The United States dollar still has the power to make men bow and tremble, and its gravitational pull is still strong enough to make women swoon. But something tells me that its run as Nigeria’s premier medium of exchange is finally coming to an end.
At the height of its power, the U.S. dollar was not merely a medium of exchange; it was the medium of appreciation, estimation, coercion, reckoning, seduction, speculation, and valuation. I will go so far as to say that it served as a medium of expression more comprehensive than any language in contemporary use.
It was brutal and oppressive while it lasted. It corroded everything it touched or was associated with it, however tangentially. But all that is gradually coming to an end.
It is being supplanted in every department by an unlikely commodity: rice, or any product that goes by that name. And the victims of the looming defenestration of the American dollar are the very people it had catapulted to undue prominence, if not eminence.
Last week, one U. S. dollar translated into more than N1,400. This is not a misprint; I looked it up. That is a lot of re-designed Naira. But be not deceived by the dollar’s apparent strength for, according to the best authorities, the low or no-income earner who has never set her eyes upon the greenback, the Naira is no longer what it used to be. And while the American dollar still has its uses, the crucial issue is what it can buy.
And here, in the domestic economy, the decisive issue is this: How much rice on open and defiant display in the market or in clandestine trade in warehouses run by syndicated smugglers can it bring to the table?
For the first time since the second, third and fourth windows were opened in the foreign exchange market that was the centrepiece of military president Ibrahim Babangida’s Structural Adjustment Programme, the Naira is now exerting a greater pull on the dollar than the dollar is exerting on the ragged, torn, wrinkled, crinkled, pre-Mefi banknotes
But, to the lady who keeps a watchful eye on the pin money, it is all a conjurer’s trick, or probably the product of a conspiracy between the men in the pin-striped suits who run or think they run the banks, and the visiting expatriate Nigerian with the swagger and a matching attitude. Put to him the question of the day: How much rice, to the nearest cup, does he think the dollars buy in the marketplace? That is the ultimate test.
The dollar fails the test. For, the answer is: Not enough. A better answer is: Never enough.
That same question now haunts Nigerian expatriates in the United States relentlessly. And its answer is the full measure of the worth of the dollar in most households, and the ultimate metric of the value of the Nigerian expatriate’s contribution to the wellbeing of his folks back home.
You can almost hear them hiss and curse under their breaths as they decode the bank alert on your latest remittance. Seventy thousand and Naira, they intone. It will fetch only a 50-kilogram sack of shakashaka that passes for rice, if that.
If you really cared, Americana, if you wanted them to eat a higher grade or rice that is not a clear and present danger to their dentition and their gastronomy, you have to come up with another N20k or so to get them a sack of rice of a higher grade. And that is all they are asking for. Not the premium grade.
And surely, you have not been gone so long that you have forgotten that making a pot of the thinnest soup that you could safely eat with the rice is a separate proposition altogether, its cost almost as daunting as the cost of the grain itself.
If you live in the United States, or what some people back home call the Dollar Zone, probably to draw indiscreet and possibly unhealthy attention to your comparatively privileged situation, you are assailed time and again by messages sent through methods so ingenuous that you could have to be a Microsoft-certified computer programmer to block them, or to make the case that they never reached you.
If you could take physical hold of the printout in its ethereal form, I am sure you could squeeze a cup or two of the tears that must have cascaded down the writers’ brows onto the keyboard and percolated right to the inner workings of the system.
They are invariably stories of unremitting hard luck and bad luck. Once in a rare while, when you are about to breathe a sigh of relief that a message with more than a hint of something to cheer has bobbed up, you encounter a dispiriting stipulation. It would all depend on your ponying up to a scheme that had been tried, tested and perfected in Afghanistan, Tadjikistan, Corsica, Las Vegas, and Cape Verde, among other forward-looking places.
Rapid results guaranteed. Send $5,000 only with completed application you can download for free.
Only those not seized of the centrality of rice in the national economy or the domestic economy of individual homes could have worked up a wholly unnecessary fuss the other day over the disclosure that, while Nigeria was on Covid lockdown, hundreds of billions of Naira went into providing lunch Mondays through Fridays for school children in some parts of the country, of which rice of the choicest kind was the main dish.
Transnational and cross-cultural research has shown conclusively that thousands of them went to school on empty stomachs, as a result of which they learned little and quickly forgot the little they had learned. An incentive to get them to school and keep them there during opening hours was clearly indicated, the researchers submitted.
They recommended unanimously in a landmark paper that, based on their findings, rice meals were far and away the most cost-effective means ever devised.
It worked for a while. Thereafter, researchers noticed a curious development that nothing had prepared them to expect. The students came late in droves, usually close to lunchtime, signed in, had their meals, and trooped out of the premises quietly. This led to the programme being called unkind names, among which was the “chop-and-quit” scheme.
Nobody knows for certain what followed, but the belief in usually informed circles is that Covid or no Covid, instead of slackening, demand for services actually increased. The good lady administering the programme – bless her, kind caring heart – felt obliged to keep it going until the money ran out if she could not expand it
And instead of showering her with high praise, they have been pillorying her.
As for the pernicious mystique of the dollar, it is ended.
The depreciation of the Naira at the official and parallel markets is taking a heavy toll on dollar borrowers’ businesses and profitability. The borrowers are not only battling with the scarcity of dollars in both markets but also paying high premiums for the same value of dollars borrowed. In a period of exchange rate volatility, businesses and individuals taking dollar loans are advised to de-risk the facilities by channelling the funds into operations that generate dollar revenue for easy repayment. Dollar borrowers are expected to properly assess and tackle currency risks associated with the loans to avoid default, writes Assistant Business Editor, COLLINS NWEZE.
