The much-awaited 2018 is here with lots of promises and opportunities for the economy. Financial pundits want the Central Bank of Nigeria (CBN) to focus less on inflation control which is stifling growth, sustain foreign exchange interventions and lift productivity drivers like Small and Medium Enterprises (SMEs) and manufacturers, through improved credit access, writes COLLINS NWEZE.
No one wishes to see the challenges that put the economy in jeopardy in the last year in this brand new 2018. But realising this wish would require proactive and intelligent decisions by the economy managers, especially the Central Bank of Nigeria’s (CBN’s) mandate to keep the inflation low, achieve stable exchange rate and ensure that interest rate is positive (above inflation rate) to encourage more people to save and enhance banks’ drive to grow the economy.
The CBN’s role is to deliver price, financial system stability and sustainable economic development using effective, efficient and transparent implementation of monetary exchange rate policy and management of the financial sector.
Financial pundits have advised the CBN to focus less on keeping inflation low, but lift productivity, drivers like Small and Medium Enterprises (SMEs), manufacturing, agriculture and other real sector operators have suggested.
Impressed by the rate of the economy’s recovery, the CBN Governor, Godwin Emefiele, is confident that the country will return to single digit inflation rate.
Former Executive Director, Keystone Bank, Richard Obire, said the CBN should stop selling treasury bills at attractive rates, which has made it easier for banks to invest and declare huge profits without contributing to economic growth.
“Banks should in the New Year support productive sectors of the economy and not just invest in treasury bills. The CBN should also leave inflation to take care of itself. The Ease of Doing Business should be improved on while the foreign exchange interventions should be sustained,” he said.
He commended the CBN’s efforts at stabilising the naira at both the official and parallel market. He said although the CBN has not fully succeeded restoring the local currency’s lost glory, but the regulator has won a major part of the battle.
For the first time in nearly eight months, the local currency sustained its stability against the greenback. Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, explained that at the parallel market, the naira traded flat against the dollar at N364/$ on December 28. The naira depreciated against the dollar to N365/$ before appreciating to N364/$ as the demand pressure from increased liquidity and foreign investors exiting their positions intensified.
“Parallel market rate has appreciated 34.6 per cent year-to-date; the introduction of the Investors and Exporters’ Forex Window in the market, accretion in external reserves and improved stability in the forex market all contributed to a stable exchange rate in 2017. Depreciated against the pound by 0.2 per cent to close at N484/£ while it closed flat against the Euro to close at N426,” he said.
At the interbank market, the naira appreciated marginally to close at N306.05/$ from N306.25/$ on December 14. The external reserves level increased by 2.9 per cent ($1.07 billion) during the period, to close at $37.92 billion on December 22. This was due to the proceeds from the Eurobond issuance. The import cover increased to 10.53 from 10.24 months on December 14. The gross external reserves have gained 46.75 per cent year-to-date.
A top manager in one of the Tier-1 banks said the CBN has done very well in stablilising the local currency against the dollar and that currency speculation was no longer attractive. The source said the CBN can actually pump in more dollars and bring the exchange rate lower, but the challenge would be sustaining the rates below its present status.
The source who spoke anonymously at the weekend, said the CBN has since January, spent over $7.7 billion to stablise the forex market. The Investors’ & Exporters’ FX Window currently records about $80 million daily turnover, with the CBN contributing about 15 per cent of the transactions.
The source said with Nigeria importing almost everything, it will be difficult to further strengthen the naira as such could become disincentive to foreign investors. “We need the foreign investors and they always consider the right value for the local currency. Any rate lower than this might not be favourable to the investors who will always want to get value for their investments,” the source said.
The Investors & Exporters Forex Window was introduced by the CBN on April 24. About $3.83 billion has been traded through the window since inception. The window has impacted positively on the naira. The window, where buyers and sellers are free to agree an exchange rate, was introduced to attract foreign investors and boost the supply of dollars.
There has been continuous improvement in dollar inflow into the market from offshore investors, a trend that has also reflected in the volume of transactions at the equity market. Before the window came on board, the CBN was the main supplier of hard currency on the interbank forex market, after foreign investors fled naira assets in the wake of an oil price slump in 2014.
Aside establishing the Investors’ & Exporters’ FX Window, the CBN also opened a special forex window for SMEs. The window, which allocates $20,000 per business per quarter, helps the SMEs import “eligible finished and semi-finished items” needed for their businesses. The CBN said the bank’s special intervention was necessitated by its findings that many SMEs were being crowded out of the forex space by large firms.
CBN Governor Godwin Emefiele, had earlier called for a change of lifestyles among Nigerians to sustain naira’s recovery against the dollar. He said in a campaign shared by the bank’s spokesman Isaac Okorafor: “The size of Nigeria’s reserves and the value of the naira critically depend on our lifestyles and on the value and types of imports we allow into the country.”
