The unification of exchange rates into the Investors and Exporters (I&E) window has created opportunity for Small and Medium Enterprises (SMEs) to earn more forex as they export their products and services. The SMEs are expected to benefit from expanded cashflows in the economy, triggered by more naira in circulation, to expand their operations. Many banks are also looking at raising new capital to expand their operations, writes Assistant Business Editor COLLINS NWEZE.
The unification of exchange rates has continued to generate diverse reactions from the business community with its impacts reverbrating across the economy.
But many have stated sone impacts the policy shift will have on the Small and Medium Enterprises include creating opportunity for savvy operators to export their products.
Analysts said that with increased cash flow from more naira liquidity in the economy, SMEs would have the opportunity to make more sales and expand their operations.
For the Managing Director, Sovereign Finance Company Limited, Olusola Dada, the reforms will boost export potential for many SMEs. He said products development that would attract dollar income would boost SMEs’ capacity.
He said more financial institutions were gearing up to support SMEs to grow into new market and earn forex.
Dada said the SMEs were the new hope for government in supporting economic growth and the forex reforms would impact positively on the operators.
Former Executive Director, Keystone Bank, Richard Obire, said export promotion was critical for economic growth and development.
According to him, capital importation in Nigeria is largely of the non-resident portfolio type, which easily takes flight at the slightest shock, adding that SMEs will bring about steady foreign capital inflows into the economy.
He said the forex reforms constituted an enabling environment for FDI inflows.
Besides, he said there should be transparency, consistency in export policy and regulation to boost the maritime industry.
New capital raising by banks
There are indications that some banks are gearing up for a major capital raise in response to various factors shaping the economic landscape, especially the reforms in the forex market.
It would be noted that Access Holding has taken the lead, after announcing in April the completion of a $300 million capital investment into its flagship subsidiary, Access Bank Plc.
Following Access Holding’s move, other banks have been prompted to assess their own capital needs and adopt proactive measures.
Fidelity Bank has a hybrid capital raising plan aimed at sourcing about N90 billion in new equity funds from existing and new shareholders.
In a regulatory filing at the Nigerian Exchange (NGX), Fidelity Bank indicated that it plans to issue 13.2 billion ordinary shares of 50 kobo each to new and existing investors would boost the bank’s capital base.
The board of directors has scheduled an extraordinary general meeting of shareholders for next month, to approve the planned capital raising.
Shareholders are expected to increase the share capital of the bank from N16 billion or 32 billion shares to N22.6 billion or 45.2 billion shares through creation of additional 13.2 billion ordinary shares of 50 kobo each.
Under the plan, the bank is seeking to float a public offer of 10 billion shares and a rights issue of 3.2 billion shares. The rights issue will be allotted on the basis of one new share for every 10 shares held.
At the current market valuation, market analysts estimated that the bank may be able to raise some N90 billion, although the final offer prices may be determined by the market situation and the extent of discount the bank prefers for its rights issue.
The bank explained that it needed the new capital to sustain its current strong growth trajectory in order to increase profitability, domestic and international expansion and enhancement of its digital capabilities.
“Advances in technology, the rapid evolution of the business of banking and changes in the operating landscape make it imperative that the bank remains agile, adaptable and properly positioned to respond appropriately to developments, whilst remaining a competitive and forward looking institution,” the bank stated.
According to the bank, the new hybrid capital raising is aimed at ensuring that the bank can take advantage of emerging business opportunities and secure long term profitability and competitive advantage, while ensuring increased shareholder value.
The board of the bank urged shareholders to approve the resolutions for the hybrid capital raising at the forthcoming meeting.
FBN Holdings Plc is also said to be planning to sell some of its shares as it bids to raise additional capital.
Financial analysts expect that issues around new capital raising may be discussed at the bank’s Annual General Meeting (AGM) scheduled for August 15.
The capital raising transaction is expected to be a way of Rights Issue but will be ultimately determined by the directors, subject to obtaining the approvals of relevant regulatory authorities such as Central Bank of Nigeria and Securities Exchange Commission. The capital raising may be either through Public Offer or Rights Issue.
Dollar bonds record gains
Domestic dollar-denominated sovereign bonds have experienced notable gains, reflecting the market’s positive sentiment.
The forex reforms rules have resulted in an increase in the price of the country’s eurobonds, with some issues reaching their highest prices in months. Issuance matured in 2023 up 2.4 cents to 78.625 cents, the highest in over five months.
It is worth noting that Nigeria has been grappling with severe dollar shortages, which have led many individuals to seek foreign currency in the parallel market. The implementation of the foreign exchange unification policy aims to address these shortages by promoting transparency, reducing the reliance on the parallel market, and aligning the naira’s value with its official exchange rate.
These efforts will contribute to a more stable and efficient foreign exchange market, providing individuals and businesses with greater certainty and access to FX.
