The Nation Newspaper

Tag: forex

  • Forex policy: No respite for real sector operators

    Forex policy: No respite for real sector operators

    The  Central Bank of Nigeria (CBN’s) foreign exchange (forex) policy, which barred importers of 41 items that can be produced locally from sourcing forex through its interbank window is taking its toll on real sector operators. But hopes that the policy may be reviewed to lessen the burden of real sector operators may have dimmed following the apex bank’s refusal to shift ground, writes Assistant Editor OKWY IROEGBU-CHIKEZIE.

    Succour may be far from real sector operators particularly manufacturers who have been hoping for a review of the Central Bank of Nigeria (CBN) foreign exchange (forex) policy, which restricted certain items from accessing foreign exchange. The manufacturers may have had their hopes dashed by the apex bank as the CBN Governor Godwin Emefiele foreclosed a possible review of the policy, which manufacturers see as a disincentive to the manufacturing sector and the economy.

    At the International Monetary Fund (IMF)/World Bank Group meeting in Lima Peru, Emefiele dashed manufacturers’ hopes, saying the policy was not up for review and that the apex bank would continue to deny importers access to forex to bring in goods which can be produced locally. He explained that contrary to insinuations, the finance sector regulator has not banned any goods from being imported. “We have not banned any items. What we just did was to exclude them from accessing foreign exchange; items that can be produced in the country.

    “We think that because of the problems we’ve had, the drop in commodity prices and revenue accruing to the nation, and because we know that these items have been produced in large quantities in this country in the past, that provision still stands. The CBN is not reconsidering the ban, the exclusion still stands,” he stressed. The CBN chief added that since the policy came into force, he has been prompted from various quarters to even elongate the ‘excluding items’ list, but that the CBN would confine itself to the items presently in the restriction basket.

    The CBN inadvertently hit the raw nerves of manufacturers when in June this year it removed 41 items from access to its foreign exchange window on grounds that they could easily be produced in Nigeria rather than spend the country’s reserves on importing them. The list included rice, cement, clothes, textiles, toothpick, poultry products, meat and processed meat, margarine, palm kernel/palm oil and vegetable oils, private airplanes/jets, tinned fish, incense and wooden doors.

    Others are soaps and cosmetics, tomato/tomato paste, woven fabrics, table ware, kitchen utensils, furniture, plywood boards and panels, wood particle boards and panels, and glassware. Cold rolled steel sheets, galvanised steel sheets, wire mesh and steel nails were also on the list. The apex bank explained that the policy was aimed at encouraging local production of the items.

    However, CBN’s explanation apparently did not hit the right chord in the ears of real sector operators especially manufacturers most of who felt that the policy imposed additional burden on them and the economy generally. Specifically, the manufacturers argued, for instance, that some of them who need some of the raw materials and products restricted from the forex market as their primary products in the manufacturing process are adversely affected.

    In other words, manufacturers who require any of the 41 restricted items as inputs and raw materials for their production may have to simply shut their operations once their existing stock is exhausted.

    As far as Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, is concerned, CBN’s understanding of the manufacturing process of many of the sectors affected by the policy was “limited.”

    For LCCI and other real sector operators therefore, nothing short of a review of the policy or outright cancellation would gladden their hearts. And hopes that a review of the policy was in the offing came when Vice-President ’Yemi Osinbajo recently indicated the Federal Government’s readiness to adjust the controversial forex policy that pitched it against operators in the real sector. That was at the 43rd Annual General Meeting (AGM) of the Manufacturers Association of Nigeria (MAN) in Lagos.

    The Vice President however, said the cancellation of the policy was not an option. While noting that the CBN forex policy was introduced to boost local production and protect the nation’s manufacturing sector, he however, said there could be the need to rejig the policy towards ensuring that all the associated grey areas are properly looked at and any aspect of the policy that requires amendment resolved.

    Hear him: “We are going to have negotiations with the operators of the manufacturing sector to seek ways on how foreign exchange control can be eased to enable the items that are not eligible for foreign exchange to be covered.” While noting that the policy was as a result of the downturn in the economy caused by the falling oil prices, he said the nation deserved a robust foreign exchange reserve and would do everything to achieve that as a responsible government.

    Osinbajo’s hint of a possible adjustment of the policy once the economy improves was no doubt, a soothing balm on manufacturers and other operators in key sectors of the economy including maritime who have been lamenting that the policy has been taking a huge toll on their businesses. For instance, the revenue generation profile of the Nigeria Customs Service (NCS) is said to have suffered because of the exclusion of some items from forex transactions.

    The Apapa Area 1 Command of the NCS this week, announced a dip in its monthly revenue collection for September, collecting N23.3 billion.

    The figure was far below the N30.1 billion collected in August, according to a report signed by its Area Controller, Comptroller Eporwei Edike. The N7 billion decline was blamed on the exclusion of some items from foreign exchange transactions by the CBN.

