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Nigeria lost huge forex defending naira, says Finance minister

The Federal Government took the right step by instituting forex reforms and freeing forex previously used to defend the naira, Chief Executive Officer, Ministry of Finance Incorporated, Dr. Armstrong Takang has said.

Speaking yesterday at the unveiling of the 2023 Nigerian Banking Sector Report titled: “Getting Nigeria to Work Again!” in Lagos, he said government had in the past, lost so much forex trying to defend the naira.

Defending ongoing reforms in the forex market, Takang, who represented Minster of Finance & Coordinating Minster of the Economy, Wale Edun, said the implementation of the ‘willing buyer, willing seller’ model has preserved forex for the economy.

He said that in its effort to unlock forex liquidity, the Federal Government is encouraging people with genuine forex to bring them back home for investment in the domestic economy.

He said many of the corporate assets are not paying dividend to the government, and that has led to revenue loss. He said: “The International Monetary Fund advised us that domestic resource mobilization is key in our plan to boost revenue. Also, many of our corporate assets have not been paying dividends. We have oil and gas assets that are not performing optimally and that has to stop. We need to optimize assets lying dormant to boost capital position.”

He said that there are many companies that owe government but continues to do business with the government without settling their obligations.

“We are now debiting the account of such companies to recover the debts. Government business should be run as business where we have commercial interest,” he said.

Also speaking, Managing Director, Afrinvest West Africa Limited, Ike Chioke, advised monetary and fiscal authorities to rethink their anti-inflation strategies to holistically addressing the ugly narrative of surging inflation rate.

He explained that both the monetary and fiscal authorities have mainly been fixated on the control of money supply and selective tax reliefs.

“In our view, an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks (notably, insecurity and infrastructural gaps), improves ease of doing business, and incentivizes large-scale local production of agriculture and manufactured goods alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate (MPR).

“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy,” he said.

According to the report, Nigeria’s fiscal deterioration has continued unabated. After hitting the N70 trillion in 2022 due mainly to the N23.7 trillion addition from securitised Ways & Means liabilities, the total public debt profile nudged higher to N87.4 trillion in the first half of this year.

“This, in addition to underwhelming revenue performance in first half of 2023 (actual revenue, N4.1 trillion, underperforms pro-rata target by 26.5 per cent, and 99 per cent of it, N4 trillion was used to servicing debt) has further put Nigeria on the cusp of insolvency.

Against this backdrop, the new administration of President Bola Tinubu has introduced some policy measures to assuage the fiscal pressure, notable amongst which are the “partial” removal of subsidy payment on PMS, the increase in education tax by 50 basis points to three per cent, and the introduction of a 7.5 per cent Value Added Tax on diesel,” the report said.

Despite these measures, Afrinvest said it does not see a quick fix to the fiscal pressure in the near-term, given increasing internal and external pressure points on the economy and the time lag required for policy reforms to manifest gains.

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The panelists at the event-Amal Hassan, Founder/CEO, Outsource Global; Robert Dickerman, Chief Executive Officer, Pinnacle Oil & Gas; Odunayo Eweniyi, Cofounder/Chief Operations Officer, Piggyvest; Anthony Okungbowa Esq., Head of Service, Edo State Government and Sadiq Kassim, Director, Corporate Affairs, TGI Group, all called on the government to take steps that will boost government revenue earning capacity and boost food security through support for the agricultural sector.

The report said there was need for new Central Bank of Nigeria (CBN) leadership to be geared towards reversing the unorthodox policy measures of the last administration, restoring market confidence in the CBN’s autonomy, and prioritizing the core goals of price and exchange rate stability.

“Nonetheless, we believe that achieving all of these in a short-term would be a herculean task, given that complementary fiscal policy actions are required for the CBN to record gains,” it said.

“In the meantime, we canvass that the authorities double down on efforts to check insecurity, curb oil theft, tame inflation, anchor market yield on Monetary Policy Rate, and improve the business environment. Also, we believe that the sustained high demand for FX in the parallel market due to lingering weak supply in the official market coupled with inefficient processing time, would continue to undermine the objective of these measures.”

“As regards the impact of the measures on the banking industry, we expect the re- introduction of the willing buyer, willing seller model to support a modest positive upside for the FX transaction income of banks going forward,” the report.

