The use of foreign exchange (forex) to import commodities that could be produced locally and rising cases of forex speculation are giving the Central Bank of Nigeria (CBN) headache. Last week in Lagos, CBN met with banks’ helmsmen, forex operators and other captains of industry to address the matter. It also spelt out sanctions to defaulters, writes COLLINS NWEZE.
The coming weeks will be tough for forex speculators and importers, who misuse dollar allocations from the Central Bank of Nigeria (CBN) to import commodities that could be produced locally. That was the verdict of the CBN Governor, Godwin Emefiele, when he met with stakeholders in Lagos last week.
The urgent nature of the meeting implied that activities of speculators and importers are hurting the naira, foreign exchange reserves and the economy.
Giving the large dependence of Nigeria on oil and the level of importation of non-oil products, less dollar inflow from oil exports and high import bills have threatened external reserves with attendant impact on domestic currency.
Emefiele was quick to point out that the correlation between the crude oil price, exchange rate and reserves and how forex abuse has made the CBN’s role in defending the naira difficult.
He said between June 30 and December 31, last year, price of Bonny Light dropped by 50.7 per cent from $112.78 per barrel to $55.57 per barrel. It further recorded 15 per cent decline between December 31, last year and January 23, this year from $55.57 per barrel to $42.22 per barrel.
Also, he said the foreign reserve dropped by 12.3 per cent from $39.07 billion in July last year to $34.26 billion on January 22, while the naira depreciated by eight per cent and 13 per cent at the official and Interbank Markets last year respectively. The naira also depreciated by 5.6 per cent at the interbank markets as at January 23, this year.
These declines in macroeconomic indicators, he said, showed that as crude oil price rises, external reserves increase. It also proved that exchange rate appreciates with increase in external reserves and that external reserves dwindle as crude oil prices decline, which may lead to a depreciation of the naira.
To save the naira, reserves and protect the economy, Emefiele insisted that abuse of the forex must stop and has therefore, taken some steps to achieve this objective.
Steps taken
Emefiele told the stakeholders at the meeting that the CBN would no longer allow rice importers to access forex from the CBN, if the pressure on the naira does not recede. He regretted that so much forex was being wasted on importation of products that could be produced locally.
He stressed the need for local production of most of the commodities that are presently imported into the country, in order to strengthen the naira and develop the country.
“In the course of time, we are not going to ban the importation of rice, but we are not going to provide foreign exchange if you are going to import rice into the country. So if you are interested in rice, I will advise that you go into the production of rice. If you want to use your dollar that you have kept somewhere, there is no problem but at some point we will not allocate foreign exchange for you to import rice. The same way, we will graduate it to other products,” Emefiele said.
While dispelling fears of a further devaluation of the naira and the ability of the CBN to continue to defend the currency, he, however, gave the assurance that the apex bank would continue to provide foreign exchange for legitimate investors and businesses.
The CBN boss insisted that Nigeria had survived an oil price crash with $10 billion in foreign reserves, adding that at $34.2 billion, Nigeria’s reserve is enough to scale through the present oil price crisis.
“The important thing is that anyone who needs foreign exchange for legitimate purposes will get their forex. Even when the interbank is unable to meet the demands in the market, the CBN will, from time to time, step in. We will provide the foreign exchange that is needed to meet everybody’s legitimate demand,” the CBN boss said.
Sanctions for defaulters
Emefiele also threatened to withdraw the foreign exchange dealing licences of banks that engage in speculative demand for the dollar at the forex market. He said the speculative activities had led to artificial demand for the dollar and an unnecessary pressure on the naira.
“We will not hesitate to suspend the dealing licences of banks speculating on the dollar. Companies caught involved in sharp practices under the guise of seeking dollars to import items into the country will lose their licences,” he said.
Emefiele, who described currency speculative activities as sharp practices, said the CBN would not shy away from dealing with the unpatriotic behaviour because they could make the nation “plunder its external reserves and throw the country into crisis.”
For the CBN boss, frontloading demand for forex and other speculative practices have made the CBN to come up with certain measures aimed at stabilising the forex markets.
They include the review of banks’ foreign currency net open position, weekly forex sales to Bureau de Change operators, and increased scrutiny of items to been imported with the forex purchased from the banks. But, he insisted that local production of imported commodities remained the best way out of the quagmire.
Emefiele said the demand pressure needed to stop and that people engaging in speculative activities would lose money.
Stakeholders speak
The President of Dangote Group, Alhaji Aliko Dangote, said his company was planning to be the major seller of foreign exchange after the CBN by 2018. He also disclosed that Nigerian would be the biggest exporter of urea and ammonia by 2017.
He said: “Based on our plans we will be the highest foreign exchange seller in the market by the first quarter of 2018, and it’s not from just refinery alone”. Dangote will be investing about $9 billion to build a refinery expected to produce 500,000 barrels of crude oil per day.
Dangote also said the country could not continue to import consumables and “things that we don’t even need.” He urged Nigerians to get involved in manufacturing not only for local consumption, but also for export.
He advised the business community to support the government and the country by seeking to export commodities rather than import perpetually. “We need to set a foundation for the country’s revenue base. We need to become an exporting country after which we can then allow the naira to float without supporting it,” Dangote said.
A former Chairman of Diamond Bank Plc, Pascal Dozie, said the current challenges in the economy presented the best time for wise investors. He, however, advised the government on the need to restructure the economy, while urging the CBN to encourage fiscal authorities to ensure that the economy was diversified and that unnecessary expenditures are curtailed. “If there is no corresponding action from the fiscal authorities, the CBN will continue to be under pressure,” he said.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe said bureaux de change operators take issues bothering on the economy very seriously. He said his members would do everything needed to bring respite to the naira.
He also praised Emefiele for raising the weekly dollar allocation to BDCs from $15,000 to $30,000, adding that such policy would help them remain in business and support the economy.
Michael Okoro, a stockbroker based in Lagos, said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.
The official devaluation of the naira, he said, allowed the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.
“While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” he said.
Regulation of BDCs
The CBN has for long, been making changes in BDC subsector. On June 23, last year, the CBN, among other things, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000. Again, on July 7 last year, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of ABCON and both chambers of the National Assembly.
CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.
The CBN had recently given approval to additional 102 Bureau De Change (BDC) operators, bringing the total to 2,544 since the recapitalisation deadline lapsed in July last year.
The apex bank last August, published a list of 2,442 licensed BDCs, which it said, had complied with its new capital requirements of N35 million as at July 31, last year.
There were 3,208 registered BDCs before the expiration of the deadline. The CBN had in June, announced a new minimum capital requirement of N35 million for the operation of BDCs, up from the N10 million.
To ensure that forex dealers comply with the new capital requirements, the CBN had extended the deadline to July 31, last year. The forex dealers were previously given a deadline of July 15, last year. The apex bank had also stated that interest would be paid on the mandatory cautionary deposit of N35 million, based on banking industry savings account rate.
It, among other requirements, reviewed the mandatory cautionary deposit for BDCs upward to N35 million. The regulator had pointed out that on the expiration of the deadline on July 31, last year, that it would cease to fund any BDC that failed to comply with the new requirements, adding that “only BDCs that meet the new requirements would qualify to be engaged as agent by the licenced international money transfer operators for inward and outward transfer business in Nigeria.
The CBN has also directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions would henceforth be funded from the interbank foreign exchange market only. The policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the regulator.
