing it as an unfair competition.

AON said granting extra flight frequencies to foreign carriers, in particular airline’s from the United Arab Emirates (UAE), would trigger unfair trade deals between Nigeria and the UAE.

Meggison said such approval slot of four daily flights into Nigeria by the UAE carrier would put indigenous carriers operating same route in a disadvantaged position.

He said such move by the government besides putting Nigerian carriers in a disadvantaged position would also have ripple effects on the economy, manifesting in job loss for youth and massive capital flight.

Continuing, Meggison said the additional frequency to Emirates makes 150 flights per month from UAE. According to him, granting only three flights to a Nigerian carrier, thereby bringing the total flight frequency to 12 monthly into the UAE amounted to an unfair deal.

He said: “Emirates before the COVID pandemic started was operating two daily flights out of Lagos and two daily flights out of Abuja.

‘’Etihad, from the same country, also operates daily flights out of Lagos as well. This translates to five flights daily and a total of 150 flights per month from UAE, as against a Nigerian carrier that was operating three flights weekly bringing it to 12 flights monthly into UAE.

“We would, therefore, like to use this medium to call on the government to review all existing BASAs to redress the unfair trade advantage given to foreign airlines against Nigerian airlines.

“This will go a long way in safeguarding the economy from continued plundering of our resources, preserve the livelihood of workers in the aviation sector, create jobs for our unemployed youths, promote technology transfer, and significantly reduce capital flight in line with the vision of the President Muhammadu Buhari administration.”

The Central Bank of Nigeria (CBN) is leaving nothing to chance in its resolve to ensure a stable exchange rate for the naira, reports Simeon Ebulu

 

The battle by the Cenral Bank of Nigeria (CBN) to save the naira  from crashing in exchange with other foreign currencies, has been on for years.

But quite recently, this challenge has gathered momentum and assumed a sense of urgency for obvious reasons.

Arriving at an acceptable rate of exchange between naira and other foreign currencies, including the Euro, Pound sterling and the US dollar used in international transactions, is not an equation solely in the hands of the CBN to balance, it involves an agglomeration of several factors and variables that cut across the oceans and financial capitals of the world’s leading economies and varied corporate interests.

For CBN to exert any influence and turn the tide in favour of the naira attaining a favourable exchane rate, the nation must have  a strong economic base- in terms of capacity to produce for exports, in addition to having a robust and diverified sources of revenue, driven by functional infrastructure, among oher.

The naira exchange rate, vis-avis other currencies cannot be done in isolation of other considerations, for example, the stock of the nation’s foreign reserves and the country’s capacity to earn sufficient foreign exchange revenue from exports of goods and services.

This is the core of the CBN’s deft move to salvage the naira and ensure it does not crash in its exchange value with its international peers.

Dependence on oil

Nigeria’s major source of foreign exchange earning is crude oil, accounting for nearly 95 per cent of  Federal Government’s foreign exchange revenue.

Oil is not an eternal resource, it’s a wasting asset. Added to that is the fact that it’s price fluctuates and is almost traded on perfectly competitive condition.

The output is regulated by OPEC, leaving virtually no space for producers to raise production to earn more. Regretably, the revenues garnered over the years from oil, have not been invested in any revenue yielding sector envisaged to succeed, or complement oil.

Sadly, other sectors that are expected to be contributing to revenue like mining, agriculture, refining and petrochemicals, among several others, are decimated by the crave for cheap oil money.

With only oil largely contributing to the foreign reserves, the CBN is hard-pressed as to what options and strategies to adopt to ensure a favourable exchange rate for the naira under the prevailing circumstance.

Now consider the near absence of the fiscal sector. The development of an economy, expectedly rests with both the fiscal and the monetary authorities.

Generating revenue through taxation, the Customs and provision of infrastructure in support of economic growth is in the purview of the fiscal authorities. Apparently this segment is on break, it needs to wakenup  and help the monetary authority in closing the gap.

Forex restriction

To maximise the available forex in growing the economy and encourage backward integration, the CBN opted to deny importers of food items and those importing products that can be  manufactured locally, access to foreign exchange from official sources.

In unveiling the measure, the CBN Governor, Godwin Emefiele declared that the Federal Government was determined to return the Nigerian economy to the period when the manufacturing and agricultural sectors formed the base of the economy.

He urged industrial conglomerates  in the  counrtry to support government’s efforts to grow the economy and return it to its green days.

Emefiele warned that CBN will not support the importation of items that could be produced in Nigeria, pointing out that  the bank could not spend its foreign exchange reserves on what would not boost the economy and generate jobs for Nigerians.

He was roundly supported by the President, who told him not to approve any cent for food import.   Emefiele, in support of Buhari’s proposition,told Chief Executive Officers of conglomerates in Nigeria, that “the CBN, in line with President Muhammadu Buhari’s desire, is determined to return the Nigerian economy to the period when the manufacturing and agricultural sectors formed the base of the economy.

He added: “As Nigeria continues the process of the full reopening of its economy due to the lockdown over COVID-19, the nation needs industrial conglomerates to support efforts aimed at growing the Nigerian economy.”

