The Nation Newspaper

Tag: forex

  • CBN forex reforms brighten outlook for Lafarge

    Adjustment in the official value of the naira against major international currencies will affect the second quarter results of Lafarge Africa Plc, the company has said.

    According to its latest profit update to the Nigerian Stock Exchange (NSE) at the weekend, the company has a total of $495 million in external borrowing on its book.

    It said the figure comprised debts by UNICEM, one of its operating companies acquired last year.

    Prior to the completion of the LafargeHolcim merger, Lafarge Africa had 53 per cent stake in UNICEM.

    Besides the Southwest where WAPCO Lafarge is the dominant operator with two major factories in Ewekoro and Sagamu, UNICEM is a key supplier to the market in Southsouth.

    The update noted that the company’s  Board of Directors is upbeat about the company’s prospects this year.

    It said: “The impact of the naira adjustment is seen as a one-off event with durable future benefits. With the reform of the interbank forex market boosting the confidence and interest of foreign financial institutions in the Nigerian market, Lafarge Africa Plc is confident it can refinance UNICEM’S $495 loan by the end of 2016, thus making significant savings on interest payments.

    “Lafarge Africa Plc, in June 2016, refinanced the naira component of the company’s debt when it issued a N60 billion bond, the largest in Nigeria’s corporate history.

    “This was seen by analysts as a display of confidence in the company’s fundamentals and generally in the prospect of Nigeria’s construction sector.

    “UNICEM is strategically located in Mfamosing, Calabar, in Cross Rivers State and is a major cement plant in the Southsouth and Southeast.

    “It has a cement capacity of 2.5mm tonnes; Lafarge Africa Plc plans to inaugurate a 2.5m tonnes line during the second half of 2016, which will double UNICEM’s capacity.”

  • BDCs’ return to forex market

    •We hope the appropriate lessons have been learnt by both CBN and the operators?

    Six months after locking them out of the official window, reprieve may finally be coming the way of Bureau de Change (BDC) operators. At the end of the interactive session between BDC operators and the Central Bank of Nigeria (CBN)on the new foreign exchange regime last week, President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, told newsmen that the apex bank has finally accepted to create special window for the BDC operators. The position was confirmed by no less than the CBN governor’s representative at the parley, Anthony Ikem, when he also told newsmen that the apex bank was working out modalities on how to accommodate the BDCs under the new arrangement.

    To the BDC operators, that, no doubt, is something to celebrate. Faced with dramatic decline in the country’s foreign exchange earnings, the uncontrollable surge in demand for foreign exchange by mostly domestic importers, and sharp practices by BDCs, the CBN had dramatically swung the hammer on the operators on January 11. Specifically, the BDC operators were accused of abandoning the original objective of their establishment which was to serve retail end-users who need $5,000 or less; turning themselves to “wholesale dealers in foreign exchange to the tune of millions of dollars per transaction”; and, finally, of “using fake documentations, like passport.”

    At best, the latest decision by the CBN to resume dollar sales to BDCs can be rationalised on the need to reduce such sharp practices as round-tripping of foreign exchange by closing the gap between the interbank and parallel market exchange rate. And to the extent that the CBN seeks to deepen and liberalise the forex market, the move to align the operations of BDCs with the official forex system would seem inescapable. With the BDCs currently representing the weakest link in the forex management chain, bringing them into the regulatory orbit would seem somewhat inevitable if only to give the apex bank a better handle on the nation’s forex management.

    Is anything on ground to suggest that the objective conditions which necessitated the CBN hammer have changed in any real sense? The answer seems obvious. First, we know that the rate of forex accretion has not improved in any significant sense; most certainly, the demand for forex shows no signs of slowing down. This of course means that the potential for the depletion of the foreign reserves is as real as it was six months ago. Ordinarily, the idea of bringing more forex retailers on board will make sense if there is likelihood of improvement in the forex supply situation. At the moment, the signals are far from reassuring.

    What about the BDC operators? Have they learnt their lessons? Are they ready now to play by the rules, particularly the rules requiring proper documentation of operations? Will they now cease to serve as conduits to the so-called parallel market? What about the capacity issues? Are the BDCs now better placed to render accounts as required by the monetary authorities?

    It is certainly not sufficient for ABCON leaders to offer bland assurances that BDCs would “abide by the criteria as well as comply with all regulatory requirements to justify the renewed confidence in the sub-sector.” After all, we had in the past seen operators sink deeper into the mire after promising to turn a new leaf. This time, such assurances must come with knowledge of the grave consequences for any infraction.