    Despite this and other unintended negative consequences of the policy, the CBN said it would not shift ground. Emefiele, in defending the apex bank’s stance, argued that if there’s global economic slowdown, which has affected the growth and resilience of emerging and frontier markets, including Nigeria, and there is a drop in revenue receipts, which has  impacted negatively on everyone, “There’s need for the regulator to intervene to restore stability in the exchange rate regime.”

    He also said there is need to look for ingenuous ways of increasing the sources of foreign exchange, such as encouraging exporters to repatriate their proceeds and make more foreign exchange available to the real sector so as to grow the economy. He added that the reforms that commenced about two years ago, with respect to economic diversification and taxation, will be vigorously pursued with a view to increasing government’s revenue base.

  • Fed Govt loses N7b to CBN’s forex policy

    The exclusion of some items from foreign exchange (forex) transactions by the Central Bank of Nigeria (CBN) has affected the revenue generation profile of the Nigeria Customs Service (NCS).

    The Apapa Area 1 Command of the NCS yesterday, announced a dip in its monthly revenue collection for September. The Command said it collected N23.3 billion as revenue in September, far below the N30.1 billion collected in August,  according to a report signed by its Area Controller, Comptroller Eporwei Edike.

    The N7billion decline was blamed on the exclusion of some items from foreign exchange transactions by the CBN.

    The apex bank in July published a list of items for which forex will no longer be sourced from the banking system.

    The list  included rice, cement, clothes, textiles, toothpick, poultry products, meat and processed meat, margarine, palm kernel/palm oil and vegetable oils, private airplanes/jets, tinned fish, incense and wooden doors. Others are soaps and cosmetics, tomato/tomato paste, woven fabrics, table ware, kitchen utensils, furniture, plywood boards and panels, wood particle boards and panels, and glassware. Cold rolled steel sheets, galvanised steel sheets, wire mesh and steel nails were also on the list.

    Apapa Customs revenue collection showed that N12.6 billion went into the Federation Account in September, comprising import duty, fees and Common External Tariffs (CET).

    Under  the Non-Federation Account, the command generated N10.7 billion from five per cent Value Added Tax (VAT); seven per cent Port Levy, and 0.5 per cent Economic Community of West African States (ECOWAS) Trade Liberalisation Scheme (ETLS).

  • ‘Government won’t change forex rules’

    ‘Government won’t change forex rules’

    Critics of Nigeria’s foreign exchange policy got yesterday a tough reply —the rules won’t be changed to please “portfolio investors”.

    Vice President Yemi Osinbajo’s view as he backed  the Central Bank of Nigeria’s (CBN’s) currency controls measures.

    The government wasn’t “unduly worried” by a decision from JPMorgan Chase & Co. to remove the nation’s bonds from its emerging-market bond indexes, Osinbajo said in an interview with a church organisation, which was broadcast on Channels TV and monitored by Bloomberg.

    Nigeria’s inclusion in the indexes in 2012 had attracted “hot money” into the economy, which has now been reversed, he said.

    The naira’s plunge to a record low in February following a slump in oil prices prompted CBN Governor Godwin Emefiele to extend restrictions on trading and introduce bans on purchases of dollars by certain importers.

    While the controls have helped to stabilize the currency of Africa’s largest oil producer, it has put Emefiele at odds with investors and even fellow central bankers, who say the naira is overvalued.

    “We need short-term foreign exchange controls even at the risk of delisting at JPMorgan,” Osinbajo said. The restrictions “have really been successful. They’ve led to a situation where our foreign-exchange reserves have stabilized and our current-account deficit has narrowed, which is good in the short term, but it can only be short term.”

    Osinbajo’s comments echo those of President Muhammadu Buhari, who said on September 16 that he opposes a further devaluation of the naira.

    Half the Nigerian bonds listed on JP Morgan’s emerging markets bond index (GBI-EM) was removed last Wednesday from the index.

    The decision, which means investment funds tracking the index will sell Nigerian bonds, adds to upward pressure on national borrowing costs from a sharp drop in oil revenues.

    JP Morgan said last month it would drop Africa’s largest economy from its index, citing a lack of liquidity and currency restrictions.

    The bank said in a note 50 percent of bonds will be removed as of September 30, part of its month-end index rebalancing, cutting Nigeria’s weight to 0.79 per cent. The weight of Brazil and South Africa will increase by 0.80 percent and 0.20 per cent respectively.

    In 2012, Nigeria became the second African country after South Africa to be listed in the index with a weight of 1.8 per cent. The estimated yield for Nigeria bonds on the index was quoted at 14.83 percent as of Sept. 25, marking the second highest yield after Brazil at 15.75 per cent, the bank said.

  • Exchange rate: Different rates for different banks

    Exchange rate: Different rates for different banks

    Although the Central Bank of Nigeria (CBN) stipulates that banks should sell forex for eligible persons who have legitimate request based on the official and interbank exchange rate, investigation shows that majority of the deposit money banks sell forex at arbitrary rates outside the officially approved rate, reports Bukola Aroloye

    A huge industry has been built around the sale of hard currencies, especially the greenback (dollars). Of course, the forex dealers in the parallel market have always been getting a kill anytime the naira falls, as they are most certain to exchange the dollar higher for a weaker naira.