The CBN chief enjoined Conglomerates to key-into the current administration’s drive of diversifying the base of the Nigerian economy by taking advantage of its large population to market their products that could be produced in Nigeria and exported to the rest of the world, saying the bank  is willing to provide foreign exchange to companies that required such for raw materials and machinery that could not be obtained locally.

Stakeholders reactions

Expectedly, varied reactions have trailed the policy. The restriction,  Director-General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said, has not been helpful generally to industry.

Hear him: “Our position remain that some of those items are raw materials that our members need to produce. So the restriction of access to foreign exchange in respect of those products has been harmful.

Our members are unable to source the raw materials at the exchange rate that will allow them to produce for profit. So, the restriction has not been to our members’ advantage.”

Ajayi-Kadir said CBN’s action was hasty as it was done without due consultaion with stakeholders.

“If the CBN had consulted widely, we would have been able to avoid a situation where raw materials are probably inadvertently included on that list.

We would have given the CBN many more products that would have been on the list of items that our members would not need to buy forex to get, he said, adding, “my suggestion is for the review of the list and to consult widely, especially with manufacturers so that we review the list and remove those items that are raw materials and replace them with those ones that we have the local capacity to source.”

On the contrary, the former President of the Trade Union Congress (TUC), Peter Esele, opined that there was no better time for Emefiele to have acted than when he did,

As he put it: “The restriction of forex on 41 items is in order so far we have alternatives to such goods. If we can produce such items locally, there is nothing wrong in the action of the Federal Government. The truth is that the benefit of such restriction may not come automatically.

“But the decision will definitely ensure that our local industries grow. With the devaluation of the naira, manufacturers can go on to earn more money.

One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally.”

He said Nigerians should realise that there is no gain without pain, saying although the present may be “painful or difficult, but at the end, the benefit will be for all to reap.”

Future of the Naira

The pressure on the naira has been on for years with the CBN regularly intervening to stabilise it against the dollar.

The CBN says it defended the naira with $8.28 billion through its direct intervention within the first six months of last year, according to its half-year report.

A member of the Monetary Policy Committee (MPC), Professor Adeola Adenikinju warned that the naira faces immense challenge ahead unless certain conditions confronting the local currency’s stability were addressed in the economy.

Adenikinju, who is Professor of Research at the Centre for Econometrics and Allied Research, University of Ibadan, said the fall in foreign reserves and deterioration of current account balances are red signals pointing to difficult times ahead for the local currency.

Unifying the exchange rate

There are indications that the apex bank is moving in the direction of a uniform exchange rate, as againt the multiple regime currently in place.

Emefiele gave credence to this at an investors conference titled  ‘COVID-19 -Economic and Budgetary Update with the Federal Government anchored by CitiBank.

According to Nairametrics, Emefiele has confirmed that the CBN will continue to pursue unification around its Nafex rate. The NAFEX rate is the forex window where Investors and Exporters transact dollars on market-determined prices.

The CBN chief  cautioned against investors patronising the parallel market, saying that window  is a market for people who are “doing dealings that are not recognised by the authorities.”

He said the bank  has always maintained that the black market is not a good determinant of the value of the naira.

“You’ll find that people who are in a hurry and do not want to procure the kind of documentation required, will sometimes rush to those markets,” stating that the CBN has used the period of the pandemic “to prove that anybody dealing in that market is dealing in an illegal business.”

CBN’s support for export-oriented conglomerates

The Governor has said the bank will lend support to indigenous companie and conglomerates that are willing to locate their factories here and engage in producing for exports.

He also said the CBN is lending support to the Dangote Refinery and Petrochemical Plant, as it is projected to generate over $2.5 billion in forex to the economy and employ over 70,000 Nigerians when it begins operation next year.

He said the various policies of the Federal Government will ultimately reduce unemployment in the country.

The apex bank’s governor, who addressed reporters after touring the refinery at the weekend, said the Dangote Refinery and Petrochemical plant is expected to increase its workforce from the current 34,000 to over 70,000 when it becomes operational.

Also, President of Dangote Group, Alhaji Aliko Dangote said he is on a mission to aggressively reduce the unemployment in the country.

He said the plant would also retain foreign exchange as Nigeria becomes self-sufficient in petroleum refining.

“Besides, we are going to help in terms of not only creating jobs but also in reducing the outflow of foreign exchange, not only in petroleum products but also in petrochemicals and in fertilisers. We would be one of the highest foreign exchange generating companies, going forward,” Dangote said.

According to him, the company’s $2 billion granulated urea fertiliser plant at Ibeju-Lekki in Lagos State will begin operations in May.

The foremost industrialist said the fertiliser plant would make Nigeria the only urea exporting country in sub-Saharan Africa and biggest producer of polyethylene, which is capable of generating $2.5 billion annually.

He said: “Nigeria will soon become the biggest and only urea exporter in sub-Saharan Africa, for the first time. And we are not only exporting, we would be exporting, big time.

“We are also going to have polyethylene, which is about 1.3 million tonnes annually. These two products would bring in about $2.5 billion annually in terms of foreign exchange. A lot of forex would now come in and that $2.5 billion is only about 10 per cent of remittances.”