    What about the CBN itself? What has changed in the last six months? Does the CBN now have the men and material to track and report on the activities of more than 2,000 operators? How does it plan to ensure that forex allocations from the official window do not end up in the black market?

    We can only hope that the latest measure is well thought-out, as against pandering to special interests.

  • Forex policy ‘ll save real sector, says MAN

    Forex policy ‘ll save real sector, says MAN

    Manufacturers Association of Nigeria (MAN) Vice President Alhaji Ali Madugu has hailed the new foreign exchange (forex) policy, describing it as the “much needed intervention” to save the manufacturing sector.

    Madugu, in a telephone chat with The Nation from Saudi Arabia, he said the new forex policy is the only way manufacturers can access forex for their raw materials, spare parts and machines.

    Although he agreed that the policy translates to an indirect devaluation of the naira, he argued that the initiative will make the real sector to survive even with a very poor margin.

    According to the MAN chief, the policy presents an opportunity for every sector of the economy to redefine itself, even as he maintained that the policy presents an avenue for the country to find her way out of the economic crunch.

    He, however, cautioned that unless Nigerians are able to substitute their dependence on imports, develop local raw materials and patronise locally made products, the naira will continue to lose its value.

    He said the desired impact of the policy on the economy could only be felt if it is made sustainable. This, he explained, would mean that government should ensure that the dollar influx into the country can be improved on and maintained.

    Similarly, a former Vice president, African Development Bank (AfDB), Chief Bisi Ogunjobi, agreed with Madugu’s submission. According to him, the sustainability of the forex regime will depend on the initial inflow of forex into the market- as this will to a large extent determine its success or otherwise. This, he added, will also be dependent on the availability of the dollar in the market.

    “I am convinced that in the next few weeks, the positive impact of the budget will set in and will further help the forex regime to attain stability and probably shore up the strength of the local currency sooner that we think,” Ogunjobi said.

  • The new forex regime

    The new forex regime

    •This alone won’t do, there’s still a lot to do to grow the economy

    On June 20, the Central Bank of Nigeria (CBN) formally replaced the 16-month fixed regime with a floating exchange regime. For the most part of last week, the naira hitherto pegged at N197 to the United States dollar, averaged N283 at the interbank market. And just as was predicted, the development came with the narrowing of the gulf between the official and the black market with the latter – which had hit an all-time high of N370 – coming down to N325 to the dollar.

    For the operators in the finance and the real sector who had argued all along that the naira should be left to float, it was therefore victory of sorts.

    Sixteen months after, we must admit that the tribe of those who argue that the operation of the fixed regime deserved a second look has continued to grow. First, it was the Organised Private Sector that initially complained that the gap between the official and parallel markets would encourage round tripping; that fixing the exchange rate administratively will encourage corruption. The list would later grow to include nearly every actor of note in the economy in the event of the failure of the apex bank to live up to its oft-stated assurances that the needs of all genuine importers would be met. We refer here to the manufacturers, small and medium scale operators, airline operators and players in the services industry – all of whom access to forex through the official window became almost impossible.

    Just as well are the statistics that can no longer be ignored. Again, we refer to the backlog of forex demand which had reportedly hit $4 billion; the contraction of the economy by minus four percent in the first quarter, and the projection by the National Bureau of Statistics (NBS) of a grimmer outlook for the rest of the year. This is aside the nefarious activities of black market operators over whom the regulator has been utterly helpless. Surely, all of these called for a rethinking of the forex regime.

    Inevitable as it may seem, what the floatation of the naira bodes for the economy in the long run is certainly open to debate. Indeed, to the extent that the debate has tended to focus more on how best to manage the limited forex, we find it rather misplaced. Clearly, we know all that is wrong with the economy. It is the absence of any serious manufacturing activity that has meant our huge reliance on forex to import everything – from raw materials, to machineries and spares, to finished products. This is what the slump in oil prices and latest cycle of disruptions of oil production in the Niger Delta has brought out in bold relief.

    Barring a possible rebound in oil price (unlikely in the short term); a dramatic ramping of production (also highly unlikely, particularly as production is set by OPEC quota); the only enduring option to get the nation out of the woods is to boost non-oil exports. Whereas the former fixed forex regime may not have helped the cause of the manufacturers and other operators in the real sector any bit; it would be overtly over-optimistic to expect a dramatic turnaround only because access to forex has been liberalised. With power and other infrastructure still missing in the equation, it is clearly a long way ahead to competitiveness.