    But thankfully, Central Bank of Nigeria (CBN) which is the apex regulatory body for banks has always risen to the occasion anytime it feels the value of the local currency is being undermined through different policies such as reviewing the exchange rate.

    Only recently, the CBN banned commercial lenders from re-selling central bank dollars among themselves, which was an attempt to curb speculation on the naira.

    Besides, the apex bank had barred 41 items from access to foreign exchange. It had directed that as from August 1, all foreign exchange transactions in any Bureau de Change must have the BVN of applicants as foreigners were said to have invaded the nation’s foreign exchange market.

    Conscious of its mandate to strengthen the local currency, the apex bank had in a circular released signed by the Director of Trade and Exchange, CBN, Olakanmi Gbadamosi, “The Central Bank of Nigeria has considered the recent statements by deposit money banks concerning the large volume of foreign currencies in their vaults and the decision to stop accepting foreign currency cash deposits into customers’ domiciliary accounts as a welcome development.

    “Therefore, in its continued efforts to stop illicit financial flows in the Nigerian banking system which aligns with the anti-money laundering stance of the federal government, the CBN hereby prohibits from the date of this circular the acceptance of foreign currency cash deposits by DMBs.

    “For foreign currency cash lodgements made prior to the date of this circular, the account holder has the option to either withdraw his or her foreign currency cash or the Naira equivalent. For the avoidance of doubt, only wire transfers to and from Domiciliary Accounts are henceforth permissible.

    “The CBN advises individuals that wish to source foreign currency for eligible and legitimate purposes such as BTA, PTA medical, mortgage, school fees, goods etc. to do so through recognised channels with the use of Form ‘A’ for “invisible” and Form ‘M’ for ‘visible’ transactions. By this circular, those who deposited foreign currencies into their accounts before the directive will now have to withdraw the cash as they are not going to be allowed to transfer the funds.”

     

    The fire this time

    The apex bank in line with its mandate also place limitation on spending. In the new arrangement, all ATMs that were hitherto enabled for domestic and foreign transactions have been restructured to limit naira cash withdrawal at ATMs to N60,000 per day while foreign currency is $300 per day. Hitherto, the domestic withdrawal limit was N150,000 per day.

    The new arrangement has separated traditional ATM from MasterCard credit card where the former has now been deactivated and can no longer be used for transactions abroad. Hitherto, a single ATM card serves for transactions for both domestic and abroad.

    Also, the restructured cards now have spending limits on POS/eCommerce (online shopping) pegged at $300 (about N60,000) per day. Before this, the limit was N2 million per day.

    In the new arrangement, a bank customer with multiple debit cards (ATM cards), only the one linked to the primary transactional account will be enabled for use abroad. Hitherto, such customers could transact with any of the cards that is funded and changer high than the official rate.

     

    The fire this time

    It is however instructive to note that most money deposit banks have also join the league of money speculators.

    Investigation by The Nation shows that the official exchange rate is N199 but at the black market, it is N209/210.

    The Nation investigation showed that many banks don’t use the official rate given by CBN.

    Some of the banks officials who spoke with our correspondent while admitting that did not denied it but don’t want their name to be mention.

    GTbank, N225 to dollar, via debit card transition, UBA N210, Fidelity Bank N220, Skye Bank, 210 FCMB 210, why the official rate is 199.25 as at today.

    A banker who spoke with The Nation explained that, if you deposit N1million with any bank in Nigeria today saying 10% can only trade with N390 thousand the remaining N610 is sterilised by government hence cost of borrowing will always be high. At the moment MPC is at 13%. How much is treasury bills today? These are the barometers for you to understand average cost of borrowing as a business man.

    For instance, Standard Chartered Bank has asked its customers to request a complementary ATM card for domestic use only so that the original N150,000 daily cash withdrawal limit can be restored and also reactivate POS/online purchase limit of N2 million per day.

    Meanwhile a banker in one of this new generation said that, why most of the Nigerian banks charge more than the official rate is that since the apex bank has give them directive to source for foreign exchange outside CBN, it is not possible for us to give it at the official rate for transaction, he also accused CBN of devalue the Naira.

    While Zenith allows online transactions the GT Bank chose not to. As one banker confessed, while in the past banking cards linked to naira accounts enjoyed the official exchange rate when used abroad, banks are now using the parallel market rates, removing any previous incentive to adhere to the cashless policy.

    In a CBN circular of July discussing limits and controls on corporate and individual naira denominated cards being used abroad, one of the instructions was for banks to inform customers “the banking industry has instituted a tracking system on the use of naira denominated cards”. If this is possible why put limits on the use of anyone’s money? Set certain triggers for amount and frequency and investigate those flagged.

    An entrepreneur who wanted to pay $2000 to a software developer outside the country, was informed by his bank that he would have to fill out a form and get CBN approval for an exemption to make the payment.

    Apart from the time-is-money cost that this process entails, this surely is an inefficient use of CBN’s time and resources.