Businesses face known setbacks emanating from poor power supply, infrastructure deficits and high credit costs which only a few operators can survive.
The top lists hardly included dollar shortage-induced currency risks faced by businesses that took dollar loans. One such borrower is the Managing Director of Outsource Merchants Limited, Chisom Obinna.
When the Lagos-based entrepreneur was in dire need of a loan to complete an ongoing import project, a family friend, who, in the first quarter got a huge payoff from a top oil company came to his rescue by offering him soft loans at zero interest.
The creditor, who was last year paid off by Addax Petroleum Limited, following a take-over deal with the Nigerian National Petroleum Company Limited (NNPCL), gave Obinna a $10,000 loan payable before this year’s end.
But the loan came with a caveat. It must be repaid in dollars, not naira. The creditor had explained that he needed to hedge his funds against currency risks given the rate at which the naira has depreciated in the last year.
The creditor said the confidence in the naira as a means of transaction settlement had significantly dropped after the local currency lost over 30 per cent of its value in 2022, and is projected to record over 40 per cent depreciation this year.
The naira has lost over 38 per cent of its value since June when the Central Bank of Nigeria (CBN) adopted a unified exchange rate structure and collapsed all rates into the Investors’ and Exporters (I and E) window.
“I had no option but to accept to repay the loan in the same currency it came: US dollars even though I needed a loan in naira. I knew the risks of paying back in dollars because of the currency risk, which is real but that was the only way I could access the loan. It cost us an extra N10 million to source the $30,000 loan during the period of repayment in October,” Obinna said.
The dollar crunch, triggered by a sharp drop in dollar revenue and reduced investment inflows from Foreign Direct Investments, forced the CBN to ration dollar supplies to key sectors of the economy, forcing many businesses whose input costs are in dollars to incur heavy costs.
The naira at the weekend, exchanged at N1, 160/$1 in the parallel market, and N890/$1 in the official market. This created an N270 premium between the parallel and official markets. The local currency has lost over 40 per cent of its value in both markets this year.
Aside from creditors insisting on lending in dollars and getting paid in dollars, some businesses whose input costs are priced in dollars also offer their services in dollars to hedge against currency risks. Others who cannot do so, are raising the cost of their products and services to absorb the high cost of dollar loan repayment.
Other services such as pricing and payment for private jet charter in dollars, allocation of 50 per cent salary for oil and telecom workers in dollars and house rents in several parts of Lagos, Abuja and Port Harcourt priced in dollars have come to buttress the rising power of the dollar in domestic transaction settlement.
The Chief Executive Officer of Falcon Aerospace Limited, Chukwuerika Achum, said its three premium services, Vivajets, CharterXE and FlyPJX- designed to ease business jet booking and promote inclusive access to services- are all priced in dollars.
“The naira depreciation fears in sectors where inputs are in dollars have made us price our services in dollars to hedge against currency risks,” he explained during the launch of the service in Ikeja Lagos.
Bismarck Rewane, an economist said the naira crisis has increased the cost of aviation fuel (Jet A1) and raised operating costs for airline operators.
For instance, Jet fuel prices rose by 60 per cent to $2 per litre, up from $1.08 per litre in 2022. This has increased the cost of airfares, triggered lower demand for flights and weighed on revenue.
The Group Managing Director of C and I Leasing Plc, Ugoji Lenin Ugoji said the company is careful about taking dollar loans because of the risks associated with it, at this time.
He said the company had to increase its forex revenue and reduce dollar loans to avoid asset mismatch. “That decision gives C and I Leasing good stability to withstand turbulence,” he said.
Ugoji said the availability of foreign exchange for businesses will be a deciding factor in how well the economy performs in 2024.
He said many foreign investors were interested in coming into the country but they also want to be assured their investments in naira are safe.
He said: “The CBN remains in the best position to advise the government on the steps to take to overcome the ongoing forex crisis. However, businesses are advised to plan their forex transaction decisions wisely. There is nothing bad if 30 per cent of a company’s loans are in dollars, but it also needs dollar revenue to pay the dollar debt.”
Strategies to beat the dollar crunch
Nigerian banks that, a few years back, featured prominently in funding dollar transactions for clients are now turning their back on such deals as dollar scarcity persists.
Manufacturers are resorting to homegrown substitutes for imported raw materials to stay in business.
Currently, the pains and agonies of import-dependent businesses have continued to soar in an economy where people’s purchasing power is waning.
At the Ladipo Market in Lagos, motorists now buy locally-fabricated vehicle shock absorbers, brake pads and even engine oil as prices of imported versions go out of reach.
The Managing Director of Bendock Limited, Steven Abiodun said demand for foreign goods has dropped as prices soared with many Nigerians looking inwards for the closest substitutes of products and services.
“The naira exchange rate at the parallel market stood at N1, 160/$1 making goods and services linked to the dollar unaffordable for anyone with a legitimate cause. Importers have run out of options and face consumers whose income cannot accommodate new price hikes and are going for local substitutes,” he said.
Banks move to preserve Forex
To bridge the dollar supply gap, support local industry and preserve forex, commercial banks have commenced a Bank Verification Number (BVN) watch list for customers who diverted dollars disbursed for foreign trips to other uses.
The affected customers obtained Business Travel Allowance (BTA) and Personal Travel Allowance (PTA) for their foreign trips fraudulently or failed to follow set rules for such transactions.
Findings showed that banks are now publishing the names of the defaulting customers on their websites to show seriousness in the implementation of the sanctions.
A check on several banks’ websites showed that over 6,000 customers are booked by the lenders on a monthly basis for forex infractions.
The affected customers’ BVNs were also listed alongside their names in what banks tagged “PTA/BTA Defaulters’ List.”