    Three more things that the new forex regime will not do: first, it will not curb Nigerians’ unbridled appetite for foreign items; second, it offers no guarantee that players will play by the rules – in this case, there is no guarantee that the forex obtained through the interbank window will not be used to import any of the 41 items precluded from the official window. Finally, it would not make the black market to disappear either now or in the future.

    The summary:  growing the economy calls for a lot of hard work.

  • Flexible forex: marketers strategise for growth

    Fuel marketers are leveraging on their relationship with refineries abroad to make the best of the flexible foreign exchange (forex) regime, which implementation began last Monday.

    It was gathered that the marketers have been discussing with refineries’ owners overseas to ensure efficient fuel supply, with a gurantee for payment.

    The National President, Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Chinedu Okoronkwo, said marketers will leverage on their contacts,  relationships with owners of refineries abroad, among  other factors, to buy fuel since the government has simplified the process of accessing forex.

    He said some marketers have collaborations with foreign refineries, adding that such marketers would rely on the partnership to import fuel into the country. He said marketers that have their own jetties would have unimpeded access to fuel, while those that do not have jetties would have the opportunity.

    Okoronkwo said that indices such as good assets, relationship and confidence, are what marketers need to make the best of opportunities provided by the new forex policy. He said marketers will access forex at relatively cheaper rates, import fuel, sell it, make gains and fresh purchases, and instill confidence in the minds of firms that sell fuel abroad.

    “Marketers will benefit greatly from the forex policy. The reason is because the flexible forex policy would provide them with the opportunity to play better in the industry. The policy would enable marketers to access forex at relatively cheaper rates, import and sell fuel, make gains and fresh purchase, and instill confidence in the minds of firms that are selling fuel abroad. Business thrives on confidence between two parties or more. Through the policy, marketers are sure of getting opportunities to buy forex. As a result of this, marketers would be bringing fuel into the country. Once marketers are getting returns on investment (RoI), they would not hesitate to buy more fuel,  a development, which would go a long way in building confidence in the owners of refineries abroad.’’

    He said marketers would not run out of fuel during the new regime, assuring that there would not be fuel scarcity again. Marketers, Okoronkwo said, would be able to project how, when and where to buy dollars whenever they discover that the currency is scarce in the market, stressing that the issue would enable them to do a comparative analysis of happenings in the oil industry for growth.

     

  • Will new financial markets emerge from forex?

    Will new financial markets emerge from forex?

    The new flexible foreign exchange policy of the Central Bank of Nigeria (CBN) took off yesterday on a cautious note. Capital Market Editor TAOFIK SALAKO reports that expectations are high that the new foreign exchange policy will strengthen the naira and the capital market

    As the implementation of the new flexible foreign exchange (forex) policy of the Central Bank of Nigeria (CBN) began yesterday, the financial markets were on cautious optimism. Expectedly, the naira stumbled and tottered under the weight of pent-up demand and equities, which had rallied N760 billion in three trading sessions, succumbed to profit-taking and portfolio adjustments.

    But in all, it was a promising dawn for the financial markets and the economy generally. The naira depreciated by some 23 per cent and floated around N255 against the dollar in the official inter-bank market yesterday after the apex bank removed the currency peg that had fixed the exchange rate at N197 per dollar. The apex bank also launched, yesterday, a major intervention to clear the backlog of forex demand, estimated between $2 billion to $4 billion, in a dexterous move to create a plain field for the new forex policy to fly. The CBN’s Special Secondary Market Intervention Sales (SMIS) – Retail was a one-off intervention opened to all authorised dealers. The cumulative effect strengthened the naira by some 10 per cent to between N325–N345 per dollar in the parallel market. Improved liquidity in the official market is expected to reduce demand on the streets, thus pressurising the street traders to offer lower rates.

    In the equities market, profit-taking and initial portfolio realignments by investors weighed on the performance of the market. The benchmark index for the Nigerian stock market, the All Share Index (ASI), declined by 1.63 per cent, equivalent to a loss of N164 billion. The ASI dropped to 28,769.90 points from its opening index of 29,247.27 points while the aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE) declined from N10.045 trillion to close at N9.881 trillion.

    But analysts’ consensus for the markets remains positive. GTI Securities, operators of Sub-Saharan, Africa’s largest private trading floor stated: “We expect the high currency volatility risk to subside thereby encouraging foreign investors who have been hanging in the fringes to take advantage of the opportunities in naira denominated instruments-fixed income and equities.