Emefiele’s message implied that a change in consumption pattern from foreign to indigenous goods would impact positively on the value of the local currency.
Association of Bureaux De Change Operators of Nigeria (ABCON) President Aminu Gwadabe said the CBN has succeeded in chasing away currency speculators. “There is stability in the parallel market, and we are happy that the foreign reserves have been climbing to new heights. The rising foreign reserve is a comfort for the CBN and I can assure you that currency speculators have to be careful,” he said.
However, some stakeholders attributed the naira’s woes to CBN’s inability to fully liberarise the foreign exchange market and allow the naira to float.
Sanction for forex abuses to continue
As long as Nigeria’s economy remains import-driven, the demand for foreign exchange (forex) will continue to be substantial.
Both manufacturers and other end-users always find one reason or the other to demand for forex including payment for production raw materials, schools fees or even medicals fees abroad. All these run into billions of dollars on weekly basis hence the need to ensure that only genuine forex demands are met.
This prompted the CBN to issue operational guidelines for banks dealing on forex as well as sanction those violating set rules.
That explains why commercial banks were last year hit with allegations of not keeping the rules guiding their forex transactions and these sanctions for forex violators are expected to continue this year.
CBN Director, Banking Supervision, Ahmad Abdullahi threatened to sanction any Deposit Money Bank (DMB) in breach of its earlier directive of March 3, instructing them to, among other things, open teller points for retail forex transactions and to have electronic display boards in all their branches, showing rates of all trading currencies.
While noting that the objective was aimed at creating awareness among members of the public regarding the availability of such facilities in branches of the banks at clearly disclosed prices, the CBN frowned at the banks for not fully complying with its directives.
The CBN had directed banks and authorised dealers to open a teller point for retail forex transactions involving Personal Travel Allowance/Business Travel Allowance and Small and Medium Enterprises (SMEs). Such facilities would make it easy for their customers and other forex users to buy and sell forex in all locations and ensure access to foreign exchange without any hindrance.
The CBN had also directed commercial banks to have electronic display boards in all their branches, showing rates of all trading currencies, which it urged customers to insist on in processing their forex transactions for invisibles and the SMEs window.
“The CBN has given the erring banks a four-week period, expiring on October 13, 2017, to fully comply with its directives or face regulatory sanctions, which it noted include but not limited to being barred from all future CBN foreign exchange interventions,” the bank said.
Manufacturers, end users get forex
Access to forex by manufacturers and other end-users has improved in recent months. There is currently enough forex for Personal Travel Allowances (PTAs) and Business Travel Allowances (BTAs), payment of school fees abroad, medical bills payment and other needs. That improvement has made positive impact on the economy and is expected to continue in 2018.
The manufacturing sector, which for nearly two years recorded poor performance, has been upbeat in the last three months.
Reacting to this development, Managing Director, Afrinvest West Africa Limited, Ike Chioke, said the recent improvements in the business environment coincide with the launch of the I&E FX window as well as higher oil prices and domestic crude oil production which have both culminated in increased FX supply.
“As the economic recovery is still fragile, the business cycle going forward will remain anchored by stability in the Niger Delta, developments in the oil market and domestic forex policies,” he said in an emailed report to investors.
Besides, the headline inflation rate has trended lower since peaking in January at 18.7 per cent and closed at 15.91 per cent in October while the exchange rate and the equities market have also stabilised rapidly.
Investment climate
Rewane said there will be investment shift from fixed income securities like Nigeria’s Treasury bill to equities market. Already, T-Bills rates have declined by an average of 5.68 per cent at the secondary market in the month of December. The yield on 91-day T/bills decreased to 10.98 per cent on December 28th, compared to 15.3 per cent on December 4th.
Likewise 182-day bills dropped to 13.76 per cent from 17.10 per cent at the beginning of the month. The decline was driven by reduced appetite for government securities, as traders shift to the equities market. This trend also is also highlights the possibility of the CBN adopting an accommodative stance next year.
IMF position
The International Monetary Fund (IMF) revised its projections for Nigeria’s growth to 2.1 per cent from 1.9 per cent. Short-term growth will be supported by higher oil prices and domestic production, increased forex liquidity and market deregulation. These will boost investor confidence, foreign direct inflows (FDI) and foreign portfolio inflows (FPI).
According to the fund, economic performance will be supported by improvements in the power sector and business environment. Short-term growth will be supported by higher oil prices and domestic production, increased foreign exchange (forex) liquidity and market deregulation. These will boost investor confidence, foreign direct inflows (FDI) and foreign portfolio inflows (FPI). Improvements in the power sector and business environment will also be positive for the private sector activity.