The banks are also maintaining a list of defaulters, and applying sanctions specified by the CBN, including such defaulters not allowed to access forex from official windows in the future.
The CBN had called attention to incidents of customers presenting fake documents such as expired passports, invalid flight tickets or open tickets that are cancelled after they acquire forex.
To reduce forex diversion, commercial banks also commenced card-based dollar disbursements to travellers in need of dollars-PTA and BTA. The travellers were previously paid in cash.
While First Bank customers now use the First Bank Travel Card to access PTA and BTA, Access Bank customers rely on the Access Travel Debit Card and Unity Bank customers use the Unity Travel Card, among others.
The banks have equally cut PTA and BTA by 50 per cent from $4,000 to $2,000, even as they reduced requests to twice a year from once a quarter.
Aside from these steps, international school fees and upkeep requests are to be processed within 120 days from the date of approval.
Banks have also directed that all such applications are processed and disbursed subject to forex availability and proper documentation provided the account to be debited is sufficiently funded to cover the Form A charge and other processing fees.
Views from stakeholders
The Group Managing Director/CEO of Zenith Bank Plc and Chairman of the Body of Banks’ Chief Executive Officers, Ebenezer Onyeagwu said banks are working with the CBN to ensure that all issues around Forex Forwards are resolved to strengthen the naira.
He said: “FX Forwards has been caged and the banking sector is moving. By the next two weeks, FX Forwards will end even as the banking industry is ready to support the CBN to achieve its goals of exchange rate stability.”
The Managing Director of Afrinvest West Africa Limited, Ike Chioke believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy.
For him, the persistent pressure on the naira could have been minimised if a counter-fiscal policy had been developed.
“To reduce this pressure, an inward-looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods,” Chioke said.
He explained that the drop in Nigeria’s oil production and oil theft have reduced dollar earnings and worsened the naira decline.
He said: “As oil production dropped due to oil theft and insecurity, dollar earnings have also dipped,” he said.
Continuing, Chioke said: “In the meantime, authorities should double down on efforts to check insecurity, curb oil theft, tame inflation, anchor market yield on Monetary Policy Rate, and improve the business environment. The sustained high demand for FX in the parallel market due to lingering weak supply in the official market coupled with inefficient processing time would continue to undermine the objective of ongoing reforms in the financial markets.”
Head of Macro-Strategy at FIM Partners and former Global Chief Economist at Renaissance Capital, Charlie Robertson agreed with Chioke.
Robertson noted that the Nigerian economy has been going through a rough patch since 2014 when the price of oil crashed. He explained that a persistently high inflation rate means a persistently weak currency.
Robertson’s views, contained in his earlier advice to the CBN, urged the regulator to focus more on controlling inflation. “If the CBN can get inflation to three per cent and sticks there, then, in 10 years, the naira could be N400/N450 per dollar. So, it’s all about inflation and the central bank’s success in fighting it,” he added.
He said the exchange rate or the external value of the naira is the most important price in the Nigerian economy as a lot depends on how the exchange rate is managed, from the inflow of foreign investment to how much domestic industries invest and how many Nigerians are employed.
In emailed notes to investors, the Trading Desk Manager of AZA, a global forex trading firm, Murega Mungai said the depreciation of the naira will continue until there are regulatory sanctions against illegal forex dealers, especially exporters who fail to remit export proceeds to government coffers as spelt out in the CBN’s Foreign Exchange Manual.
The Managing Director of Economic Associates, Dr Ayo Teriba said there was a need to recognise that the challenge with the forex market is supply-shortfall related and take critical steps to bring market and regulatory transparency.
He said: “Just like what you have when there is a food shortage. You need to open your grain reserves to boost supply and prices will adjust.”
Teriba said the government should look at ways to boost dollar supply, including allowing foreign investors to take equity in national assets to raise dollars that would boost naira. He also called for a competitive forex market, where everyone is on a level playing field.
“Aside from the banks, other players in the market, including bureau de change operators should have equal access to the market. Banks are not licensed to trade forex, but the CBN has given them that role and excluded BDCs that have the right license for the transactions. There should be freedom of entry and exit for even Fintechs to play in the market, and every dollar earned will add to the market liquidity,” Teriba advised.
The former Registrar of the Chartered Institute of Bankers of Nigeria (CIBN), Dr. Uju Ogubunka said Nigeria’s trade balance has been weakened by its inability to produce and earn enough forex.
He said Nigeria must find new ways to boost production to earn more dollars and boost foreign reserves. Ogubunka, who is also the President of Bank Customers’ Association of Nigeria said aside from boosting production, there is the need to tackle insecurity to enable farmers to go to their farms.
He said such an effort will help increase crop yields and bring more dollar earnings for the economy that will firm up the naira to protect businesses and individuals that take dollar loans.
According to him, insecurity and political uncertainty are delaying several corporate investment decisions that would have brought in more dollars to the economy.
The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Dr Aminu Gwadabe called for stiffer measures on platforms for cryptocurrency traders as they have become a conduit for diaspora remittances diversion. He called for the review of the financial architecture to include BDCs in the harmonised forex market.
Gwadabe said there was a need to encourage market participants to source forex from independent windows to boost liquidity. According to him, exchange rate unification can only thrive where the market participants are given an enabling environment and all players are treated fairly and equally.
CBN tackles forex market fears
The CBN Governor, Olayemi Cardoso said a thorough assessment of the economy revealed significant challenges, including high and rising inflation, inadequate foreign exchange supply; depreciation of the exchange rate, limited external reserves, weakened output and high unemployment.
These challenges, he said, have led to increased interest rates, discouraging investments in productive activities.
“Within the banking system, high inflation has affected asset quality and solvency ratios. Additionally, the persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures,” he said.