    “Also, local institutional investors like PFA’s who have shown considerable apathy for equities investments as a result of the high volatility created by the exodus of foreign portfolio investors, who traditional accounts for up to 55 per cent of transaction volumes on the Nigerian market, will have the impetus to also take advantage of the opportunities in the market considering that most stocks that fit their stringent investment criteria’s are trading at considerable discounts.”

    Yesterday’s kick-off is widely expected to be the beginning of a new dawn for the local financial markets.

    Against the hitherto controlled forex regime that held the naira at N197 to $1, under the new regime, the apex bank will merge all existing segments of foreign exchange market into a single “window”, under which pricing will be determined by market forces with limited interventions. In essence, the naira will flow according to market forces effective from today. This has been the crux of the debate that had seen much capital flight from the country and the threat of further alienation of Nigeria by the international community as foreign investors “protest” against what they described as unrealistic currency control.

    Now, foreign investors and international money transfers can access their capital requirement through the authorised dealers at the daily inter-bank rate while non-oil exporters will now be allowed unfettered access to their forex proceeds.

    The new framework, released by the CBN on June 15, has been commended by pundits and analysts’ consensus appears to favour steep rebounds in the financial markets.

    Beyond the immediate change from fixed to mainly market-determined forex policy, the guidelines released by the apex bank were robust and set a new medium-to-long-term paradigm in Nigeria’s forex management.

    The apex bank, as the lender of last resort, will retain the strategic role of periodic interventions to either buy or sell forex, the new system will be driven primarily by market forces, through the intermediation of major banks, to be known as Foreign Exchange Primary Dealers (FXPD).

    There shall be no predetermined spread on spot transactions executed through the CBN intervention with FXPD while all forex spot purchased by authorised dealers will be transferable in the inter-bank forex market.

    Besides, the apex bank may also offer forex forwards to authorised dealers to improve liquidity. The sale of such forex forwards by authorised dealers to end-users must be trade-backed and it must not have any pre-determined spreads.

    Also, the apex bank will introduce non-deliverable, naira-based, over-the- counter (OTC) futures to moderate liquidity in the market. However, the 41 items earlier classified as “Not Valid for Foreign Exchange” by the apex bank will remain inadmissible even in the new forex market.

     

    Commendable float

     

    Not a few analysts have lauded the framework as the much-needed tonic for financial and fiscal recovery for the country.

    “The CBN surpassed our expectations by not only adopting a single forex market structure without trading limits but also introducing derivative hedging products – Forwards, Futures, Swaps and Options – to ensure orderly transition to a market-based mechanism,” Afrinvest Securities stated.

    Exotix Partners, a global finance and investment firm, said the new forex policy has not only reopened the Nigerian equities market to global investors but also appeared to signpost a major shift in the economic management.

    According to Exotix Partners, “overall, this looks like quite a bold step towards liberalisation – and certainly better than many investors’ expectations, including our own, who have seen many false dawns before.

    “The key feature here is that the multiple tiers and layers have been removed – the sub-text of this decision that the President has finally recognised that multiple tiers lead to arbitrage and arbitrage creates opportunity for fraud.

    “Reading a bit deeper into things, we are also tempted to conclude that this is a sign of Buhari handing the reins of the economy (back) over to his ministers.”

    FSDH Merchant Bank described the new forex policy as “a bold step to align the foreign exchange rate management in Nigeria with the current economic realities”, noting that “although the policy may increase the prices of some imported items in the short-term, it will inspire confidence in the Nigerian economy and financial system”.

    Capital market operators, under the aegis of the Chartered Institute of Stockbrokers (CIS), said the new policy was the boost the markets have been waiting for. It said: “The operating dynamics of the new framework as stipulated by CBN is in accordance with the tenets of democratic capitalism of which the highlights are, market-driven systems, free participation within individual limitations and the invisible hand.

    “The introduction of a forward market to hedge volatility in the forex market, and the licensing of FXPD are commendable innovations which we believe will deepen the market.

    “Barring systemic malfunction, CIS believes that the implementation of the new framework will boost dollar supply; and with clarity, define the exact exchange rate, ease the challenges of businesses across the board and return the economy to the path of growth.”

    Market response

    Within the three days after announcement of the new forex framework by the CBN, Nigerian equities shrugged off negative year-long return and gained a whopping N760 billion as investors responded with a scramble for quoted shares after the.

    Aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE), which opened last Wednesday at N9.285 trillion, spiraled to N10.045 trillion after three successive positive trading sessions, indicating capital gains of N760 billion.

    The benchmark index for the Nigerian stock market, the All Share Index (ASI), which also opened same day at 27,034.05 points, rose consecutively to 29,247.27 points. Overall, the latter-day gains mitigated the losses in previous trading sessions, leaving the equities with a week-on-week gain of N692 billion or 7.40 per cent.