The event will attract dignitaries from private and public sectors, market leaders and stakeholders in the financial sectors who will discuss key issues that are necessary to get the country’s economy return to path of growth and development.

The Banking Sector Report, said: “As the new CBN leadership takes over, Nigerians and the banking industry are on the lookout for a positive and timely turnaround of stifling banking regulations and major monetary indices – exchange rate, inflation rate, and Foreign Portfolio Investment & Foreign Direct Investment flows,” the report said.

The report also provided highlights of the 2022 Nigerian Banking Sector report themed “Brace for Impact” which coincided with the onset of fresh global risks as the receding Covid-19 pandemic left deep footprints.

“This evolution of risks shifted focus from economy-stimulating policies to the introduction of guard rails for overheating economies. Specifically, the emergency adoption of the Modern Monetary Theory playbook in response to the pandemic dovetailed into a glut of financial liquidity. Although the broad stimulus deterred prolonged global recession, the absence of a commensurate productivity boost drove real and financial sector prices higher and threatened real output recovery,” it said.

November 15, 2023
‘Forex, power supply frustrating local manufacturing’
- By Precious Shopade
The government needs to implement immediate and long-term policies to stabilise the foreign exchange (forex) market and ensure stable electricity supply in order to alleviate the challenges facing the local micro and small manufacturing industry.

Chief Executive Officer, Sepsotech Construction Services, Mr Segun Shopade, said the two main challenges facing the local manufacturing have been the high rate and fluctuation in the forex market and inadequate electricity supply.

According to him, local manufacturing companies are facing rising costs of production because of the increasingly high costs associated with forex and electricity supply, which affect both the volume and demand for production as well as manufacturer’s profit margin.

He explained that in order to remain in business and encourage customers, who are already hard-pressed by the economic challenges, local manufacturers are often left with no option but to absorb the rising production costs, as they cannot pass the costs fully to customers.

“The biggest challenge right now is the rising dollar, we can’t do anything with the way dollar is rising, we can’t just inflate the price of our goods anyhow because of our clients, so it’s giving us a lot of headache as we don’t see much gain as we used to.

“The forex situation is affecting my company like other local manufacturing companies because of the inflation in prices of all materials, we don’t really make anything in Nigeria, everything is coming from abroad, so we rely on Dollar to work. So, those are the things affecting us,” Shopade said.

He added that inadequate electricity supply has also exposed manufacturers to high and unstable costs, urging the government to focus on providing stable energy supply to boost economic productivity.

“Electricity is also a major aspect. Like us now in Sepsotech, we use millions of naira to buy diesel every quarter. So, the government should focus on that. They should really help us in terms of price control, if we go to market to buy material today, by tomorrow the material has gone up and you can’t keep changing costs given to customers arbitrarily. And you know that when things go up in this country, they hardly come down. So, I think the government should help us focus on these areas,” Shopade said.

He called on the order to provide capacity development programmes for micro and small local manufacturers, technicians and others to build the local manufacturing capacities and make the country less dependent on imports.

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According to him, with adequate technical and financial supports, the micro and small manufacturing sectors, especially in the areas of specialised services like engineering, Nigerian firms can fill up the import gap and provide the country with self-sufficiency in many areas.

“They need to help us build ourselves so we can be doing so many things in this nation, rather than importing everything from abroad,” Shopade said.

He pointed out that his firm, Sepsotech is a full-service construction company that specialises in a wide range of projects for residential and commercial users, with key expertise in production of bakery and kitchen equipment and other iron and metal fabrications.

According to him, clients have shown preference for Sepsotech because of its expertise and high quality materials.

“When it comes to work, we don’t compromise materials we are using for our clients. We don’t really focus on profit, rather we focus on clients’ satisfaction. We make them see the value of the money they spent on what they got from us.

“At Sepsotech Construction Services, we believe in the power of teamwork and collaboration. Our dedicated professionals work together to ensure that every project is completed to the highest standards. We value trust, security, efficiency, confidentiality, professionalism, and integrity in all our customer interactions,” Shopade said.

He noted that his company understands that the foundation of any successful construction project lies in the reliability and durability of the equipment and materials used.

He added that by prioritising top-notch materials, Sepsotech ensures that clients can trust the longevity and performance of their projects, whether residential construction or commercial building.
November 13, 2023
Airlines, others to get forex backlog

Foreign airlines and other business owners have been told to meet their banks to clear the foreign exchange (FX) forwards backlog.