Cardoso said: “Considering recent developments within our domestic economy, it is evident that we are facing significant macro-economic and social challenges. These challenges stem from a variety of factors, including adverse global shocks, unfavourable domestic imbalances, structural rigidities, and the unintended consequences of certain corrective policy measures implemented to restore and realign our macroeconomic landscape.”
For instance, the continuous decline in Nigeria’s crude oil production has further weakened its already inadequate economic diversification. This has led to a decline in government revenue and foreign exchange inflows, while simultaneously witnessing a growth in public expenditures and a deterioration in macroeconomic indicators, which has constrained its policy options.
Consequently, the country has witnessed the fiscal deficit and public debt increase, placing additional strain on external reserves and contributing to exchange rate instability.
To ensure stability, curb speculation, and restore confidence in the foreign exchange market, the CBN recently lifted the ban on 43 items from accessing the official foreign exchange market, allowing market forces to determine exchange rates based on the Willing Buyer – Willing Seller principle.
Cardoso noted that the 43 items were never outrightly banned by the government.
“The CBN had imposed restrictions on their access to foreign exchange in the official market. However, these restrictions resulted in increased demand for foreign exchange in the parallel market, leading to the depreciation of the exchange rate in that segment of the Nigerian Foreign Exchange Market (NFEM) and widening the premium between the parallel and official market.”
“Studies show that during the period when the 43 items were restricted, there was a 51 per cent increase in trade evasion by importers accessing the foreign exchange market, resulting in a revenue drop of approximately $1.4 billion, or $275 million annually, between 2015 and 2019,” he said.
Other stakeholders said the most important determinant of the value of the naira is productivity and competitive state of the economy.
For them, other factors like terms of trade, inflation differential, public debt, current-account deficits, interest rates, political stability and overall economic health also determine the naira exchange rate which is central to what becomes of dollar borrowers and their businesses.
Those hoarding dollars and back market operators risk losing their deposits.
The new monetary policies of the Bola Ahmed Tinubu administration and the Central Bank of Nigeria (CBN) will shock speculators, Vice President Kashim Shettima said yesterday.
Shettima dropped the hint at the lecture/launch of a book titled: “Cowries to Cashless,” which coincided with the 65th anniversary of the Central Bank of Nigeria (CBN).
The vice president said government will soon roll out policies that will firm up the dwindling fortunes of the naira.
According to him, the President thinks far ahead of currency speculators.
At the launch were economic experts, scholars, businessmen and women, captains of industries and policymakers.
“The future of money, digital space and Central Bank of Nigeria” was the topic for discussion.
Represented by the Special Adviser to the President on Economic Affairs, Tope Fasua, the vice president said naysayers have cause to fear.
He said: “For those who are speculating and praying and wishing that the currency would become nonsense, I believe that the policies being rolled out by the CBN and the government that I serve, led by President Bola Ahmed Tinubu, will shock some of them very soon.”
On what the government plans to do, he said: “You need to listen to the man himself (Tinubu). You will see that the level at which he is thinking, he is far ahead of most of us.
“You know he has some very great ideas coming up. Some of them are what you’ve seen the reverse in the fall in the value of the naira, but he has also challenged us to review forward many of the targets. For example, the idea that Nigeria’s economy will get to a trillion dollars. He wants to achieve it by 2026.
“People thought the naira would continue to lose value and that was what I was mentioning. So, when someone is a visionary, leadership is about vision, and the man has the right vision for this country.
“To back it up, he has passion for the country; he believes in the country. For anyone who has that, you have to be fearful of betting against his policies.
“Like I said, you know that a weak currency is not something to brag about. And you have to be strategic if you want to position your exports properly; you have to be strategic in terms of the value of your currency.
“So, you will see all of these, including efforts from the fiscal side by the Minister of Finance/Coordinating Minister for the Economy (Mr. Wale Edun). We have patriots running the economy right now. And naysayers have to be very, very afraid.”
The CBN Governor, Mr. Yemi Cardoso, who was represented by the Director of Banking Supervision, Mr. Mustapha Haruna, hinged the current economic challenges on several macro-economic issues.
He attributed them to the lingering impact of the COVID-19 pandemic and the ongoing Russia-Ukraine war.
Cardoso said he believed that the book (Cowries to Cashless) captured the evolutionary journey in the history of the CBN, adding that he expected several landmark developments — especially from the use of cowries to manilas and the more contemporary and modern era of cashless options.
Recalling the evolution of the apex bank, particularly with the local payment system in the last two or three decades, the CBN governor acknowledged the deepening of transformation in the sector by the cashless policy implementation.
Cardoso said: “One of our strategic priorities in this effort is to foster financial inclusion and I’m very sure you will also relate to the progress we have made based on the current numbers.
“We have financial inclusion in the neighbourhood of about 64 per cent. Over 64 per cent of Nigerians have access to formal financial services. Our vision is to push the boundaries to over 95 per cent and we are well on course, in achieving that objective.”
The CBN boss assured that the CBN would continue to collaborate with the key stakeholders, particularly the fiscal authorities to ensure that it addressed a number of the essential issues and challenges that we currently face.
Sir: Nigerians have been discussing the unbanning of 41-turned-43 items with hyperbolic venom quite similar to its obnoxious ban as if the country has no constitution or that the operators of our economy are from mars or Jupiter.
As the hawks gather to shoot down this laudable move by the new CBN management, one critical question is whose dollar are we sharing in isolation and in utter discrimination of some economic actors? The other is, how have we fared since the ban in 2015 in terms of pricing and inflation? The third is, what do we stand to lose with the ban removal?