    The ASI had opened the week at 27,232.62 points while the aggregate market value of quoted equities had opened the week at N9.353 trillion.

    With the sustained price appreciation, the average year-to-date return for Nigerian equities, which had opened at -5.61 per cent, shrugged off the negative overhang to close with a modest positive return of 2.11 per cent.

    Compared with average week-on-week loss of 2.0 per cent, 2,6 per cent, 2.2 per cent, 1.0 per cent, 1.4 per cent and 2.1 per cent in United Kingdom (UK), France, Germany, United States (U.S), China and South Africa respectively, the Nigerian equities were the toasts of investors.

    In the forex market, the naira appreciated across the segments. At the parallel market, the naira appreciated by 1.08 per cent and the Bureau De Change (BDC) rate was strengthened by 2.47 per cent. The parallel market rate closed at N365/$1 while the BDC’s rate improved to N355/$1.

    At the derivatives market segment, foreign exchange forwards showed general appreciation in most dated contracts – the spot rate, one month, three months  and six months dated contracts appreciated by 0.72 per cent, 0.36 per cent, 1.52 per cent and2.34 per cent at N197.50/$1, N200.73/$, N203.93/$ and N209.09/$ respectively.

    Naira’s exchange rate

    Analysts’ estimates place the naira at a mid-range of about N280/$1 over a 12-month period, although most capital market analysts expect the immediate impact to balloon the official rate close to the unofficial rates before the currency trends down gradually to a stable range.

    As the market absorbs the backlog of demand, estimated at between $2 billion and $3 billion, and supply stabilises, Exotix places naira within a range of N280-N290/$1. FSDH Merchant Bank sees naira around N260-N270/$1 while Afrinvest Securities places naira within N280-N300/$1.

    However, analysts’ consensus favour a reduction in the parallel and BDC rates as the new forex policy kicks off. “In terms of market dynamics, we would expect the spread between the parallel market and the inter-bank market to fall dramatically, perhaps even to collapse,” Exotix stated.

    FSDH Merchant Bank, which noted that the wide disparity between the official market exchange rate of N197-N199/$ and the parallel market of N365/$ was majorly because of the previous ‘pegged’ policy of the CBN, said the acceptance of the forex policy and the structure in place, should bring the exchange rate in the region of N260-N270/$ in the short-term.

    “We expect the rate at the parallel market to crash and the inter-bank exchange rate to settle in the region of N220 within the next one year,” FSDH Merchant Bank stated.

    Equities swing

    To analysts, the prospects of the Nigerian equities; the stock market looks bright. Players expect the market to continue on the uptrend with the commencement of the new forex policy today, although the upswing could be interrupted by intermittent profit-taking transactions.

    FSDH Merchant Bank stated: “We believe the market structure that the CBN announced was well thought out and investors will have confidence in the system to manage their exchange rate risks. On the supply side, we note that it would increase the supply of forex from foreign portfolio investors (FPIs) and foreign direct investors (FDIs).

    Afrinvest Securities also stated: “We expect the financial market to pick up on the back of increased global funds inflow into the system and as investor sentiments favour investible assets in the money and capital market.”

    Exotix, which outlines portfolio for foreign investors, said it has broadened its stock picks for the country, describing the new policy as a “positive catalyst”. According to the firm, while the new policy may provide exit window for some investors, the market would receive greater benefit from access to fresh capital while investors could be more willing to give credit for President Muhammadu Buhari’s reform of governance.

    “The lesson we glean from currency crisis in emerging markets is that equities can recover dollar-based performance after the devaluation only if the broad economic framework is perceived as credible and, in our view, actions on the national oil company, the single Treasury account and the long list of personnel changes, in a Nigerian context, amount to a credible reform programme, though hitherto spoilt by intransigence on forex policy,” Exotix stated.

    Miffed by the currency control, foreign portfolio investors withdrew from the Nigerian stock market. Report by the NSE showed that foreign inflows into the capital market dropped by 32 per cent last year which contributed to a full-year decline of 17 per cent in total market valuation of equities.

    Foreign investors hold significant influence on the Nigerian equities, where they control some half of transactions. The movement in foreign portfolio investments (FPIs) has been known to correlate with the pricing trend and overall performance at the Nigerian stock market.

    Between January and February, the FPI report coordinated by the NSE showed that foreign portfolio outflow outpaced foreign portfolio inflow by 108 per cent.