Dangote said a pre-testing of the fertiliser plant had begun, adding that the project would be the largest fertiliser plant in the world with its three million tonnes per annum capacity.

According to him, the refinery, which is at 48 per cent completion, will make Nigeria the largest exporter of petroleum products in Africa.

Dangote said the size of the project necessitated the construction of a jetty to take care of the over-dimensional cargoes.

“It is a huge project. That is why we have built a jetty and the pipeline through which we are bringing in the crude.

“One of the reasons the CBN is supporting us is that by the time we become operational, we will not only be creating jobs but we will reduce the outflow of foreign exchange not only in petroleum products but in petrochemicals and fertiliser.”

 

READ ALSO: More pressure on the naira as Diaspora remittances to drop by 20%

He also claimed that the COVID-19 pandemic has buttressed claims from the bank that most of the pent-up demand was not realistic. He cited the impact of the global lockdown on flights as a clear example.

“These airlines are not flying and sometimes you find dollars being sold through the BDC’s into that market just to be seen that we are doing everything possible to moderate the rate,” Emefiele said.

He continues that because “airlines are not flying, and people are not traveling so there should therefore not be any demand for forex exchange in that market”.

Insisting that the trades in the black market are counterintuitive he went further to accuse those trading in the black market as those dealing in corrupt practices.

“It could only be those who are dealing in what is simply called corrupt practices that will be dealing in that market and we are not about to talk about unification of our exchange rate around people who are dealing illegally,” Emefiele added.

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He also claimed anyone who was willing to deal in forex should utilize the “recognized” NAFEX market which is why “unification will have to be around the NAFEX”

The Federal Government disclosed plans to unify the exchange rate in order to generate more revenue and manage the rate in a sustainable manner.

The?IMF had previously pointed out that unifying the exchange rate will impact the economy more positively than the multiple exchange?rates,?which?creates?a lot of?opportunities?for arbitrage.

The unification also curtails situations where public and private sector decisions are distorted as a result of uncertainties.?

 

READ MORE: CBN debits banks N216.1 billion for CRR compliance

The CBN Governor also responded to questions about lack of liquidity in the NAFEX window which Nairametrics reports averages between $4-60 million daily.

In response to how the backlogs will be alleviated, he said that “the external reserve still remains about 36 sic ($36 billion) and will imagine it is enough to make somebody do business in Nigeria.”

The CBN also attacked claims about higher dollar demands citing the shut down of manufacturing in the country as an example.

“When somebody comes today to tell us they want to open fresh LC (Letter of Credit) we begin to wonder the motive behind that” he chided.

The CBN Governor also claimed maturing obligations will be honored and that “we the CBN….stands ready to ensure that where there is shortage of FX in the market where the banks cannot find FX to meet those obligations we will come in to support the market and that we do from time to time.”

 

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READ MORE: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN

The CBN Governor also tried to calm fray nerves explaining that some of the dollar demands were also from foreign investors and some people who wanted to “front load” their dollar demands, that they do so in an “orderly fashion” and that they will be paid their money claiming Nigeria met all demand for those who were patient in 2016 when Nigeria was in a similar FX crisis.

Upshots: It is unclear what impact Mr. Emefiele’s remark will have on the market as most market analysts who spoke to Nairametrics on the condition of anonymity have a different view.

They insist there is legitimate pent up demand of up to $5 billion as liquidity shortages continue to affect the NAFEX market. However, these claims have not been substantiated as there is no official record or data where demand is published.

 

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This session was organized to help calm the nerves of foreign investors now awash with bailout dollars but worried about Nigeria’s faltering economy and its likely ability to trigger further devaluation. Mr. Emefiele did not confirm if another devaluation was in the offing.

He further explained that although the foreign exchange rate markets remain relatively stable at both the Bureau De Change and the I&E Forex windows, the weak performance of the current account balances, fall in foreign reserves and the small margin between oil price and the budget benchmark price for oil, imply that there could be increasing pressure on the naira in the medium term if the existing conditions subsist.

Also, the International Monetary Fund (IMF) advised the CBN to stop defending the naira through dollar interventions and adopt a unified exchange rate regime.

The Mission Chief for Nigeria, Amine Mati said: “The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.

Inflation – driven by higher food prices – has risen, marking the end of the disinflationary trend noticed in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.”

According to him, the exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.

 

Diversification

There is unanimity of agreement that diversifying the economy away from oil would be beneficial to the economy.

A diversified economic base would expand the productive space, givimg room for other industries to contribute to the GDP.

A diversified economy will also produce goods for exports which  proceeds will contribute to growing the nation’s foreign reserves.

“The mission reiterated its advice on ending direct CBN interventions, securitising overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate.

Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” he said.

 

Backward interation

The restriction of forex on 41 items is in order so far we have alternatives to such goods. If we can produce such items locally, there is nothing wrong in the action of the Federal Government. The truth is that the benefit of such restriction may not come automatically.

But the decision will definitely ensure that our local industries grow. With the devaluation of the naira, manufacturers can go on to earn more money.

One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally.