Let me start with the last: Nigeria has nothing to lose with the unbanning of those inputs from forex. But has so much to gain in terms of more revenue accruing to the country in forms of import duty payment, VAT and other taxes. Secondly, direct and indirect jobs will be created as most of the items are inputs to production. Thirdly, Prices will drop in view of engendered competition which will positively impact demand and supply.
Comparatively, prices have soared since enactment of the ban for several factors ranging from monopoly to inflation due primarily to forces of demand and supply. In specific term for instance, cement which sold for N1,500 per bag before the ban now sells for N5,500. In addition, the nation lost so much revenue for circuiting supply. It is on record that members of Cement Producers Association of Nigeria, CEPAN, generated over N50billion in terms of revenue to customs and another N13billion investment in technology funds. Paradoxically, clinker, gypsum, cement and other raw materials are mere inputs to production of ordinary Portland cement, and veritable pathway to various backward integration programs and greenfield projects. This has been the policy, and the discussion can be expanded into the Atlantic Ocean. What it means is that local investment in production was lost, jobs were lost, factories were shut down, revenue lost, only pricing gained by going out of the reach of the common man.
On the first question, “whose dollar?”.
Under our laws, discrimination against citizens is a serious crime. That we have allowed our country to run on wheels of impunity, discrimination, favouritism and lawlessness is unfortunate and must be discontinued.
The CBN should be commended for taking this bold step. The action is not intended to encourage imports as being misinterpreted, but to empty genuine requests of the greenback into one legitimate basket and legitimate market. It is the surest path to backward integration.
• The Central Bank of Nigeria has joined forces with commercial banks to ease the $10b forex backlog
As an import-dependent economy, Nigeria needs enough dollar inflows to power its businesses. The task of building a productive economy is being stalled by limited access to forex, posing significant challenge for businesses and individuals conducting international transactions, investments, and other cross-border financial activities.
Many manufacturers and other real sector operators importing raw materials regularly submit dollar purchase bids and fund their naira accounts with banks or Central Bank of Nigeria (CBN) to get forex for imports. That practice continued and thrived for decades until dollar demands began to exceed supplies, creating a huge backlog estimated at $10 billion. In the backlog are dividend payments and profit repatriation to home countries by multinationals operating in Nigeria. Forex requests by parents paying their children’s tuition fees abroad, Nigerians paying medical bills abroad, travellers sourcing business travel allowances (BTAs), and personal travel allowances (PTAs), among others have also added to the demand pressure.
In recent years, these requests have suffered delays due to a shortage of dollars, a decline in Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) inflows, a decrease in foreign reserves, and other offshore investment opportunities. This surge in unsettled forex requests has intensified pressure in the forex market, directly competing with regular forex demands. This situation not only harms businesses and weakens the value of the naira but also undermines investors’ confidence in the economy.
The naira is currently experiencing one of its most significant periods of volatility in recent history. Last Friday, it traded at N930/$ in the parallel market and N722/$ in the Investors and Exporters (I&E) window, which is the official market rate. This crisis is primarily attributed to the mounting pressure from un-cleared forex demand during a period of pronounced forex scarcity in both official and parallel markets.
Economist and Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, shed light on the reasons behind the ongoing depreciation of the naira. He explained, “As oil prices dropped, the Central Bank of Nigeria (CBN) prioritised exchange rate stability in the official market. It created an exclusion list of imports that are not funded in the official market, diverting forex demand for these items to the parallel market, causing rates in that market to soar.”
Amidst persistent market volatility, the news of a $3 billion emergency loan from the African Export-Import Bank to stabilise the volatile forex market, facilitated by the Nigerian National Petroleum Company Limited (NNPCL), brought some relief to the market. This loan, though experiencing unexpected delays, is expected to provide immediate disbursements to enable NNPC Ltd to support the Federal Government in its ongoing fiscal and monetary policy reforms. Additionally, it aims to stabilise the foreign exchange market, meet forex demand, and enhance the value of the naira. While waiting for the release of the NNPC facility, stakeholders have devised a plan to address the backlog of forex demand and increase dollar liquidity.
Richard Obire, former Executive Director of Keystone Bank Limited, expressed his view that the $3 billion forex support secured by NNPC from Afreximbank on behalf of the government is insufficient. He stated, “It is not even close to half of the $10 billion forex backlog figure you mentioned, assuming the backlog isn’t even larger. Furthermore, we still need to cater to the current forex needs of individuals and various organizations, including businesses. So, while the $3 billion helps when it arrives, it is still like a drop in the ocean.”
Obire also emphasised the need, in the short term, to increase oil sales to meet OPEC quotas, which involves tackling crude theft. He said: “Non-essential forex requests of the government sector should be suspended or cancelled. MDA services in the maritime sector priced in dollars should be paid for in Naira by local entities while bilateral arrangements/accommodations should be worked out with lenders to restructure loan servicing and related payments.”
He also recommended that Nigeria reactivates and operationalises the currency swap deal with China, increasing the limit from $2.5 billion to at least $5 billion, specifically covering production-driven inputs.
Dr. Aminu Gwadabe, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), highlighted the opportunity for increased dollar inflows into the economy, thanks to NNPC’s output increase from one million barrels per day (mbpd) to 1.8mbpd. He proposed that BDCs, through their strategic partners, should be given autonomy to import cash to meet clients’ needs in the retail end of the market. Gwadabe also advocated for a decentralised, democratised, and de-monopolised mechanism for diaspora remittances, suggesting that proceeds from export processing zones, logistic companies, and International Oil Companies (IOCs) should be activated using Licensed BDCs. He emphasised the importance of continuous stakeholder engagements, as BDCs remain the effective transmission mechanism of the central bank’s monetary policies. He also stressed the need for enhanced market intelligence and monitoring systems for operators.