    The news about the stash of dollars found in Akwa Ibom State House recently indicates that in the long term, the CBN’s current policy is futile. Those who have access to the type of money that keeps Nigeria at the top of the table for illicit financial flows ($15.7b annually) do not need the banks to keep their dollars safe – they have the state security to do that for them. Two, despite the installation of a special task force at the international airports to harass travellers about how much foreign exchange they have on them, those with access to the type of money which needs to be tracked, either travel on private jets thereby skipping this process or are social and political untouchables who will be waived through by the same members of this task force as has been recently observed and reported. Finally, if part of this current regime of restrictions is to address the high levels of corruption by federal and government officials in the successive administrations, then what happens to the money already out of the country, safely in foreign banks and easily accessible with Barclays or CitiBank cards? If these people have no intention of bringing this money back into Nigeria how does the CBN intend to track their transactions?

    The bank also required their customers to apply for a foreign currency denominated ATM linked to domiciliary account which would be enabled with no daily or annual international transaction limits.

    Earlier, Guaranty Trust Bank Plc had informed its customers of its decision to reduce the daily international spending limit on their Naira MasterCard to $300.

    In a communication to the customers, the bank explained: “In view of the increased difficulty in sourcing foreign currency to settle international transactions on Naira MasterCards, we have reduced the daily international spending limit on your Naira MasterCard to $300.This means that you can only spend up to $300 daily when using your GTBank Naira MasterCard for international payments via POS and online.

    “You will, however, continue to have the option of paying for medical bills, school fees, mortgages and credit cards using Form A, as these are eligible transactions for foreign currency. Simply visit any GTBank branch to complete a Form A along with the required documents to make these payments.”

    A statement from the CBN added that already all the legitimate demands for such transactions through recognised channels have so far been fully met by CBN.

    The statement stated: “The CBN hereby directs all authorised dealers in foreign exchange in Nigeria to henceforth treat as top priority all legitimate demand for foreign exchange for eligible transactions.

    “The CBN once again advises individuals that wish to source foreign currency for such eligible transactions to approach their banks with their legitimate demand as the CBN has made adequate provisions of foreign currency for all such legitimate and eligible purposes.”

    According to Tolu Ajayi a business man told The Nation is expresses with one of the new generation bank, “when I call their customer care line they told me it is N225 and as at that time it was N210, later the rate come back to  N197 still they did not change the rate to the official one. What is going on? What is the official rate? Some banks are even helping to smuggle hard current out of Nigeria ,I was told at the rate between N237 and N240, is Emefiele saying is not aware? Are Nigeria banks now working for the politicians who drilled holes into our treasury or are they the one working for Mallams? Were all quite while this taking place or am I missing something.”

    An aggrieved customer with one of the old generation bank said: “70% of Nigeria banks don’t even use the official rate for online transaction and this is a way to defraud customers especially those who use the money to pay school fees, those who buy goods from outside the country were affected.”

  • MPC members flay CBN’s forex policy

    The Central Bank of Nigeria (CBN) has come under attack for attempting to prop up the naira by restricting access to dollars. Two members of the Monetary Policy Committee criticized the policy; others said CBN should allow a more flexible exchange rate.

    Bloomberg quoted Chibuike Uche as questioning the legality of the CBN’s June decision to stop importers of about 40 items, including rice, furniture and toothpicks, accessing official foreign exchange markets.

    Doyin Salami said the measure would slow economic growth and that foreign investors were confused by the central bank’s attempts to defend the naira since March.

    Investors are “baffled by the CBN’s expressed unwillingness to countenance any further currency adjustments and market liberalisations,”

    Salami, a lecturer at Lagos Business School, said at an MPC meeting attended by all 12 members on July 23 and 24, according to a statement published on CBN’s website that: “The credibility that CBN has carefully cultivated, if not lost, is most certainly undermined,” he said.

    The naira plummeted by 21 percent to a record low of $206.32 between the end of June and February 12 as the price of oil crashed.

    CBN Governor Godwin Emefiele  introduced bans on purchases of dollars to stem the rout. The currency has since been mostly flat in the interbank market, averaging 198.94 since the end of February.

    But there are many stakeholders who insist that the CBN’s forex restrictions are in order.

    Former Executive Director, Keystone Bank, Richard Obire, said the policy is expected to encourage importers to look inwards and begin local production as the prices of the affected items would shoot up in the market because of high cost of buying forex from the black market.

    He said in the long run, the benefits of the CBN’s decision, will outweigh whatever temporary pains it may have. “Those who decided to produce those goods locally and export them,will earn foreign exchange instead of depleting the reserves. In the short-to-medium terms, it will be painful but subsequently, it will improve the overall economy,” he said.

    He said even the International Monetary Fund (IMF) believes that the CBN should protect the reserves because of the huge benefits of such decisions on the naira.

    “If the CBN keeps funding these items, the demand for the dollar will rise and this will affect its push for infrastructural development needed to boost the real sector,” he said.

    He said the policy could be used to achieve developmental objective, adding that using the available capacity to produce locally, would reduce forex demand and when the local production is enhanced, more people will find jobs within the economy.