A senior Central Bank of Nigeria (CBN) official confirmed the directive from the apex bank yesterday.

The official said the CBN will settle the remaining FX forwards backlog this week, added that 14 banks, including Stanbic IBTC, Keystone and Citi bank had their FX forwards contract settled last week.

The CBN official said the apex bank will not deal directly with any airline or other businesses except through their banks.

With the CBN steadily addressing the FX backlog, there are indications that a portion, if not the entirety, of the $10 billion, as mentioned by the finance minister, earmarked for offsetting these backlogs, may have already been received.

FX forwards involve the buying and selling of currencies at a prearranged price on a future date.

This allows a buyer and seller to enter into an agreement to exchange forex at a specified rate, different from the prevailing market rate on a future date, thereby providing a hedge against market volatility.

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The official noted that the CBN will be settling the remaining FX forwards backlog this week.

The apex bank’s move is a positive development for the Nigerian economy, the FX market, the value of the naira, and the country’s gross external reserves.

It is also expected to improve Nigeria’s credit ratings from international rating agencies and boost foreign investor confidence in the CBN.

The FX backlog led to the downgrading of Nigeria’s status by rating companies in the business community.

One of the rating agencies – Morgan Stanley Capital International (MSCi) – spoke of plans to reclassify Nigeria’s indexes from frontier to ‘Standalone’ status by February 2024. It hinged the plan on the unsettled forex.

November 8, 2023
The role of a Forex trading app in enabling traders to trade anytime and anywhere

Since its inception, foreign exchange trading has developed significantly. The trading industry has undergone major shifts, from brick-and-mortar establishments to digital marketplaces. However, the development of forex trading apps for smartphones is the most recent development that is reshaping the industry.

Mobile apps have grown increasingly important in our daily lives as the use of smartphones and tablets has exploded. Traders in the foreign exchange market have taken note of this development and are increasingly employing the use of mobile apps.

Forex trading apps have revolutionised our ability to gather knowledge, make social connections, and complete a wide range of jobs. To better serve its customers, the foreign exchange market has swiftly embraced this innovation.

Mobile apps have made it possible for traders to participate in the foreign exchange market around the clock, from any location in the world. As a result, traders can now take advantage of more opportunities and increase their chances of making money while on the go.

The benefits of Forex trading apps

Real-time access to market events

Keeping up with the market in real time is a huge benefit of using a mobile app for forex trading. Traders can stay up-to-date on market fluctuations, breaking news, and economic events via push notifications sent directly to their mobile devices.

Traders can use this real-time information to make educated decisions and place trades at optimal times, increasing their earnings. In addition, traders can analyse market trends and patterns on the go with the use of mobile apps that allow access to a variety of technical analysis tools, charts, and indicators.

A more seamless trading experience on the go

The experience on an app for forex trading is streamlined, with simple UI and straightforward navigation. They include everything a trader could need to make trades, manage accounts, and keep tabs on positions.

Traders can use mobile apps to execute all aspects of their trades, including placing market orders, establishing stop-loss and take-profit levels, and limiting risk with trailing stops. The trading experience is further improved by the fact that many trading apps for mobile devices include high-end tools like individualised watchlists, price alerts, and notifications upon transaction execution.

Access to Forex education from any location

The convenience of having Forex education at one’s fingertips is another major benefit of app-based mobile technology. Tutorials, webinars, and trading guidelines are just some of the forms of education that can be found within the mobile apps of many forex brokers.

Traders can increase their expertise, pick up new trading methods, and hone their abilities with the help of these readily available tools. Traders can get a leg up on the competition with the help of real-time market information, expert comments, and trading signals delivered straight to their mobile devices.

Final Thoughts

Mobile forex trading apps are integral to the industry’s future success. Mobile apps will continue to evolve alongside technological developments, eventually boasting even more advanced capabilities.

November 1, 2023
On recent development in Nigerian forex market
- By Motunrayo Fakorede
As of October 23, USD$1 exchanged for NGN1,225 on the parallel market. A far cry from the NGN700 that was obtainable at the same time barely 12months ago. Arguably, this is largely attributable to the “floating” of the Naira in June 2023. This floating, which has been regarded as another round of devaluation in some circles, seems to align with years of recommendations by the World Bank and similar voices in the financial sector and as such, seemed to a welcome development in by a good number of policy analysts, at the onset. However, barely five months into the policy, the expected wins seem to have evaded the country and the touted corrupt practice of multiple exchange rates seems to have only been more emboldened rather than depleted.