Expressing concern about the rapid depreciation of the naira, he criticised the widening gap between the I&E window rate and the parallel market rate, which he believed encouraged illegal economic activities like speculation, forex hoarding, arbitrage, and frivolous demand. He argued that the volatility in the parallel market had pervasive and harmful effects on the economy. To address the ongoing naira crisis, Gwadabe suggested that the central bank should reconsider suspending BDCs’ operations in the harmonised I&E window, as they play a crucial role in enhancing liquidity and maintaining exchange rate stability in the market. He also proposed that the NNPCL should suspend any deductions from the sales of crude oil to the CBN to boost reserves and build confidence in supply.
He further highlighted that uncertainties among foreign investors were affecting investment decisions and recommended that the central bank should open up the diaspora remittances sector to multiple players, allowing BDCs access to proceeds. Additionally, he suggested that IOCs should be permitted to sell their foreign currencies in an open and transparent manner to inject liquidity into the market.
CBN, Bankers’ Committee and banks step in
CBN Acting Governor, Folashodun Shonubi, said the CBN is working with commercial banks to clear the backlog through different structures within the forex market. He said the banks, which control 75 per cent of the forex transactions, will play significant role in seeing that the backlogs go. “As matter of fact, there is a large amount of the obligations that the banks in Nigeria have already taken on. So, what happened was that at maturity, they actually make the forex available for those who needed to use them like importers and what have you,” he said.
Continuing, Shonubi said: “There are some customers who still have their obligations and part of the restructuring with the banks in Nigeria, is also to clear that backlog. That is something we have been discussing for a while. I expect that we will do that, within the next one or two weeks”.
“What that means, therefore, is that this obligation that people keep on talking about will not be left. Today, we still intervene in the market, so it is not as if it has affected our ability to make monies available to banks in the Investors and Exporters foreign exchange market,” he stated.
Shonubi explained that considering the volume of forex interventions, role and the depth of the CBN intervention is overemphasised. “When we look at the volumes, the Central Bank of Nigeria today contributes less than 25 per cent into the forex market. And the aim if you remember about a year and a half ago, was that the central bank did not want to be a regular player, but more of intervening to stabilise the rates and that is where we are going,” he said.
Shonubi said a lot forex transactions go on through the commercial banks without the CBN’s input. “There are so much more foreign exchange that people don’t talk about, that is being made available through the banking system and banks are selling to their customers. It doesn’t come to the central bank; it doesn’t appear as part of the demand that comes to us. And it is significant. It is almost three times what we as a central bank, make available,” he said.
The CBN-led Bankers’ Committee also directed banks to lend at least N500 billion to non-oil export oriented companies annually to boost the productive sector and support dollar flows to the economy. The committee said the lending plan to support non-oil exporters will require the big banks taking a larger chunk of the loan plans, and lending more to the sub-sector as part of their support for the business segment.
It called for continuous support to exporters who may need facilities to bring improvements to the way they can process their goods and make them high standard products qualified for export due to their higher value.
“The Bankers’ Committee decided that every year, the entire banking industry must grant at least N500 billion in loans to export-oriented companies that will generate measurable export receipts to compliment whatever the CBN is able to come up with. The big banks will have to take a bigger and bigger share of this pie,” it stated.
To lead the loan extension are the big banks – Zenith Bank, Access Bank, GTBank, FirstBank, Ecobank, United Bank for Africa, Stanbic IBTC Bank – with combined assets in excess of N75 trillion as at December 2022. The committee also encouraged banks to source more forex to meet the needs of their customers and depend less on central bank sources. According to the committee, the aim is to see that more goods produced locally are exported to earn forex for the economy, thereby reducing the burden of having to provide forex for businesses by the apex bank.
“Our interest here is that they conduct their export activity in a very seamless manner. So that at the end of the day, those export proceeds can be repatriated, then for the good of the country. That will enable them also relive the central bank the burden of providing forex for businesses,” it said.
The CBN has also backed the launch of Flutterwave Swap, expected to digitise forex access through card issuance as from next month. The move will enable the Flutterwave, in partnership with Wema Bank Plc and Kadavra BDC digitally sell dollars, Euros, and British Pounds to PTA, BTA and other retail end buyers. Founder and CEO of Flutterwave, Olugbenga Agboola, said the swap was part of the commitment to simplifying financial processes for endless possibilities. According to him, the swap represents a significant leap forward in how Nigerians will engage with forex.
Managing Director, Wema Bank, Moruf Oseni, said Flutterwave Swap will help address challenges faced by businesses and individuals needing forex. He reiterated his bank’s commitment to see that the project achieves its objective of impacting positively across all sectors of the economy. Analysts said although clearing the forex backlog is a priority before the CBN, acute dollar shortage should be addressed to set businesses and economy on the path of sustainable progress.
The Naira on Wednesday, August 23, closed at N900/$ at the parallel market, N70 weaker than N830/$ this week’s opening.
The local currency, which regained steam after the acting governor of the Central Bank of Nigeria (CBN), Folashodun Shonubi, threatened forex speculators of losing huge amount, relapsed as the speculators sustained their operations.
At the Investor and Exporter (I&E) window, the official market, the naira closed at N773.42 to dollar, creating around N123 premium between the official and parallel markets.
One of the forex traders based in Abuja, Mustapha Bakori said he was not surprised to see the naira depreciate, because initial expectation of improved dollar liquidity in the market, was not met with action.
He said: “Many people expected immediate intervention in the market that will boost dollar liquidity, but that is taking too long to happen. Until that is done, the naira will continue to come under pressure,” he said.
A Bureaux De Change (BDC) trader based in Marina, central Lagos, Garuba Sarki, said many forex dealers are still not sure, where the rtes will oscillate in the next few weeks, because the Central Bank of Nigeria (CBN) is still keeping the market in suspense.