By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products.

That is why (Aliko) Dangote is going into the building of refineries and this will create employment for Nigerians.

Nigerians are going through a new terrain. Before, we were used to walking through the easy way, which was done without pain.

Now, we need to think to get it right. We should realise that there is no gain without pain. Nigerians may say it is painful or difficult, but at the end, the benefit will be for all to reap.- • Mr. Peter Esele (A former President, Trade Union Congress)

Stressing further on the need to prioritise the Nigerian market, the CBN Governor assured the companies that the bank would collaborate with the relevant government agencies to help nip smuggling in the bud, while also promising to protect their businesses to ensure that they succeeded in Nigeria.

 

Future of the naira

The pressure on the naira has been on for years, with the CBN regularly intervening to stabilise it against the dollar.  The CBN says it defended the naira with $8.28 billion through its direct intervention within the first six months of last year, according to its half-year report.

The naira is exchanging at N306.95 in the official market and N364 to dollar in the parallel market and has stayed below N365 to dollar in the last one year, both at the official and parallel markets.

But the naira, on Friday, depreciated past N400 to a dollar on the one-year forward market which is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery.

Member of CBN-led Monetary Policy Committee (MPC), Prof. Adeola Adenikinju warned that the naira faces immense challenge ahead unless certain conditions challenging the local currency’s stability are addressed in the economy.

Adenikinju, who is Professor of Research at the Centre for Econometrics and Allied Research, University of Ibadan, said the fall in foreign reserves and deterioration of current account balances are red signals pointing a difficult time ahead for the naira.

He further explained that although the foreign exchange rate markets remain relatively stable at both the Bureau De Change and the I&E Forex windows, the weak performance of the current account balances, fall in foreign reserves and the small margin between oil price and the budget benchmark price for oil, imply that there could be increasing pressure on the naira in the medium term if the existing conditions subsist.

Also, the International Monetary Fund (IMF) advised the CBN to stop defending the naira through dollar interventions and adopt a unified exchange rate regime.

The Mission Chief for Nigeria, Amine Mati said: “The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.

Inflation – driven by higher food prices – has risen, marking the end of the disinflationary trend noticed in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.”

According to him, the exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.

“The mission reiterated its advice on ending direct CBN interventions, securitising overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate. Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” he said.

The restriction of forex on 41 items is in order so far we have alternatives to such goods. If we can produce such items locally, there is nothing wrong in the action of the Federal Government. The truth is that the benefit of such restriction may not come automatically.

But the decision will definitely ensure that our local industries grow. With the devaluation of the naira, manufacturers can go on to earn more money.

 

One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally.

By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products. That is why (Aliko) Dangote is going into the building of refineries and this will create employment for Nigerians.

Nigerians are going through a new terrain. Before, we were used to walking through the easy way, which was done without pain.

Now, we need to think to get it right. We should realise that there is no gain without pain. Nigerians may say it is painful or difficult, but at the end, the benefit will be for all to reap.- • Mr. Peter Esele (A former President, Trade Union Congress)

President Muhammadu Buhari (right) and CBN governor, Godwin Emefiele (left) [Breaking Times]

President Muhammadu Buhari (right) and CBN governor, Godwin Emefiele (left) [Breaking Times]

The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, says the apex bank is committed to implementing its policy on restriction of foreign exchange issued for importation of food items into the country.

President Muhammadu Buhari sparked controversy last week when he disclosed that he has directed CBN to stop providing foreign exchange for importation of food.

This, he said, was due to the steady improvement in agricultural production, and attainment of full food security.

The president said the foreign reserve will be conserved and utilized strictly for diversification of the economy, and not for encouraging more dependence on foreign food import bills.

“Don’t give a cent to anybody to import food into the country,” he said.

The restriction on foreign exchange means businessman and businesswoman in Nigeria who depended on the banks for foreign currency to import food items into the country would have to source from alternative dealers which tends to be more expensive.

Many have criticised the policy as anti-people, noting that Nigeria’s food sufficiency, as touted by Buhari, is wildly exaggerated.

Critics also said the president has no constitutional right to direct the policies of the CBN, an independent institution.

The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, says the apex bank is committed to implementing its policy on restriction of foreign exchange issued for importation of food items into the country.

However, while speaking at the induction retreat of Buhari’s ministers-designate on Monday, August 19, 2019, Emefiele said Buhari’s directive is in line with the CBN’s foreign exchange policies that started since 2016.

“If you recall, we started with about 41 items (food and non-food items), because we believe that those items can be produced in the country.

“As we stand today, there are about 43 items on that list and I will say substantially most of them are food items,” he said.

The CBN boss said it’s pointless for the nation to waste foreign exchange importing items that can be produced locally in the country and help to reduce unemployment which he said is fueling insecurity.

The restriction of forex on 41 items is in order so far we have alternatives to such goods. If we can produce such items locally, there is nothing wrong in the action of the Federal Government. The truth is that the benefit of such restriction may not come automatically.

But the decision will definitely ensure that our local industries grow. With the devaluation of the naira, manufacturers can go on to earn more money.