    Former President, Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu said the policy was meant to fix the battered foreign reserves. He, however, insisted that the some items in the list, have no business being there because they are raw materials.

     

     

     

     

    “I have nothing against the policy, but the CBN must be cautious not to drive manufacturers to the parallel market. I expect the regulator to be one step ahead of the stakeholders,” he said.

    “The CBN should always consider the unintended consequences of its actions and must set a band which the naira must not exceed”.

    Unegbu said it is not right to formulate policies simply to attract foreign investors, because if the investment climate is conducive, they will come without being persuaded.

     

  • Firm to open more forex outlets

    A leading foreign exchange firm, Travelex, is set to open additional outlets in Lagos, Port Harcourt, Kano and Abuja, following the approval by Central Bank of Nigeria (CBN) for the company to undertake direct sales of the US dollars at official rates.

    A statement by its management said transactions to be covered include the government-approved Personal Travel Allowance (PTA) and Business Travel Allowance (BTA).

    General Manager Mr. Anthony Enwereji said the company is eager to support the ongoing CBN’s forex policy and the Nigerian economic system to ease the current challenges in the country’s foreign exchange market.

    He said: “The plan for these new offices is to ensure smooth foreign exchange services to end users across. These new locations will serve as a pilot scheme while we plan to open more outlets across Nigeria.

    “For those who need PTA, they will present their valid international passports, tickets and visa, while those who need BTA will present, in addition to PTA requirements, certificate of incorporation of their company and letter of request before Travelex will sell them foreign exchange at CBN’s current rate.”

     

     

  • Forex: CBN, BDCs head for showdown

    Forex: CBN, BDCs head for showdown

    Bureaux De Change (BDCs) are facing regulatory hurdles over continued foreign exchange (forex) volatility in the wake of falling oil prices. The BDCs jittery that the Central Bank of Nigeria (CBN) may shut them out of the official forex window, writes COLLINS NWEZE.

    Bureaux De Change (BDC) are critical stakeholders in the Central Bank of Nigeria (CBN) – moderated foreign exchange (forex) market. But they are the first point of adjustment every time there is a forex crisis.

    The fear of Association of Bureau De Change Operators of Nigeria (ABCON) president Alhaji Musa Gwadabe that CBN is considering closing the official forex window to BDC operators is not helping matters. It portends a grave danger for operators. Gwadabe linked the fear of closure of the forex window to BDCs as one of the factors fueling naira speculation and hoarding in the market.

    The ABCON chief has therefore sent a letter to the regulator, accusing it of over regulating the sector.

    The group said the increasing challenges arising from over regulation and complex documentation requirements that licensed BDC operators are facing in carrying out their daily legitimate operation, is worrisome.

    These, he said, have had negative impact on their efforts toward compliance to statutory and regulatory requirements.

    The ABCON chief said that six units within the CBN are involved with BDC regulations, supervision, licensing, monitoring, saying this  constitutes multiple regulation of a unit of the financial sub-sector that is only involved as a small market player.

    “A BDC operator is expected to render daily, monthly, quarterly, half yearly and annual returns to these various departments of the same corporate body, which could be very cumbersome, repetitive and time consuming for both the operator and the regulator,” he said in a statement.

    “In addition to the above, the BDC is also under obligation to render same returns to the Economic and Financial Crimes Commission /Nigeria Financial Intelligence Unit, while at the same time reporting to other statutory government establishments, including  the Federal Inland Revenue Service and Corporate Affairs Commission respectively”.

    Gwadabe also disclosed that the BDCs had in recent months, come under severe pressure from the CBN for observed infractions. For instance, the CBN recently suspended 437 BDC operators from the forex window.  The affected BDCs, which were slammed with N2 million fine each for non-rendition of their monthly returns to the apex bank, were also  denied access to the $30,000 weekly allocations to operators by the regulator. The affected firms failed to provide detailed reports on how previous dollars sourced from the CBN were utilised. They failed the returns rendition test which carries sanctions of fines or revocation of licences.

    “Unfortunately, some have had to pay high penalties to different departments where instant regulations were violated. The result of this is heavy burden on the BDC considering the little margin of profit allowed on their transactions,” he said.

    The Corporate Affair Commission, he added, has also hiked their incorporation fees and with the review of the operational requirements which made it mandatory for every BDC operator to recapitalise their initial capital and so upgrade their documentation with the CAC, they were charged enormously for the perfecting of their documents.

    Furthermore, the ABCON boss said operators had to grapple with the problem of erratic network at the electronic Financial Analysis and Surveillance System (e-FASS) platform around the country in the last couple of months. This situation, he said, hampered the rendition of BDC returns to the CBN by operators and eventually many were recently penalised as a result thereof.

    He said the documentation requirement to process a Personal Travelling Allowance of say $10,00 requires an international passport, valid visa, ticket among others, making the process cumbersome, complex and inconvenient for both the buyer and the BDC operator. Also, payment for medical fees of say $3,000 requires hospital bill, international passport, ticket, valid visa among others, to consummate the transaction.