He said: “Many speculative dealers were taking the back seat have returned to the trenches. We expect the naira to continue to depreciate until the policy environment is well defined,” he said.
Also speaking, the president, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, advised the Federal Government to enhance financial intelligence by tracking people with proceeds of corruption to sanitize the market.
He said many of the people with proceeds from corruption are the ones putting pressure on the forex market through their manipulative actions.
“The naira is depreciating not by forces of demand and supply, but by the collective action and impact of the people with illicit funds,” he said.
The CBN had in June commenced currency reforms that brought about exchange rate unification and abolishment of multiple multiple exchange rates.
The exercise led to 40 per cent drop in naira rate at the official market, but dollar supply has continued to be a big challenge making it difficult for official and parallel market rates to converge.
Former Executive Director, Keystone Bank Limited, Richard Obire said the weakness of the naira over time has been caused by two broad issues linked to the quality of leadership and governance.
He said Nigeria’s heavy and skewed outward-oriented consumption of goods and services as seen in decades of long substantial bills for food and energy imports remains a hindrance to naira stability.
Also, the massive corruption-driven capital outflows which in turn severely damages Nigeria’s capacity to produce at scale that will enable the country to fully engage its large population to create widespread prosperity works against the naira.
On ways to strengthen the naira, he advised that in the short-term, there is need to find non-market damaging ways to increase the supply of hard currencies and reducing the demand for same.
“Our crude oil export quota is currently 1.74 million barrels per day. In July, we produced 1.081m bpd. Let us get our production up to the full quota. At current market price of about $87 per barrel, this should see us earning an additional about $1.7 billion per month. Nigerian Diaspora Remittances rather than declining should be growing as the population of our Diasporans are growing. Half year January to June 2023, remittances totaled $952 million compared to $1.21 billion for the same period in 2022,” he said.
According to Obire, right pricing for remittances and frictionless processes for their use by recipients should see the volumes growing again.
He said that insecurity hampering food production needs to be tackled with a sense of urgency and effectiveness.
“Priority should be given through deploying pragmatic incentive programs to drive up the volume of food products for domestic consumption and industrial use to reduce our food import bill. All government consumption expenditures requiring the use of hard currencies should be suspended indefinitely, starting now,” he advised.
Continuing, Obire said the Turn Around Maintenance (TAM) status of refineries in Port Harcourt and Warri should be appraised immediately. Effort should be focused on the one which can begin producing quicker. The other one should be made to be up and running, not long after. This should reduce required forex for fuel imports.
He noted: “In the long term, only a strong economy will produce a stable currency. To achieve this will require addressing the fundamental structural defects in our political-economy hampering an accelerated transition from an outward consumption oriented economy into a mainly balanced production driven one. “
About 50% of startups dissolve within five years, according to the International Bureau of Labour Statistics.
However, the following startups founded and co-founded by Nigerians have survived over five years of their existence and have become multibillion Dollar international startups.
Here are six billion-dollar startups founded by Nigerians
1. Cityblock Health ($5 billion)
Industry: Primary Healthcare
Co-founded by Toyin Ajayi (Female)
Cityblock Health was created to help low-income and elderly Americans access health care, primarily those who qualify for Medicaid.
Nigerian Toyin Ajayi co-founded Cityblock Health with Bay Gross, and Iyah Romm in 2017.
Cityblock is regarded as the first tech-driven provider for communities with complex health and social needs–bringing better care to neighbourhoods where it’s needed most.
Calendly is a software company that develops a business communication platform used for teams to schedule, prepare and follow up on external meetings.
The company was founded in Atlanta, Georgia by Nigerian-born entrepreneur Tope Awotona who is the current CEO.
He founded the company with his savings and by taking out a small-business loan, while working at the co-working incubator Atlanta Tech Village
As of July 2021, Calendly operates an all-remote workforce without an official headquarters. Tope Awotona is the company’s CEO.
3. Flutterwave ($3 billion)
Industry: Fintech
Founder: Iyinoluwa Aboyeji, Olugbenga Agboola, and Adeleke Adekoya
Flutterwave is a Nigerian fintech company that provides a payment infrastructure for global merchants and payment service providers across the continent.
The company was founded in 2016 by Iyinoluwa Aboyeji, Olugbenga Agboola, and Adeleke Adekoya and is headquartered in San Francisco, California with operations in Nigeria, Kenya, Uganda, Ghana, South Africa, and seven other African countries.
In 2021, Flutterwave raised a US$170 million Series C funding round.
At the time, this was the largest amount ever secured by an African tech startup and gave it a valuation of over US$1 billion, making Flutterwave a unicorn.
Investors in Flutterwave include Y-Combinator, Visa Ventures, Mastercard, Avenir Growth Capital, and Tiger Global Management.
Flutterwave raised a US$250 million Series D funding round at over US$3 billion valuation in 2022 as well.
In December 2021, Flutterwave launched Send, an African-focused remittances service, and immediately appointed Nigerian Grammy Award-winning international musician, Ayodeji Ibrahim Balogun, popularly known as Wizkid as its global ambassador to further push the company’s brand among the Africans in the diaspora.
4. Andela ($1.5 billion)
Industry: Software Engineering Place Network
Co-founded by Iyinoluwa Aboyeji
Andela is a global job placement network for software developers.
Andela focuses on sustainable careers, connecting technologists with long-term engagements, access to international roles, competitive compensation, and career coaching through the Andela Learning Community.
Andela was founded in 2014 by Iyinoluwa Aboyeji, Jeremy Johnson, Nadayar Enegesi, Brice Nkengsa, Ian Carnevale, and Christina Sass.
In May 2014, Andela launched its first recruitment cycle in Lagos by putting its first call for applications on Twitter. The company hired their first cohort—four Nigerian software engineers—after receiving 700 applications for 4 spots.