One of the items the government said we should not import is toothpick. It is embarrassing that we still import toothpicks, which we can produce locally.

By importing toothpicks, we are creating jobs for the Chinese in China. The biggest killer of our forex is the importation of petroleum products. That is why (Aliko) Dangote is going into the building of refineries and this will create employment for Nigerians.

Nigerians are going through a new terrain. Before, we were used to walking through the easy way, which was done without pain.

Now, we need to think to get it right. We should realise that there is no gain without pain. Nigerians may say it is painful or difficult, but at the end, the benefit will be for all to reap.- • Mr. Peter Esele (A former President, Trade Union Congress)  and ensures  a steady exchange rate of the naira against major foreign currencies used in international trade, has put the Central Bank of Nigeria (CBN) in an unenviable position, forcing it to inadvertently play the dual role of both fiscal and monetary agent, much to the chagrin of some school of thought.

For most part of the past five years, or more, the CBN has come under considerable pressure (from diverse quarters) in its avowed determination to keep the naira exchange rate against other currencies, stable.

To achieve the goal, the bank has churned out policies, issued multiple guidelines, adopted several measures in response to series of exogenous and local developments that have impacted negatively on the nation’s  economic space and by implication, the local currency.

Nigeria, being a country with great propensity for foreign goods’ consumption, has become a victim of foreign exchange hemorrhage, requiring at every given time, a huge chunk of foreign exchange to pay for the large imports from foreign countries.

This habit presents two grave implications for the monetary and fiscal authorities. On the one hand, it drains the nation’s foreign reserves and on the other, it keeps a large proportion of the populace unemployed and unproductive and therefore cannot be engaged to produce any form of goods for exports. This implies that industry cannot make any meaningful contribution to the nation’s stock of foreign reserves.

With growing appetite for imported items, pressure will begin to mount on the limited foreign reserves. The obvious implication is that scarcity would set in, thus inducing a disparity in the exchange rate equation.

This is the challenge bedeviling the CBN at the moment – the urgent need to provide forex for end users who require it to import feedstock for manufacturing  of household goods, machinery and spares, medicaments and pharmaceuticals and school fees among other essentials.

Given that this is the nature of the Nigerian economy, as other economic activities have given way to crude oil (the dominant player providing over 95% of the nation’s foreign exchange revenue), the CBN is regularly pressured to devise ways and means of ensuring that the available scarce foreign exchange in hot chase by the numerous end users, both for the importation of luxury goods, machinery and feedstock for hard-pressed   local industries, is provisioned for.

Hard-pressed because manufacturers and other indigenous companies, still have other factors of production to contend with that the CBN is equally bound to address, given the near absence, or impact of any fiscal presence in the nation’s economic space at the moment .

 

The delicate balance

For now, the CBN is in a race, seeking ways to make resources (loans) available to manufacturers  asbalance the contending factors in a manner that will make forex available to CBN’s commitment to naira stability is accompanied with new policies and bottlenecks meant to reduce dollar spending and meet critical obligations.

The CBN, in February, introduced new domiciliary account rules in which it directed that customers can deposit dollar into their domiciliary accounts but are not allowed to transfer it to another party.

Also, only electronic fund transfers into domiciliary accounts can be transferred from such accounts to third parties while cash deposits into such accounts can only be withdrawn in cash.

Another policy encourages foreign portfolio investors to invest in high yielding Open Market Operation (OMO) bills at 14 per cent while local investors are restricted.

Foreign holdings of OMO bills (CBN’s investment instrument to control liquidity) account for over $5 billion of the $37.3 billion foreign reserves.

Besides, it restricted importers of milk from accessing foreign exchange from official market. It limited the importation of milk and other dairy products to six firms- FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only), and Integrated Dairies Limited.

According to the policy guideline, all Forms ‘M’ for the importation of milk and its derivatives will only be allowed for the aforementioned companies.

There is a standing rule that Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) purchases must be on quarterly basis.

Travelers submit their Bank Verification Number (BVN) and evidence of tickets among other documents to ensure they do not buy more than once per quarter.

On the domiciliary account policy, CBN Director, Trade and Exchange Department, Ozoemena Nnaji, said all ordinary domiciliary account holders could utilise cash deposits not exceeding $10,000 or its equivalent by telegraphic transfers to fund eligible transactions.

He insisted that the CBN had not prohibited the acceptance of foreign currency cash deposits by commercial banks.

Head of Research, Afrinvest West Africa Limited, Abiodun Keripe, explained that it is the CBN that makes dollar payment for customers after their naira accounts are debited for transactions.

But the CBN’s ability to pay dollar on customers’ behalf is dependent on the country’s available dollar reserves. The dollar reserves are dropping due to decline in crude oil prices. Brent crude fell to $50.749 per barrel representing a 14-month low.

Keripe said the new domiciliary account limit is a big challenge for businesses and individuals that needed to do dollar transactions.

“The fact that you can earn dollar but can only transfer $10,000 for eligible transactions is a problem for many businesses and individuals. What it means is that if you want to send more money to your goods supplier, you have to open Form ‘M’,” he said.