    He also faulted the inability of the regulators, statutory agencies to effectively monitor, supervise, train the ever growing number of the BDCs as a result of these multiple and overlapping regulations of the various department of the CBN and other related agencies.

    He said: “The CBN should consider the introduction of dollar denominated cards and coupons to BDCs for retailing to the public. We shall welcome your invitation at your convenience to shed more light on this. We suggest a single BDC directorate at the CBN to be in charge of the BDC sub-sector in order to enhance efficiency, productivity and transparency. This would engender proactive involvement of both the regulators and the BDCs for the growth and dynamism of the sector,” he said.

    “The CBN is to consider as alternative requirement other means of identification such as drivers licence, voters card, and international passport”.

    For instance, the apex bank recently, suspended 437 BDC operators from the forex window, The Nation had reported.

    The affected BDCs, which have been slammed with N2 million fine each for non-rendition of their monthly returns to the apex bank, were  denied access to the $30,000 weekly allocations to operators by the regulator.

    The affected firms failed to provide detailed reports on how previous dollars sourced from the CBN were utilised. They failed the returns rendition test which carries sanctions of fines or revocation of licences.

    The source said the level of abuse was so massive that the CBN decided to hit their pockets to serve as deterrent to others. “Given that BDCs were long viewed as a potential source of forex leakage in the system, these measures should boost confidence in the sustainability of the forex band,” the source said.

    Gwadabe confirmed the development, and described the sanctions as punitive, and will further weaken the already fragile naira.

    He said the CBN will make nearly N1 billion when the 437 BDCs pay the stipulated penalties and that will add undue pressure on the finances of the operators already wailing from the burden of increased capital base and N35 million mandatory cautionary deposit.

    “My suggestion to the CBN is that instead of demobilising the affected BDCs for non-rendition by denying them access to forex market, their N35 million cautionary deposit should be debited with the penalty sum,” he said.

    This is coming as CBN had in July, licensed additional 70 BDCs, bringing the total approved operators to 2,688 since the request that operators increase their  capital base from N10 million to N35 million plus another cautionary deposit of N35 million kept with the CBN. There were 3,208 registered BDCs before the apex bank ordered them to recapitalise latest by July 31, 2014.

    The regulator has, however, kept updating its list of BDCs, even though the deadline elapsed since July last year despite earlier stand that it would cease to fund any BDCs that failed to beat the initial deadline.

    Besides, the CBN has consistently adjusted its forex policies to maintain exchange rate stability.

    Chief Economist, Africa Global Research at Standard Chartered Bank, Razia Khan, hinted that the apex bank is already under intense pressure to re-open two-way interbank forex trading.

    In a report: “When perception is not reality” obtained by The Nation, the analyst explained that given the current perceived market shortage of dollar, a re-opening of the market is likely to see dollar-naira trade higher.

    She said the ‘negative watch’ period for the continued inclusion of Nigerian bonds in the widely tracked GBI-EM index was extended in June, to allow the new government the time to formulate policy.

    “Unless interbank determination of the forex rate is reintroduced, with a resulting improvement in forex liquidity, Nigeria risks being excluded from the GBI-EM index. Failure to re-open the FX market may deter direct investment as well. Few foreign investors are ready to commit new investment to Nigeria ahead of an forex adjustment that they believe to be imminent,” she said.

    Khan said Nigeria’s changing economic fundamentals call for a rethink of forex policy, in order to better absorb external shocks.

    “We see Nigeria’s current account surplus moving to a deficit, both in 2015 and in the years ahead. The pace of accumulation of new forex reserves will not easily support a fixed exchange rate system.

    With a fixed exchange rate, forex reserves rather than the naira bear the brunt of any external shock, hurting Nigeria’s creditworthiness, and potentially raising the cost of any external borrowing,” she predicted.

    The economist said the risk is that the longer it takes to re-open the forex market, the greater the likelihood of forex overshooting when conditions do eventually normalise.

    She said the debate over forex policy would continue to take centre-stage in this quarter, culminating in a reopening of the interbank forex market, and a likely move higher in the dollar-naira exchange rates. “The authorities, mindful of other reform priorities and the need to limit inflation, are unlikely to favour naira depreciation for its own sake. These reform priorities include a probable doubling of the rate of Value Added Tax to 10 per cent in order to boost state government revenue, as well as some form of fuel subsidy adjustment,” she said.

    The CBN had, after a series of measures aimed at arresting the continued fall in naira value, announced the closure of the RDAS, thereby, leaving the interbank foreign exchange market as the only official one.

    The decision became necessary given the wide gap between the rates at the CBN official exchange market and the interbank market; a development which analysts said largely fuelled the current speculative activities in the foreign exchange market in the country.

    The RDAS or official forex window allows banks and other authorised dealers to place bids on behalf of individual clients who qualify to buy forex at the official auction.

    Unlike the Wholesale Dutch Auction System (WDAS) scrapped in September 2013 over widespread abuse, the RDAS allows the CBN to monitor more accurately various sources of forex demand and any potential duplication of demand in the system to address speculation in the market which has put naira under pressure.