In 2018, Andela celebrated the first two sets of engineers to complete the four-year program.
As of 2021, Andela provides technologists from six continents to access opportunities with global companies on long-term embedded contracts
Andela’s applicants can undertake training in software languages such as Ruby on Rails, JavaScript, Python, Ruby, React Native, Node, PHP, and more.
5. InterSwitch ($1 billion)
Industry: Fintech
Founded by Mitchell Elegbe
Interswitch is a leading African integrated payment and digital commerce platform company headquartered in Lagos.
Founded in 2002 in Nigeria, as a transaction switching and processing company with a national focus, Interswitch progressively evolved to incorporate consumer financial services with the successive launches of Quickteller, a retail payments ecosystem linking merchants and billers with consumers, as well as Verve, a homegrown, EMV-certified payments card scheme.
After using an ATM for the first time in Scotland, Mitchell Elegbe developed an idea to create electronic payment infrastructure in Nigeria while he was working on implementing SWIFT.
In 2011 Interswitch took a 60 per cent stake in Bankom in Uganda.
In 2015, Samir Goel and Wemimo Abbey Founded Esusu, a platform designed to empower users to better save, access capital, and build credit through community savings.
Electronic Esusu is a unified finance management solution designed to simplify and automate the process of thrift savings, collection and microcredit.
The solution explores the use of Digital Payment Technology and Global System Mobile Devices to manage and enhance transactions of the Esusu scheme.
The solution explores the use of Digital Payment Technology and Global System Mobile Devices to manage and enhance transactions of the Esusu scheme.
The dollar slipped against its rivals on Friday and was set for its biggest weekly drop in more than three months before a U.S. Central Bank meeting next week.
Policymakers will at the meeting shed more light on the outlook for interest rates.
While no change in policy rates is expected next week after the Fed paused a multi-year rate hiking cycle in January, officials might strike a more cautious view on the outlook for the global economy after a volatile week in currency markets.
“We are coming to the end of a very exhausting week in currency markets with the Brexit news and, investors are waiting to get more insights from the Fed,” said Esther Maria Reichelt, an FX strategist at Commerzbank.
Against its rivals, the dollar fell 0.2 per cent to 96.61 in early London trading. For the week, it is set to weaken 0.7 per cent, its biggest drop since early December.
Antipodean currencies led by the Australian dollar and its New Zealand counterpart were the biggest gainers against the dollar after Beijing said it could use reserve requirements and interest rates to support growth.
The outlook for both those currencies is heavily correlated with the outlook for the Chinese economy.
The yen remained firm after the Bank of Japan kept monetary policy steady but tempered its optimism that robust exports and factory output will underpin growth, giving a boost to its perceived safe-haven status.
Elsewhere, the pound paused for breath but stayed on course for its biggest weekly gain in seven weeks on growing expectations that Britain won’t crash out of the European Union without a deal on March 29.
Sterling last traded at 1.3217 dollar, below Wednesday’s nine-month high of 1.3380 dollar, but up 1.8 per cent so far this week, the biggest such gain since late January after the UK parliament voted to seek a delay in Britain’s exit from the European Union, following a decision to avert a no-deal Brexit.
The Chinese currency in the offshore market also remained firm against the dollar at 6.71 yuan per dollar.
The dollar consolidated its gains on Monday after posting its biggest monthly rise in four months as low volatility prompted investors to buy the currency, particularly against the yen.
“On a risk-adjusted basis, the dollar still continues to be the most attractive investment currency against the majors,” said Valentin Marinov, head of G10 FX research at Credit Agricole based in London.
Hopes that some of the world’s major central banks would raise interest rates this year has faded in recent weeks amid tepid economic data.
Some analysts now expect a fresh round of bank funding at a European Central Bank meeting later this week, boosting the dollar.
Hedge funds have ramped up their long dollar bets with latest positioning data showing net positions rising to 27.24 billion dollars for the week ending March 1.
Most of those bets are positioned to take advantage of higher U.S. interest rates.
Three-month implied volatility in the Japanese yen, a gauge of expected swings in the currency versus the dollar over three months, has flattened to 4 1/2-year lows.
The dollar traded at 111.96 yen, near a 10-week high of 112.08 on Friday.
With volatility expected to stay low, hedge funds have also placed bets on emerging-market currencies versus the dollar.
Those bets are now at a one-year high.
Media reports that the United States and China might reach a formal agreement at a summit around March 27 is pushing stocks higher and prompting traders to buy the Chinese yuan and other proxy currencies such as the Australian dollar.
The Chinese yuan ticked up 0.25 per cent to 6.6986 to the dollar in offshore trade, near last week’s 7 1/2-month high of 6.6737.
Against a basket of its rivals, the dollar was flat at 96.52.
It rose 0.4 per cent in February, its biggest monthly rise since October 2018.
The Naira on Wednesday lost marginally against the dollar at the investors’ window.
It exchanged at N363.58, weaker than N363.54 traded on Tuesday.
Investors settled for 228.8million dollars at the close of trading at the investors’ window.
At the official Central Bank of Nigeria (CBN) window, the Naira closed at N306.65 to the dollar.
The Naira remained stable at the parallel market closing at N360.5 to the dollar, while the Pound Sterling and the Euro exchanged at N480 and N418, respectively.
Trading at the Bureau de Change (BDC) segment saw the Naira close at N360 to the dollar, while the Pound Sterling and the Euro exchanged at N480 and N418, respectively.
NAN reports that the efforts of the CBN’ intervention had made the exchange rate stable and also lead to the stability of goods and services in the country.
Also remittances from Nigerians living abroad had helped in improving inflows to the country.