The Naira’s current situation is not a recent or one-off development. In fact, the increase in exchange rate is one that most Nigerians are very familiar with as the Naira has experienced a continued downfall from 1983 to date. Successive governments and Central Bank of Nigeria (CBN) leadership have adopted different approaches to defend the Naira, attract inflow of foreign capital and retain certainty as well sanity in the foreign exchange market, yet all achieving the same outcome – continuous devaluation of the Naira.

The common rhetoric among the international community in the past has been that the Naira is overvalued. This is quite understandable, considering the nature of the Nigerian economy. Fact is Nigeria is a commodity producer, with our major export and source of foreign exchange being crude oil, while the outflow of foreign exchange from Nigeria is a considerably longer list. This makes the Naira unattractive in the international community and puts the country at a disadvantage when compared to other developing economies that are less commodity focused.

Case in point, South Korea. South Korea is one of the success stories of the developing world that has successfully transformed from a majorly agrarian economy, immediately after the war in the 1950’s, to one of the most industrialised economies of date. South Korea’s economy boasts of brands like Samsung, Kia, Hyundai, Daewoo, amongst others that compete comfortably with top global brands in the automotive and electronics industries. Yet, South Korean Won traded at over 1,000 KRW to USD$1 as of 2016 when the Nigerian Naira traded at an average official rate of NGN248 to USD$1, and currently trades at 1,336.4 KRW to USD$1 as of October 11.

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Proponents of Naira devaluation could argue that the comparison does not align with the current world order because, the currency of an industrialised economy like South Korea should ideally be valued higher than that of a commodity dependent economy like Nigeria. The point could be further made, though rather unpalatable for the average Nigerian who continues to feel the direct impacts of the Naira devaluation, that the current trajectory of the Nigerian Naira appears to be more in tune with the true state of the Naira, than what was previously obtainable, as the status of the Nigerian economy did not support the (past) value placed on the Naira. It could further be argued that the many years of inconsistent policies employed to “manage” and “defend” the value of the Naira has created a thriving parallel market industry that allowed Nigerians to access foreign exchange in Nigeria, without going through the recognised Foreign Exchange (forex) Autonomous market, while simultaneously allowing the ‘’currency brokers” and/or Bureau de Change operators to run a very profitable business of obtaining forex from the CBN at the official rate, (‘defended value’), to resell at the parallel market value. The result of this is the emergence of an industry that has become rather too powerful to manage with the attendant effect more felt with the floatation of the Naira, producing a thriving forex industry amid the downward spiral of the Naira. Putting things in perspective and taking for example, as of October 11, there a was still a gap of N256.5 between the I & E rate of N768.599 as reported by the CBN, and the parallel market value of N1,025 reported by the Bureau de Change operators. That is still a significant margin, and the margin continues till publication date.

With the continuous fall in the value of the Naira in the face of the implementation of the floating policy, the consensus appears to have changed as to the solution to Nigeria’s perennial economic crisis. While the International Monetary Fund (IMF) and similar development organisations previously recommended floating and unification of the Naira, it has become apparent that floating the Naira is not sufficient to achieve prosperity and stability for the economy. More attention needs to be placed on increasing inflow of foreign exchange to Nigeria. In short, we need to make Nigeria and the Naira attractive to the global economy.

While it is hard to envisage a reversal of the exchange rate to what it was a year ago, a more attractive Nigeria and Naira will be a driving force for a more prosperous economy. A more attractive Nigeria and Naira will derive from more focus on investment, industrialization, infrastructural development, and the service industry; all drivers of employment, which in turn drives purchasing power and by extension an impression of prosperity. This writer is of the opinion that while the government may have garnered great support from the business and international community for the official floating of the Naira, it will only achieve a renewed hope for Nigerians when the people are able to operate from a sense of prosperity and like the South Koreans, not derive their worth/wealth by the exchange rate of the day, but by the inherent prosperity that they experience.