    The CBN is also closely monitoring BDCs to ensure they comply with anti-money laundering policies. The regulator has consistently urged banks, BDCs and Other Financial Institutions (OFIS) on the importance of rendition of returns and compliance with anti-money laundering regulations.

    CBN Director, Banking Supervision, Mrs Tokunbo Martins said during the Chartered Institute of Bankers of Nigeria (CIBN) anti-money laundering workshop held in Abuja, that the CBN always wants to ascertain if lenders are complying with Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regulations.

    Matins said: “Section 29 of the CBN AML/CFT Regulations, 2013 (as amended) requires financial institutions to maintain all necessary records on transactions, both domestic and international for at least five years after completion of the transactions or such longer period as may be required by the CBN and Nigeria Financial Intelligence Unit (NFIU), provided that this requirement shall apply regardless of whether the account or business relationship is on-going or has been terminated”.

    She disclosed that financial institutions are expected to maintain records of the identification data, accounts files and business correspondence for at least five years after the termination of an account or business relationship or such longer period as may be required by the CBN and NFIU on a timely basis.

    She said that financial institutions are required to forward their AML/CFT Compliance Manual to the CBN for off-site review of the document as well as carry out enhanced customer due diligence for high risk customers and effective Know Your Customer (KYC) processes.

     

     

  • Manufacturing down by 3.8% over forex restrictions, fuel shortages

    The manufacturing sector, which accounts for 10 percent of the Gross Domestic Product (GDP), declined for a second consecutive quarter by 3.8 per cent in the second quarter of this year.

    The performance is against a growth of 14 per cent yearly in the last one year, a report by Renaissance Capital (RenCap), an investment and research firm, has said.

    In the report entitled: Second Quarter 2015  GDP: “Manufacturing is in recession,” RenCap’s Sub-Saharan Africa economist Yvonne Mhango said manufacturing’s decline in the first quarter of the year is partly because of tight forex liquidity, which made it difficult for manufacturers to acquire imported inputs. It is also likely that severe fuel shortages in the second quarter undermined production and distribution, she said.

    She said the decline in the manufacturing sector came after the double-digit growth from 2011 to 2014. The decline is largely attributed to the largest manufacturing sub-sector, food, beverages and tobacco, which contracted by 5.9 per cent in growth of 5.2 per cent in June 2014.

    She said the textiles sub-sector has also seen two successive quarters of negative growth.“We believe manufacturing’s decline in March 2015 is partly because of tight forex liquidity, which makes it difficult for manufacturers to acquire imported inputs. It is also likely that severe fuel shortages in June 2015 undermined production and distribution,” she said.

    RenCap has, therefore, revised down its 2015 growth forecast for Nigeria to 2.8 per cent (from 3.4 per cent) following this week’s release of exceptionally weak growth data from Nigeria and South Africa.

    “As they account for half of Sub-Saharan Africa’s (SSA’s) GDP, their softer growth has significant implications for the region; we now see SSA growth slowing to 3.5 per cent in the year against a 2000 to 2014 average of 5.5 per cent per year.

    For the non-oil sector, the sharp slowdown in growth to 2.4 per cent  in the second quarter, against 6.5 per cent same period of last year, was largely owing to a deceleration in the non-oil sector rather than a continued contraction in the oil sector.

    To put things in context, the oil sector’s contraction was equivalent to that in 2014, but in the first quarter, GDP growth was still higher than six per cent. This underscores the fact that the second quarter slowdown was mainly owing to the non-oil sector, which grew at 3.5 per cent against 6.7 per cent in June, last year. A decline in manufacturing and a slowdown in services explain the non-oil sector’s lacklustre performance.

    “We revise down our 2015 growth forecast to 2.8 per cent because of June 2015 growth of 3.1 per cent came in below our 2015 forecast of 3.4 per cent; and  we expect supply constraints, related to forex restrictions and the de facto import ban, to undermine growth in June 2015,” she said.

    Defending the forex policy, CBN Director, Monetary Policy, Moses Tule, said allowing access to forex would sink the economy because oil price decline has reduced the volume of government dollar earnings.

    Tule, who spoke at the Private Sector Dialogue with the CBN on forex policy organised by Lagos Chamber of Commerce and Industry (LCCI) in Lagos, accused some manufacturers and real sector operators of insincerity in their forex request.

    He said some manufacturers obtained forex from the CBN at official rate, sent the fund abroad without the intension of importing goods and that such funds were never repatriated.

    Also, he faulted the practice of manufacturers making upfront forex demand, sometimes with over two years’ gap. “Some importers demand for forex for items they want to buy in the next two years,” he said.

    Tule said micro-economic management in Nigeria needs the support of stakeholders to achieve the desired success. He said no economy is run by forex, and that it is the level of economic activities in the country that determines its volume of dollar-earningsy.

    He said before the fall in oil prices, the apex bank did its best to ensure that everyone that needed forex got it.