    The two-month report showed that foreign outflow of N58.20 billion as against foreign inflow of N27.95 billion. A total foreign transaction of N86.15 billion representing 42.8 per cent of total market transactions was within the two-month period.

    The FPI report uses two key indicators – inflows and outflow – to gauge foreign investors’ mood and participation in the stock market, as a barometer for the economy.

    The NSE report is generally regarded as a credible gauge of foreign portfolio investments in Nigeria as it coordinates data from nearly all active and major investment bankers, stockbrokers, custodians and other capital market operators.

    “The new foreign exchange policy will bolster investor’s confidence, trigger inflow of foreign portfolio investments and boost the velocity of the stock market,” CIS President, Mr Oluwaseyi Abe, said.

    He said stockbrokers, who have endured the pains of steady declines in the market would recover under the new policy, which he noted has cleared the path for stable market.

    As the “free” forex policy begins, it could bring the real change to the equities market, which had lost N3.38 trillion in the past two years, nearly a quarter of the market value of N13.226 trillion recorded at the beginning of 2014.

    Against all projections, the Nigerian stock market closed 2015 with a negative full-year average return of -17.36 per cent, nearly a notch above -16.14 per cent recorded in 2014. Approximately, this implied a loss of N1.63 trillion in 2015, a somewhat hard-to-bear addition on a loss of N1.75 trillion recorded in 2014. No matter how modest, a positive return in 2016 will be a major change for the hard-pressed investors.

     

  • Fuel marketers laud new forex regime

    Fuel marketers laud new forex regime

    • ‘It‘ll spur investment’

    As the flexible foreign exchange regime takes off today,  enabling importers access to forex, petroleum products importers are upbeat that the policy will help improve their operation.

    The implementation of the new policy unveiled has bolstered importers confidence who hitherto, relied on the Central Bank of Nigeria (CBN) window for access to forex.

    A cross section of independent marketers told The Nation that the policy, coming on the heels of adjustment in the pump price of petrol from N86.50 per litre to N145 per litre, would benefit them in the long run.

    Petrocam Trading Nigeria Limited Managing Director, Patrick Ilo, said with the policy becoming effective this week, marketers would now be able to access forex easily, adding that market forces would be determining the exchange. He said  marketers and other importers would avail themselves of the opportunity to access enough forex for operation.

    He said: “We are very confident that the exchange rate will not be static. The exchange rate might be high, but it is not going to be static. The rate would go up and come down. It would be a matter of demand push and supply push equation.

    “The population is here and investors would leverage on  the size of the population to invest in the long run. There is going to be inflow of foreign investment into the country, and I’m sure everybody would like to be part of it. When this happens, importers would not be finding it difficult to get forex at lower rates.’’

    Ilo said marketers have had a herculean task getting forex to bring fuel into the country, arguing that the regime has opened a vista of opportunities for them to buy forex.

    Also, Managing Director, Ogbos Petroleum Limited, Chigozie Nwozuzu, said forex is the major problem of marketers, saying that marketers would no longer  struggle to get forex now that the government has liberalised the forex market.

    He said there would be flexibility in forex sourcing, adding that it is a good omen for the industry.

    The Managing Director, AFGON Oil Limited, Mr Adebuola Victor, said marketers have long been expecting opportunities to access forex at a more convenient ways.

    However, the National President, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr Chinedu Okoronkwo, said the body would take its time to speak on the issue.

  • Forex Crisis: AUN confirms transfer of foreign students

    Forex Crisis: AUN confirms transfer of foreign students

    The American University of Nigeria (AUN) at the weekend confirmed that it had received transfer request from some Nigerian students studying abroad who want to return home to finish their studies because of the scarcity of foreign exchange.

    The AUN stated that due to difficulty in sourcing for forex, some Nigerians in the Diaspora had decided to send their children to the school to finish their education at home.

    A large number of Nigerian students are studying abroad, mainly in the United States, the United Kingdom, Canada and others.

    The Assistant Vice President, Digital Services and Chief Information Officer, (AUN), Mr. Julius Ayutabe, confirmed this to journalists in Abuja at the 16th graduation ceremony of Global International College.

    Ayutabe, who did not give the figures of foreign Nigerian students who had applied to finish their studies in the university, stated that the school had received students from the US and UK.

    Ayutabe, stated that Nigerian universities had bridged the gap between those abroad, adding that parents now feel comfortable to send their children to study in private universities at home.

    He said: “The Nigerians in the Diaspora are sending their children back home because even they now, are realizing the potential back home to train their children at par with those abroad. Especially with the value of the naira today, parents don’t have the option than to bring their children back home.