•Fakorede, BSc (Hons), ACA, CFE writes from motun.fak.fm@gmail.com
November 1, 2023
Digitalising forex market to stabilise naira
- Moving from paper-based processes to electronic platforms for conducting forex transactions will discourage speculative demands and hoarding of forex in cash, thereby infusing more transparency and accountability into the forex market
If everything goes as planned, Nigeria will soon transition from its paper-based forex exchange methods to transparent electronic platforms. This shift, driven by the urgent necessity to tackle forex market challenges, seeks to discourage speculative demands and hoarding of forex in cash. Its ultimate goal is to stabilise the naira and prevent its free fall.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, gave this hint last week, when he disclosed that the Federal Government plans to digitalise Nigeria’s foreign exchange market. This, he stressed, is a weapon to combat illegal activities and enhance transparency in the forex market. Speaking at the Nigerian Economic Summit Group (NESG) conference in Abuja, Edun said the FX market will be simplified and digitalised such that all legal and legitimate transactions will fall within the preview of the authorities. “Anything outside that will be illegal and a criminal offensive and will be robustly followed up,” he said. He further stated that President Bola Tinubu has issued an executive order, granting full legal validity for all cash within the domestic economy to enter the formal money supply system without hindrance. “There is another executive order that allows the domestic issuance of foreign currency instruments, so that they could have an incentive to provide that foreign exchange from whatever source market into income bearing instruments,” he added.

Over the years, Nigeria has faced significant challenges in managing its forex regime, leading to a situation that has been characterised by scarcity, depreciation and significant pressure on the country’s foreign reserves. Several factors have contributed to this situation. One of them is Nigeria’s dependence on oil revenue. Nigeria is highly dependent on oil revenues, with crude oil accounting for a significant portion of its export earnings and forex inflows.

Another factor considered to have put the naira in dire straits is the foreign exchange controls executed by the Central Bank of Nigeria (CBN). Nigeria has employed various forex control measures in the past to manage its reserves and stabilise the naira. These controls, such as restricting access to forex for certain import items, led to a thriving parallel market for foreign currency, with a significant disparity between the official and parallel market exchange rates. This created an avenue for rent-seeking and corruption, while also distorting the forex market. Due to falling oil prices and a decline in oil production, Nigeria’s foreign reserves have been gradually depleted over the years. External shocks, such as the economic impact of the COVID-19 pandemic, have further put severe pressures on the reserves. This depletion makes it challenging for the country to adequately meet its forex obligations and maintain stability in the forex market. Smuggling and illicit financial flows have also taken a negative toll on the naira.

Another major contributor to the sad fate of the naira is the challenge of import dependency. The country is heavily reliant on imports for several goods and services, including food items and petroleum products. This dependence places a strain on the country’s foreign reserves, as significant amounts of foreign currency are needed to finance these imports. In recent years, Nigeria has taken steps to address some of these challenges and reform its forex regime. This includes the implementation of a managed floating exchange rate system, efforts to diversify the economy away from oil, and measures to attract foreign investment. Additionally, the country has initiated policies to curtail smuggling, enhance transparency, and promote economic diversification to reduce import dependency. Despite these measures, the forex crisis persists.

Digitalising Nigeria’s forex regime is one such initiative that could address some of the existing issues. It has the potential to increase transparency, improve efficiency, and reduce the opportunities for corruption and rent-seeking in the forex market. The next day after Edun spoke at the NESG conference, the Presidential Fiscal Policy and Tax Reform Committee, led by Taiwo Oyedele, submitted its preliminary report to President Tinubu and made several recommendations. Among the recommendations was that the government should “digitalise Nigeria’s forex regime and discourage speculative demands and hoarding of forex in cash.”

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The committee proposed expanding the forex market by integrating Bureau de Change (BDCs), forex apps, and retail forex dealers into the official foreign exchange market. This move aims to eliminate the black market. Additionally, digitising the forex regime was recommended to discourage currency speculation and cash hoarding. The committee suggested imposing excise taxes on foreign exchange transactions outside the official market to generate revenue. As a short-term solution, forward contracts for Premium Motor Spirit (PMS) importation were suggested, pending improvements in key economic indicators. Lastly, discontinuing the forex Verification Portal was also part of the recommendations. However, the success of these reforms will depend on effective implementation, sound economic policies, and sustained efforts to address the underlying structural issues that have contributed to Nigeria’s forex regime challenges. As a first step, the Federal Government is pressing ahead with the digitalisation of the forex regime.