He further said the PTA/BTA policy was to reduce Nigeria’s travel spends estimated at $20 billion per annum.

“The travel spend is a lot of money in the economy and gives you the extent of demand for dollar for medical bills, school fees and holidays abroad payment.

These policies were also geared towards controlling money laundering, terrorist financing and other fraudulent transactions,” he added.

But he agreed that the policy on domiciliary account management makes it difficult for businesses to move money to their suppliers.

Also, foreign and local investors are interpreting the policies, and the interpretation they give them will determine the level of foreign capital the economy will attract.

“Some of the foreign investors will exit the economy; others will weigh the options and decide to take the risk.

“Overall, it is a very tough time for the economy. Foreign portfolio inflows have fallen, crude oil prices are down, China demand for oil has dropped because of the coronavirus and that is also affecting the economy.

With all these occurrences, I believe that the naira should be allowed to reflect the market reality,” he said.

According to him, devaluation of the naira will have its own challenges such as prices of goods going up due to rise in inflation rate and subsequent rise in poverty rate, but the foreign receivers will be protected.

President, Chartered Institute of Bankers of Nigeria (CIBN), Uche Olowu, said the dollar policies of the CBN will not affect businesses.

“I see it as one of the ways that the CBN is managing foreign exchange and interest rate stability. If any business wants to do genuine business, such business should establish Form ‘M’ to access the dollar or move dollar to suppliers.

The problem is that some people do not want to obey government rules and want to beat the system. The CBN has also said it will sanction banks that violate its foreign exchange rules and the banks are complying,” he said.

Olowu said it is the strict enforcement of these policies that is affecting some businesses.

Head of Research at Coronation Merchant Bank, Guy Czartoryski, said that with OMO Bills at 14 per cent, foreign investors will stay as the rate is commensurate to what obtains in other economies.

He ruled out devaluation within the year, insisting that at $37.3 billion, the foreign reserves are enough to keep the naira stable.

“Demand for dollars has always been met at the Investors’ and Exporters’ Forex window. Exchange rate stability is a major priority for the CBN, hence devaluation is unlikely this year,” he said.

For the former Executive Director at Keystone Bank, Richard Obire, economic outlook is not positive, and the CBN cannot ignore the pressure on the naira, hence its introduction of foreign exchange administrative controls.

According to him, many businesses are already expecting that naira devaluation will happen soon, insisting that the domiciliary account policies were meant to stop people from moving dollar out of the economy.

“The CBN is trying to restraint dollar demand in order to protect the foreign reserves and economy. It has assured us that the naira will not be devalued, but many people do not believe that position.

The domiciliary account policy is an indication that the CBN knows that people no longer believe its no-devaluation stand, and could begin massive movement of their funds outside the country, hence the need for current administrative controls,” Obire said.

Continuing, he said:  “Despite the controls, some people can still keep their savings in dollar to safeguard their wealth should there be currency devaluation.

“People do not want their funds wiped out in one day, and we could see people who will buy dollar and transfer it gradually out of the country.

But I see the domiciliary account bottleneck removed if and after the naira devaluation happens,” he predicted.

President, Bank Customers’ Association of Nigeria, Uju Ogubunka, said the domiciliary account restriction is within the monetary policy management role of the CBN meant to address rising inflation.

He agreed that placing limit on dollar transaction could affect people’s businesses but there are always alternatives to be explored.

He, however, said people that want to transfer their funds could move them in piecemeal, or get others to help if they can take the risk.

“People should understand that the CBN has reasons for implementing the policy. Those whose businesses are affected by the policy should speak out for possible review,” he advised.

Managing Director, Financial Derivates Company Limited who is also a member of Economic Advisory Council, Bismarck Rewane, said the restriction on dairy products was to increase the domestic production of milk and other dairy products and conserve foreign exchange, thereby forcing manufacturing companies to look inwards and invest more in backward integration.

But Rewane said the “select few” is a symptom of a problem more fundamental. “This is not the first time that the government would attempt to implement import substitution measures to wean the country off its huge import dependency.

Has it always worked? In some cases, it has as witnessed in the rice production and other commodities under the Anchors Borrowers’ Programme. Nonetheless, there are still major challenges the economy experiences.

“The foreign exchange restriction policy will reduce the demand pressure on Nigeria’s foreign exchange earnings. Nigeria spends approximately $1.2 billion to $1.5 billion annually on milk and dairy importation, 3.21 per cent to 4.01 per cent of the current external reserves level of $37.37 billion,” he said.

 

What the foreign exchange policy says

The foreign exchange policy allows banks to process Certificate of Capital Importation for foreign currency inflow to the country through the electronic Certificate of Capital Importation system.

It requires exporters to register Nigerian Export Proceeds Form (Form NXP) with commercial bank of their choice prior to shipment.

Also, payment for eligible imports by small and medium enterprises valued not more than $20,000 per customer per quarter can be effected by Telegraphic Transfer subject to completion of Form “Q” and supported with Pro-forma Invoice and importers’ Bank Verification Number.