Also, with the option to convert FX to naira through online banking platforms, customers can now avoid the hassle of withdrawing cash and resorting to the parallel market for currency exchange. This shift reflects the increased confidence in the unified exchange rate system and the government’s commitment to creating a transparent and efficient FX market.
The foreign exchange unification policy has created a great opportunity for small and medium enterprises.
Banks move to boost dollar availability
Commercial banks have taken certain measures to bridge the dollar supply gap, support local industry and preserve forex.
For instance, they have continued to appeal to International Oil Companies (IOC) to sell dollars to them now that the official and parallel market rate convergence is imminent.
The CBN has also permitted IOCs to resume the sale of dollars to banks in a move aimed at injecting liquidity into the Investors & Exporters (I&E) exchange market.
This followed the removal of CBN restrictions stopping IOCs from selling dollars to dealing member banks.
Forex dealers said the move would inject additional liquidity into the Investors & Exporters window and help address the backlog of US dollar demand in the market.
Since floating the naira and ending years of a hard currency peg that drained dollars from the economy and spooked investors, the CBN, under the Acting Governor, Folashodun Shonubi, is focusing on boosting dollar supply to help ease the pressure on the naira.
For instance, the new foreign exchange product by GTCO, the parent company of GTBank, allows a customer to change dollars to naira instantly on internet banking.
The bank said you could convert up to $50,000 to naira daily. However, to convert naira to dollar is not available.
The move is aimed at attracting customers with dollar inflows to official trading platforms and keep dollar circulation within the system instead of unofficial channels.
More foreign capital inflows
Aside SMEs, the new policy has also led to improved capital flows to the economy.
For instance, latest report on foreign portfolio investments (FPIs) released by the Nigerian Exchange (NGX) showed an all-positive mark for the investment market, with increased transactions by foreign and domestic investors.
Foreign portfolio investors were also retaining more funds in the Nigerian market, reversing the negative situation in the previous months when there were more outflows than inflows.
Total foreign transactions rose by 70.1 per cent in the second quarter of 2023 as against the first quarter, driven by 197.5 per cent increase in inflows.
FPIs net status – the difference between outflows and inflows – changed from a deficit of 49 per cent in the first quarter to a surplus of 43.9 per cent in second quarter.
The report indicated that retail domestic transactions increased by 40.70 per cent from N88.50 billion in May to N124.52 billion in June, showing that more Nigerians were optimistic about the economy, despite the immediate challenges that greeted major policy changes. Institutional composition of the domestic market increased by 19.9 per cent from N197.26 billion in May 2023 to N236.49 billion in June 2023.
Total FPIs transactions rose from N53.71 billion in first quarter to N91.37 billion in the second quarter. FPIs inflows tripled from N18.12 billion in first quarter to N53.9 billion in the second quarter. Total FPIs outflows, which had stood at N35.59 billion against inflow of N18.12 billion in first quarter, was less significant at N37.47 billion against an inflow of N53.9 billion in the second quarter.
Month-on-month analysis showed that total transactions at the NGX rose by 26 per cent from N322.92 billion in May 2023 to N406.75 billion in June 2023. Total foreign transactions increased by 23 per cent from N37.16 billion in May to N45.74 billion in June. Total domestic transactions remained upbeat, rising from N285.76 billion in May to N361.0 billion in June 2023.
The dearth of foreign inflows has been identified as one of the main reasons for Nigeria’s foreign exchange (forex) crisis, which reached a peak in April 2023.
The Managing Director/CBO, Optimus by Afrinvest, Ayodeji Eboh, said the reforms represented a turning point because with the new government, there would be short-term pains, which would ease as time progresses.
He said pointed the importance of substantial but consistent inflows of remittances and foreign portfolio investment (FPI) cannot be over-emphasised, as remittances account for the largest chunk of foreign exchange inflows.
“We expect a more market- responsive forex rate, which will boost investors’ confidence and enhance trade and capital flows. However, the path to naira stability would be somewhat rocky,” he said.
For many forex (FX) dealers and financial markets players, the exchange rate unification project, which saw the Central Bank of Nigeria (CBN) collapse exchange rates – the International Air Transport Association (IATA) rate, parallel market rate, Interbank Exchange Rate and Bureaux De Change (BDC) rate – into the Investors & Exporters (I&E) window, is good.
The policy shift entailed that dollar applications for medicals, school fees, Business Travel Allowance/Personal Travel Allowance, and Small and Medium Enterprises (SMEs) are processed through the I&E window- where rates are determined by market forces.
The policy narrowed the premium between official and parallel market rates, which is the first major consideration for foreign direct investment inflows.
In a circular to authorised dealers, the CBN Director, Financial Markets, Angela Sere-Ejembi, abolished the exchange rate segmentation.
She said the segments were collapsed into the I&E Window. She said the changes to the foreign exchange market also included the re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window.