What the new measure means

Digitalising Nigeria’s foreign exchange regime would involve transitioning from traditional, paper-based processes to electronic platforms for conducting forex transactions. By doing so, Nigeria intends to discourage speculative demands and hoarding of forex in cash. This move would bring more transparency, efficiency, and accountability to the forex market. Similar practices of digitalising forex regimes and discouraging hoarding and speculation can be found in various countries across the globe. For instance, countries such as India, South Africa, and Brazil have implemented digital initiatives to modernise their forex systems and reduce the dominance of cash-based transactions.

These efforts aimed to foster a more stable and controlled forex market, minimising the potential for illicit activities and promoting easier cross-border transactions. This move can bring several benefits to Nigeria’s economy and financial sector. One of them is enhanced transparency as digitalisation allows for better tracking and monitoring of forex transactions, which reduces the potential for fraudulent activities and promotes transparency. It enables authorities to have real-time access to data, promoting accountability and curbing corruption. Increased efficiency also allows for automating forex processes, thus eliminating the need for manual paperwork; it equally streamlines the overall forex operations. Digital platforms can facilitate faster, more accurate and seamless transactions, leading to improved efficiency in the forex market.

There will be minimised speculative demands because by digitalising forex transactions, Nigeria can discourage speculative demands, reducing the volatility and uncertainty in the forex market. Digital platforms can enable better monitoring of forex flows, preventing excessive speculation and market manipulation.

Digital forex transactions would discourage hoarding of forex in cash. With electronic platforms, individuals and businesses can easily and securely transact in forex digitally, reducing the reliance on physical cash and promoting a more efficient use of forex reserves. Easier cross-border transactions can be facilitated as digitisation simplifies cross-border transactions by reducing the paperwork, bureaucracy, and time required for processing. This would ease trade and investment flows, making it easier for Nigerian businesses to engage in international trade and attract foreign investment into the country.

Embracing digital forex systems allows Nigeria to align itself with global trends and standards. It facilitates integration with international financial systems and fosters better collaboration with other countries, encouraging cross-border investments and financial partnerships. By adopting digital forex regime, Nigeria can unlock these benefits and pave the way for a more efficient, transparent and inclusive forex market. In general, digitalising Nigeria’s forex regime has the potential to positively impact the country’s foreign reserves in several ways. Because digital forex transactions reduce the need for intermediaries and minimising the risk of corruption, this could potentially attract more foreign investors to the country and increase the inflow of foreign currency, thus boosting Nigeria’s foreign reserves. If digitalising the forex regime involves implementing measures to curb illicit financial flows and money laundering, this could reduce the outflow of foreign currency from the country, thus positively impacting the foreign reserves.

What happens after forex market is digitalised?

When Nigeria digitalises its forex regime, it could have a significant impact on the forex parallel (black) market. Digitalisation of forex regime would involve using digital platforms and technologies to streamline foreign exchange transactions, making them more transparent and efficient. This move can potentially reduce the demand for the parallel forex market. The parallel forex market exists due to restrictions and inefficiencies in the formal forex market, which can lead to a scarcity of foreign exchange. As a result, individuals and businesses turn to the parallel market to meet their foreign exchange needs.

By digitalising the forex regime, Nigeria can enhance the accessibility and availability of foreign exchange through formal channels. However, whether or not the digitalisation completely eliminates the parallel forex market will depend on various factors such as the effectiveness of the digital platforms, the government’s policies and regulations, and the overall stability of the economy.

While digitalisation can significantly reduce the activities in the parallel market, complete elimination may not be immediate or guaranteed. But there are other challenges that may pop up. The cyber risks associated with digitalisation the forex regime primarily revolve around potential security breaches, data privacy concerns, and vulnerabilities in the digital infrastructure. With the digitalisation of Nigeria’s forex regime, there’s an increased reliance on technology, which can introduce certain risks. Cyber criminals may target the system to gain unauthorised access, manipulate data or disrupt operations, aiming to exploit any weaknesses in the digital ecosystem.
October 30, 2023
Forex speculators post heavy losses as naira rebounds
- Currency makes N175/$ gain at parallel market
The naira yesterday made a significant gain of N175 to dollar at the parallel market.