Commercial banks are to utilise inter-bank funds strictly for funding of Letters of Credits, Bills for Collection and other invisible transactions, subject to appropriate documentation as provided by extant regulation while commercial banks intending to import foreign currency cash are required to submit an application, stating the amount and purpose, to the CBN for approval.

Payment for exports from Nigeria will continue to be by means of Letters of Credit or Bills for Collection while appropriate sanctions will be imposed on commercial banks that remit funds on the basis of forged documents, engage in fraudulent transactions. The CBN says it will also sanction bank customers who breach any of the foreign exchange operational guidelines.

 

Future of the naira

The pressure on the naira has been on for years, with the CBN regularly intervening to stabilise it against the dollar.  The CBN says it defended the naira with $8.28 billion through its direct intervention within the first six months of last year, according to its half-year report.

The naira is exchanging at N306.95 in the official market and N364 to dollar in the parallel market and has stayed below N365 to dollar in the last one year, both at the official and parallel markets.

But the naira, on Friday, depreciated past N400 to a dollar on the one-year forward market which is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery.

CBN Director, Financial Markets Department, Angela Sere-Ejembi, noted that $2.1 billion was auctioned at the Inter-bank spot; $550.70 million went to Invisibles, $810 million for Small and Medium Enterprises (SMEs), $212.11 million at the Investors and Exporters Forex window and $4.57 billion as Forwards sales.

Member of CBN-led Monetary Policy Committee (MPC), Prof. Adeola Adenikinju warned that the naira faces immense challenge ahead unless certain conditions challenging the local currency’s stability are addressed in the economy.

Adenikinju, who is Professor of Research at the Centre for Econometrics and Allied Research, University of Ibadan, said the fall in foreign reserves and deterioration of current account balances are red signals pointing a difficult time ahead for the naira.

He further explained that although the foreign exchange rate markets remain relatively stable at both the Bureau De Change and the I&E Forex windows, the weak performance of the current account balances, fall in foreign reserves and the small margin between oil price and the budget benchmark price for oil, imply that there could be increasing pressure on the naira in the medium term if the existing conditions subsist.

Also, the International Monetary Fund (IMF) advised the CBN to stop defending the naira through dollar interventions and adopt a unified exchange rate regime.

The Mission Chief for Nigeria, Amine Mati said: “The pace of economic recovery remains slow, as declining real incomes and weak investment continue to weigh on economic activity.

Inflation – driven by higher food prices – has risen, marking the end of the disinflationary trend noticed in 2019. External vulnerabilities are increasing, reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals.”

According to him, the exchange rate has remained stable, helped by steady sales of foreign exchange in various windows.

“The mission reiterated its advice on ending direct CBN interventions, securitising overdrafts to introduce longer-term government instruments to mop up excess liquidity and moving towards a uniform and more flexible exchange rate.

Removing restrictions on access to foreign exchange for the 42 categories of imported goods would be needed to encourage long-term investment,” he said.

 

What hope?

Despite the challenges being experienced by the economy and the naira,  a ray of hope sprang up at the weekend after facts emerged that  Dangote Refinery, Fertiliser Plant and Petrochemical Company could rake in $2.5 billion annually to support Nigeria dollar positions once they start operations.

Speaking during an assessment tour of the Dangote Refinery, Fertiliser Plant and Petrochemical Company in Ibeju-Lekki, Lagos CBN Governor Godwin Emefiele said the refinery would begin operation in the first quarter of 2021, and would help the country to earn more foreign exchange.

“Tell those shouting that the refinery project is a fluke that latest, first quarter of next year, we will crank it and petrol will be produced from it. The refinery, which will be refining 650,000 barrels per day and will not only satisfy local consumption, but also position Nigeria as major exporter of petroleum products,” he said.

President, Dangote Group, Aliko Dangote said the refinery will be one of the highest foreign exchange generating companies in Africa.

He said: “We should not wait for foreign investors to invest in the economy. We have to do it ourselves; especially now that interest rates are dropping and banks are lending more to the economy. I encourage more entrepreneurs to gear up and borrow more to develop the economy.”

He said with the Dangote Fertiliser plant which will begin commercial production next month, Nigeria will be the biggest urea exporting country in Africa.

“We will not only be exporting, we will be expanding big time with estimated four to five million tons of urea. We expect to earn $2.5 billion annually from the three projects and that will reduce foreign exchange pressure on the economy,” he said.

While waiting for the take-off of the three Dangote projects, Keripe advised businesses to be flexible, dynamic and in tune with government policy statement.

“Nigerian businesses have to position themselves in line with government policies, and also go for backward integration. They have to study polices and key into the vision of government, which in many cases, have some inconsistencies,” he said.

 

 

How CBN, BDCs Stopped Further Crash Of Naira

 

Indications emerged at the weekend as to how the Central Bank of Nigeria and bureau de change operators (BDCs) rallied round to forestall further crash of the naira.

The Nation was reliably informed that following the crash of the naira from N360 to N400-420 last Thursday, the apex bank moved swiftly to contain the ugly situation by summoning the top echelons of the BDCs to a strategy meeting in what observers said was a “decisive action” to rescue the local currency.

Confirming this development, the President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe in an exclusive interview with our correspondent at the weekend, said the CBN called a meeting with the BDCs as major operators in the forex market to intervene.