     

  • The new forex policy

    • Good move.  If well enforced, it holds the promise to sanitize the local economy and curb money laundering

    The new controls put in place to ensure better management and utilisation of foreign exchange has understandably set the financial system abuzz.

    Friday July 31, the news was everywhere that banks were no longer accepting foreign currency deposits into domiciliary accounts. Next day, Saturday August 1, the official confirmation came via a notice by one of the nation’s leading banks to its customers, that they would no longer accept foreign currency cash deposits.

    The statement read: “Please, be informed that due to the unavailability of outlets for managing foreign currency cash deposits, we have found it necessary to temporarily suspend receipts of foreign currency cash deposits into domiciliary accounts at all our branches nationwide from Monday, August 3, 2015. In addition, foreign currency cash deposits into domiciliary accounts made prior to this notice will not be eligible for outward electronic transfer and can only be withdrawn as cash”.

    The same day – the Central Bank of Nigeria (CBN), citing ‘a recent report by the Global Financial Integrity group, which ranks Nigeria as one of the 10 largest countries for illicit financial flows in the world’, noted and applauded the move stating that “in line with global best practice, Nigerian banks have started to curtail the acceptance of foreign currency cash deposits, much the same way as customers in other countries cannot just walk into banks and make foreign currency cash deposits without proper documentation’. The implication of the latter is that the banks, rather than the CBN, triggered the policy.

    Be that as it may, on August 5, the apex bank fired another memo effectively sounding the death knell for the operation of domiciliary accounts. It read “In its continued efforts to stop illicit flows in the Nigerian banking system which aligns with the anti-money laudering stance of the Federal Government, the CBN hereby prohibts from the date of this circular, the acceptance of foreign currency by the DMBs”.

    It gave the owners of the accounts the option of either to withdraw their deposits or collect the naira equivalent. It also advised individuals who wish to source foreign exchange for eleigible and legitimate purposes to do so through the recognised channels while assuring that their requirements would be met.

    As would be expected, what followed were torrents of diverse opinions on even before the full import of the measure was digested, with many suggesting that the measure was rather draconian and hasty.

    Perhaps so. But, even without the harsh economic climate forced by the decline in crude oil earnings and hence its curb on foreign exchange inflows, it would seem to us a matter of time before the old order – the laissez-faire system in which the so-called parallel market held sway – would give. We say this mindful of the growing sophistication of the banking sector in general, and the industry’s giant strides in the area of enhanced payment systems, even across national boundaries, through its adoption of latest information technology platforms in particular. This development, in our view, has more than rendered the domiciliary accounts, superfluous.

    We have not heard the argument – not at this time – in favour of having multiple currencies as the nation’s legal tender. Indeed, the move towards the dollarisation of our fragile, mono-export economy would seem one of such absurdities fuelled only by the illusion of petro-cash.  And if we may add – with perhaps the exception of Zimbabwe and nearly a dozen of countries at war, we cannot recall a country whose currency has suffered the steady displacement by major international currencies as the naira even in commonplace domestic transactions such as payment for rents and school fees.

    It goes without saying therefore that the defence of the value of the naira from the activities of currency speculators must be seen as a sacred duty to the monetary authorities. We therefore see the new policy as a positive step in this direction. We also agree on the need to curb illicit foreign exchange transfers through stricter foreign exchange controls which the apex bank advanced as another reason behind the measure. We find the CBN’s commitment to make foreign exchange available for all legitimate transactions reassuring.

    Finally, we know money laundering is the root and branch of the pervasive corruption currently gnawing away at the heart of the nation. Scrupulously enforced, the measure promises to instil some sanity to our international trade.

  • FXTM enlightens forex traders on investment conference

    FXTM enlightens forex traders on investment conference

    International broker ForexTime (FXTM) is educating Nigerian traders on its forthcoming online forex trading and investment conference.

    The conference, holding today and tomorrow as well as on 19th to 20th August, 2015 will feature speakers including: Abiola Akinyele, Country Director at FXTM Nigeria, and the highly respected forex expert, Professor Andreas Thalassinos.

    Thalassinos will provide technical analysis training, as well as an extensive workshop for participants.

    The conference is expected to attract over 1000 attendees, and comes on the heels of FXTM’s series of educational events which attracted 500 attendees in June.

    “Attendees can take part in sessions on the following topics: calculating profit levels, developing effective trading and risk management strategies, and identifying high probability entry and exit points,” the company said in a statement.

    Akinyele said: “We are dedicated to making trading understandable to anyone who is looking for new investment opportunities in the evolving global marketplace. Our latest conference is expected to be the biggest forex conference of its kind in Nigeria, and will equip traders with all the necessary skills and strategies to make well-informed trades in the currency and commodity markets.”

    Thalassinos said: “It is an honour to offer my expertise to FXTM’s clients in Nigeria. FXTM’s commitment to bringing top quality forex training to Nigeria has already seen the company hold a number of very successful educational events here this year. The high turnout expected for the conference in August demonstrates the real enthusiasm which local traders have to educate themselves on the currency markets and trading strategies.”