To ensure sustainable and inclusive growth, the IMF recommended a comprehensive set of policy measures. These include tax reforms, social safety programmes, and investments in infrastructure.
The fund said the second half of 2018 will be politically-driven. Thus, it said there will be increased government spending in the run-up to the elections which will be favourable for growth. On the other hand, investors may adopt the wait and see approach due to political uncertainties.
“Nigeria’s economy remains largely vulnerable to commodity shocks. Thus, lower oil prices, or a dip in domestic production due to militant activities will weigh on economic activity, and could possibly reverse current progress. Any delay in policy responses will also prove detrimental,” it said.
Oil prices touched $67.02 per barrel (pb) on December 26, before retreating to $66.44pb on December 27. The uptick in price was the aftermath of the pipeline explosion in Libya. The pipeline belonging to Waha Oil Company, supplies about 90,000bpd to the Es Sider Terminal, the largest depot in Libya.
Restriction on 41 items
The CBN restriction of 41 items from accessing forex from official windows was one of such policies by the regulator to resuscitate domestic industries and improve employment generation.
More than two years after the policy shift, its objectives such as encouraging local production of the affected items and boosting local industries suffocated by the importation of competing products are being realised.
The policy implementation was part of the homegrown solution introduced by CBN Governor, Godwin Emefiele, to sustain forex market stability and ensure the efficient utilisation of available forex to grow critical segment of the economy.
This policy implies that, those who import these items can no longer buy foreign currency from the official window to pay the overseas suppliers. Rather, they will have to source forex from the parallel market or BDCs to pay for their imports.
Emefiele said the bank has been developing home-grown policies to surmount challenges that confronted the economy in recent times.
For instance, over the last 10 years, the CBN had invested over N2 trillion in funding agriculture, Small and Medium Enterprises (SMEs) and other manufacturers in the agriculture value-chain. The regulator said the apex bank would continue to support operators in the agriculture, SMEs and manufacturing enterprises through its development finance initiatives, with a view to complementing the Federal Government’s efforts at diversifying the economy and ensuring that the nation is self-sufficient in food production.
Demand from BDCs
Gwadabe appealed to the CBN to help BDCs reduce rising bank charges associated with their transactions. “BDCs are charged N1,000 per N1 million transaction and with each operator paying as much as N67,000 for the N67 million monthly transactions. These charges are too high, and I urge the CBN to help reduce the charges which are becoming huge burden on BDC operators,” he said.
Findings showed that each of the 3,500 BDCs carry out transactions worth N16.8 million weekly, which comes to N67 million turnover and N67,000 maintenance fee monthly.
He disclosed that this fee has made it difficult for many BDCs stay profitable in the business because of the rising operating costs and including overhead. “I appeal to the CBN to address this challenge so that the market will continue to enjoy ongoing stability,” he said.
The CBN had directed licensed BDCs to ensure that all their transactions have the BVN of the buying customers. The information must be included in the forex returns to the regulator. In the case of corporate customers, the BVN of a director of an authorised signatory of the entity must be provided to the BDC.
Gwadabe explained that to ensure a hitch-free implementation of the directive, the CBN has continuously provided list of all licensed BDCs to the NIBSS to enable the firm make available the necessary hardware token that would be used by the BDC in accessing the NIBSS portal.
The NIBSS has subsequently made the portal available on its website to facilitate access for the confirmation/validation of the BVN number of the BDCs’ customers.
Gwadabe disclosed that all forex-buying customers’ BVNs must be validated by the CBN authorised forex dealer through the NIBSS portal before all transactions are consummated. He said that ABCON carried out the sensitisation to ensure that BDCs effectively comply with the directive.
The ABCON boss, Gwadabe, praised the CBN’s drive to stabilise the forex market, stem the rampant cases of forex leakages and illicit money transfer from the country.
He said that ABCON will continue to align with the CBN’s vision of providing a stable framework for the economic development of Nigeria through effective, efficient, and transparent implementation of monetary and exchange rate policy, and management of the financial sector.
Gwadabe said the ABCON will continue to work closely with the CBN to ensure BDC operators abide by regulatory rules. The ABCON under Gwadabe has also pledged to ensure that forex purchased by BDCs are disbursed to end users and for eligible transactions only.
The BDCs, he said, will continue to render returns on forex purchases from the CBN to Trade and Exchange Department of the apex bank. He further promised to ensure strict compliance to the provisions of the anti-money laundering laws observance of appropriate Know-Your-Customer (KYC) principles in the handling of forex transactions.
The BVN, which captures customers’ biometric data, such as fingerprints, provides unique identification number for the customers and protects their accounts from unauthorised access, identity theft and fraud.