  • ‘Flexible forex rate not in public interest’

    ‘Flexible forex rate not in public interest’

     Lukman Otunuga is the Research Analyst at Forex Time (FXTM). In this interview with Toba Agboola he speaks on downsides of naira devaluation among others.

    What is your view on the planned devaluation of the naira?

    Yes, major financial institutions like the International Monetary Fund have been calling for devaluation of the naira. I think the reason why President Muhammadu Buhari has been so reluctant about naira devaluation is for the interest of the common man. Now when you look at it, Nigeria is not yet an export country. We are more into importation and devaluation will only benefit countries that are into importation. So if the naira is devalued, it will affect the common man because remember we import most of our goods in dollars. Besides, it will also result in little or no profit for local businesses. Further devaluation of the naira will not be in the interest of an import-dependent nation like Nigeria. Countries like China allowed official devaluation of their currencies because they had several products to be exported in order to earn forex. While such a move could be good for export-oriented countries like China, it would be counterproductive for an import-dependent nation like Nigeria.

    Do we have the products to export abroad if we are to devalue the naira?

    Devaluation will, no doubt, make exports to be more competitive in the international market. But we don’t have the products to be exported for now. This is why devaluation may not be good for Nigeria at this moment. China will allow its currency to be devalued because it has the products to be exported.  My strong advice is that government should not devalue the naira for now.

    How are you sure the naira has not been devalued going the way things are going?

    No the naira has not been devalued. It’s a very tough situation. What the IMF has asked is quite a lot. The IMF has asked for naira devaluation and additional things that would make it difficult for Nigeria to pay back. I think we have to wait to see GDP in Q2. I think that would be the main determinant if Nigeria runs to the IMF. Once it is confirmed that Nigeria is in a technical recession, on top of reduced credit rating, where are we going to get the funding from? Investors are not going to loan, capital flight as well, with Nigeria in a technical recession, that could be the trigger for the nation to run to IMF.

    How do you see the various policies by the Central Bank of Nigeria, especially the one that has to do with the flexible exchange rate among others?

    I think the issue of flexible currency is not for citizen but for the corporate organisations and manufacturers. We believe that foreign investors, who have left the country, citing the fixed foreign exchange regime, will be encouraged to come back, especially given the huge return on investment which can only be located in Nigeria. Although key interest rates were unexpectedly maintained at 12 per cent, it is becoming quite clear that the extended declines in oil prices have left the CBN under immense pressure to take action. Sentiment has taken a hit from the rapidly declining government revenues, while diminishing oil production from renewed militancy has left the nation on edge. Also, anxiety lingers across the board and there could be a possibility that the delayed 2016 budget, which was only approved in May, could have exacerbated this unfavorable situation further. Nigeria would have lost more, had it opted for devaluation.

  • Is new forex policy a game changer?

    Is new forex policy a game changer?

    The badly bruised naira may be set for a rebound with the new policy regime by the Central Bank of Nigeria which allows market forces to determine the true value of the currency against other currencies across the world, reports Bukola Aroloye

    To say the Central Bank of Nigeria is no longer at ease with the dwindling fortunes of the naira is simply stating the obvious. Little wonder the apex bank had on Wednesday announced what analysts described as a long-awaited decision, albeit a major shift in policy which seeks to turnaround the fortunes of the naira for good.

    Specifically, the CBN Governor, Mr. Godwin Emefiele announced the removal of the pegs on the naira to allow market forces to henceforth determine the true value of the currency against other currencies across the world.

    The new policy regime which takes effect on Monday is expected to halt the free fall of the naira thus far.

    Speaking at a press briefing in Abuja, the CBN boss said: “The market shall operate as a single market structure through the inter-bank/autonomous window; the Exchange Rate would be purely market-driven, using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.”

    The CBN, he emphasised, “would participate in the Market through periodic interventions to either buy or sell foreign exchange as the need arises. To improve the dynamics of the market, we will introduce Foreign Exchange Primary Dealers (FXPD), who would be registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis. These Primary Dealers shall operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines,” he said.

    Emefiele also noted that the 41 items banned last year from having access to forex for imports remained banned.

    The CBN, the governor hinted, has also appointed primary dealers for the first time which is expected to help boost FX liquidity in the market.

    Implication of new forex policy

    Speaking on the implication of the new forex policy, a financial analyst with one of the new generation banks who asked not to be named said: “This could be wide-ranging and we will know more as more details emerge after the press briefing. However, we can only but conclude that the end of the black market is near as anyone and everyone can now buy dollars at any bank or with authorized dealers at a price that is market determined.”