“I can tell you without any fear of contradiction that the crash in the naira was purely based on panic and speculations in the market. It was not based on any genuine demand as such because as we speak, there are no major flights anywhere. China’s economy has shut down and so are many other countries as a result of the coronavirus scourge,” he said.

“The movement was as a result of recklessness on the side of the operators, when they want to speculate, but there is no reason for such because the CBN had continued to maintain support for liquidity to the BDC sub-sector,” he stressed.

According to him, the strategy meeting where the BDCs met with the officials of the apex bank yielded good result as the naira returned to a relatively stable position, exchanging for N366 as at Friday.

Specifically, the ABCON boss revealed that the apex bank which had maintained stability at N360 in more than three years, further assured that it has enough forex to meet BDCs demands, as such there is no cause for alarm.

He said in its meeting with the CBN on Thursday, the regulator warned the BDCs against contraventions.

The ABCON president disclosed that the CBN wanted to revoke the licences of some BDCs for various infractions but fined over 100 BDCs over N5m for various offences.

The CBN also expressed its displeasure on the issue in a statement, saying the speculative activities of unscrupulous players in the foreign exchange market was borne out of the impression that the CBN was on the verge of devaluing the Naira, and triggering panic in the FX Market.

“These rumours are false, unwarranted and calculated to serve their dubious and selfish ends,” it stated.

It added, “We have begun a robust and coordinated investigation in collaboration with the Nigerian Financial Intelligence Unit and related agencies to uncover the unscrupulous persons and FX dealers who are creating this panic, and the full weight of our rules and regulations will be meted out to them, including, but not limited to, being charged for economic sabotage.”

 

Naira Exchanges At N472/$ At Parallel Market

The Naira on Tuesday exchanged at N472 to a dollar at the parallel market in Lagos.

The Pound Sterling and the Euro also exchanged for N575 and N530 respectively.

The Naira, however, traded at N388.17 to a dollar at the investor’s window. The market turnover at the window stood at 38.72 million dollars.

In his reaction to the fall of the naira at the parallel market, Prof. Sheriffdeen Tella, a Senior Economist at the Olabisi Onabanjo University Ago-Iwoye, Ogun, attributed the volatility to the antics of currency speculators.

Tella said that speculators had huge funds for various currencies for the purpose of speculating for future returns.

He said that the speculation could be caused by the official depreciation of the naira recently.

Recall that since the COVID-19 pandemic, the country has been struggling to sell its oil at the international market.

Foreign exchange earned from such sales are used by the apex bank in the defence of the naira at the FX market.

CBN insists on no devaluation, threatens to sanction those responsible for false speculations

 

The Central Bank of Nigeria (CBN) has debunked speculations making the rounds and suggesting that the naira is finally about to be devalued.

Published 4 months ago on March 13, 2020By Emmanuel Abara Benson

CBN, CBN sandbox operations, Stirling Trust Company Limited

The Central Bank of Nigeria (CBN) has debunked speculations making the rounds and suggesting that the naira is finally about to be devalued.

According to a statement, which was released late Thursday evening and seen by Nairametrics, the apex bank blamed “unscrupulous players in the foreign exchange market” for spreading the rumour.

FG moves to capture 80% of Nigerians in formal financial services sector, Massive depreciation of the Naira as investors get jittery

The statement, which was signed by Isaac Okafor, the CBN Director in charge of Corporate Communications, also noted that the false speculations have created panic in the foreign exchange market.

Punishment awaits speculators: To address this, the CBN is taking a very calculated step towards unravelling those responsible. In other words, the apex bank is working together with the Nigerian Financial Intelligence Unit (NFIU) and other relevant agencies to investigate and uncover those who are responsible for creating panic. Anybody found responsible for this will be made to face the law.

There is no devaluation of the naira: The statement went further to categorically state that the Central Bank of Nigeria has not devalued the naira. It will not do so in the meantime because market fundamentals do not support such a move. The statement said:

“In light of current circumstances and macroeconomic fundamentals, the CBN has not devalued the naira. Consequently, the CBN will invoke the full weight of applicable sanctions on any persons and authorised dealers found to be invoked in such disruptive and speculative market behaviour.”

 

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The Coronavirus effect: The CBN did not feign ignorance of the negative effects of COVID-19, as it acknowledged the effects of the killer disease on the Nigerian economy.

But just as much as the pandemic has adversely affected oil prices, thereby limiting dollar inflow into the country, it has also resulted in a drastic reduction in importation as well as all kinds of foreign travels, which “hitherto constituted a large chunk of the pressure on the foreign exchange market.”

 

Foreign exchange market

The CBN further argued that Nigeria’s foreign exchange reserves is still “robust and comfortable” in view of the current FX realities. In the same vein, the apex bank claimed that it is capable of meeting all “genuine” foreign exchange demands.

The CBN also noted that it was working with fiscal authorities to understand the current and anticipated impacts that the Coronavirus pandemic might have in the Nigerian economy. Doing this helps to better curtail the negative impacts that Nigeria might be faced within the nearest future.