    Following the new forex policy, analysts are expecting the central bank to raise its benchmark interest rate at 1345 GMT to fight inflation and further support the naira.

    After the government said it would use a lower rate of 285 naira per dollar for petrol imports rather than the pegged official rate of 197, analysts said the central bank could also introduce a new parallel exchange rate.

    Only recently, the Nigerian Bureau of Statistics (NBS) alerted that the country’s economy shrank by 0.4 per cent year-over-year in the first quarter, which was way worse than expected, added to the stern warning impending recession by the CBN at last month’s Monetary Policy Committee (MPC).

    Fallout of policy on the naira

    Naira weakened further against the dollar at the parallel market, barely 24 hours after the CBN moved for the adoption of a flexible exchange rate.

    The naira sold at N350, weakening further from its rate when it went for N347 to a dollar.

    The Pounds Sterling and the Euro opened at N385 and N380 and closed at N390 and N385 respectively.

    Traders at the market said that they were keenly watching out for the impact of the new foreign exchange policy of the apex bank at the market.

    In his remark, Mr Harrison Owoh, a Bureau De Change (BDC) operator, said that the new policy would frustrate currency speculation and hoarding.

    Knocks and kudos for new forex policy

    Expectedly there have been mixed reactions over the new policy regime on forex, with some respondents applauding the move while a few others believe government should be circumspect in taking decisions that have implications on the economy.

    In the view of Dr. Wale Odutayo, Lead Economist at the Centre for Economic Development, Abuja, “on the long-run, a weaker currency will help Nigeria’s economy by encouraging import substitution and attracting foreign investors, who have shunned the country for fear of devaluation.”

    He however warned that the move will be painful in the interim because higher import prices will push up inflation, which reached 15.6 per cent year-on-year in April. This will probably force the authorities to tighten monetary policy.

    “If the apex bank can’t get inflation back under control, then the country might end up getting stuck in a ‘vicious cycle’ of high inflation that leads to a weaker naira, which could lead to higher inflation.

    “This is one reason devaluation can be so painful, as central banks typically jack up interest rates afterwards. Recessions are often post-devaluation consequences. Yet,if President Muhammadu Buhari has finally relented on maintaining what is viewed as an unsustainable peg, the longer-term outlook will improve.”

    Some analysts argue that devaluing the currency peg will not magically fix all of the country’s problems. They say the local economy continues to suffer from numerous headaches, including lower oil prices, fuel-shortage threat at the least provocation, or policy shift by government, and ongoing oil-production disruptions by militants in the Niger Delta.

    There is the fear that Nigeria will be in full blown recession if the economy shrinks again for the second consecutive quarter, which means that by the end of this month, the government will have a major economic crisis to deal with.

    According to the Lagos Chamber of Commerce and Industry’s Director- General, Mr. Muda Yusuf,  the new FX policy is in line with the position consistently canvassed by the organised private sector in the past 18 months.

    He maintained that the policy will enhance the flow of foreign currencies into the forex market from capital importation, export proceeds and Diaspora remittances.

    “The policy is a major incentive to exporters as they will have unfettered access to their export proceeds. Besides, the Federation Account will benefit from better revenue inflows from the CBN as sale of subsidised forex comes to an end,” he said.

    In the view of the Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, the new exchange rate policy could be prone to abuse.

    He however believes that a largely market-determined single exchange rate system is the best for the country.

    “Dual exchange-rate system is a way forward but it is not the end. We had practised it before but we had to abandon it. I believe sooner or later we will abandon it if we eventual adopt it,” he said

    Experts believe that flexible exchange rate regime could see the Naira fall temporarily to 380-400/$1USD or spike even higher, it warned.

    The experts argued that the central bank seemed rather stumped in implementing the new policy, adding that the bank was constrained by the lack of political support for a devaluation of the local currency, which is a sine qua non of any FX policy adjustment process within a fixed currency framework.

    The National Association of Nigeria Traders (NANTS) in a statement issued by the association’s President, Ken Ukaoha said it members have borne the brunt of the fixed exchange rate regime grudgingly but are is gladdened by the CBN’s pronouncement to adopt a more flexible foreign exchange regime.

    The statement said that the move to introduce flexible exchange rate policy was in the right direction.

    It said that the policy, if thoroughly implemented, would have far reaching effects in retooling the economy.

    “We believe that foreign investors who have left the country, citing the fixed foreign exchange regime, will be forced to come back, especially given the huge return on investment which can only be located in Nigeria,” it said.