The naira rebound happened about 24 hours after the Supreme Court judgment affirming President Bola Ahmed Tinubu’s victory at the 2023 Presidential elections.

The local currency, which exchanged at N1,315 to the dollar at the parallel market on Thursday, closed yesterday at N1,140 as speculators dumped dollar at willing buyers.

A Bureaux De Change (BDC) trader based in Marina, central Lagos, Garuba Sarki, said many dealers lost huge funds as they sold below purchase rates.

“I know some BDC operators that sold dollars below the purchasing rate. This is expected to continue in the weeks ahead. Also, the expected $10 billion inflows to the economy will help strengthen the naira position against the dollar,” he said.

Sarki said funding for BDCs or getting the banks to sell dollars to retail end buyers will boost dollar liquidity and bring greater mileage to the naira.

“The banks are not selling dollars and the BDCs have been incapacitated. But I see these two scenarios changing in the coming weeks, and those that have hoarded the dollars are gradually releasing them,” he stated.

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However, at the Investors & Exporters window, the naira closed at N789.94 to the dollar.

The forex window, also called the willing buyer/willing seller markets, allows banks and foreign investors to buy and sell dollars at the rate of their choice provided they find buyers.

It has in the last few years remained the most active channel of dollar transactions in the official market.

Finance Minister and Coordinating Minister for the Economy, Wale Edun, said Nigeria expects a $10 billion FX inflow in the next few weeks to ease liquidity in the foreign exchange market.

President, Association of Bureau De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, said achieving stable, strong and virile exchange rate in Nigeria would require full participation of Bureaux De Change (BDCs) in the retail segment of the forex exchange market.

He said the challenges confronting the nation’s forex market and depreciation of the naira require all hands to be on deck, and the BDCs, which are licensed to play at the retail end of the forex market, should be fully involved in providing lasting solution to the ongoing volatility in the exchange rate.

He said the several measures taken by the apex bank to bridge exchange rate gaps showed genuine intentions of the regulator to entrench exchange rate stability, but getting the BDCs involved in the solution recipe will bring the desired results of not only a highly liquid market but stable rates.
October 28, 2023
Forex unification: Restoring sanity in a chaotic market
- By Stephen Ugwu
Before the recent policy decision by the present administration to create a single foreign exchange rate window, the forex market in the country could best be described as chaotic.

The government had a separate exchange rate, described as the official window; the airlines had theirs; small businesses and manufacturers used a different rate known as investors and exporters (I&E) window; and individuals could access forex at different rates based on the purpose. Even worse, those who had the capacity to buy the forex they needed could not due to rationing. Those who had the forex to sell were not allowed to do business at their preferred rate.

The result of all these was an economy in confusion. The then forex framework prevented both foreign and domestic investors from investing to develop Nigeria. There was serious uncertainty around forex, a big limitation in doing business.

Investors who were looking to come into the country either stayed on the side-lines or invested in other markets. It meant that those who needed forex for projects had to delay or cancel them. Those looking for foreign partners suffered as Nigeria became less attractive as an investment destination. For everyday people, it meant that the jobs that should have been created were not available and the hospitals to access care were not built.

The old order also created opportunity for an unending increase in the forex rate, particularly in the black/parallel market, caused mainly by forex round-tripping.

Forex round-tripping is a situation where customers divert foreign exchange obtained from the CBN at an official rate to the black market for higher profits. The practice had created artificial forex scarcity and had denied users of foreign exchange even in their most basic transactions. In fact, the difference between official and parallel markets created a 63 percent black market premium for arbitrageurs that cost the government about $329 million every month in forex subsidy.

That explains the loud ovation that greeted the announcement of the unification of the exchange rate from both foreign and domestic investors.

In fact, Nigerian stocks and Eurobonds have recorded significant gains due to a boost to investor confidence. There is also a further expectation that the creditworthiness and investment profile of the country will improve.

All it took was a simple declaration that end-users should do business at the same exchange rate and forex dealers are free to negotiate deals without restrictions.

Within just about three months of the introduction of the forex unification policy, Nigerian commercial banks reported that they have recorded significant foreign exchange revaluation profits estimated at N1.7 trillion in the first half of 2023, according to data collated from the 2023 half-year financial statements released by the banks.

The surge in forex revaluation gains can be attributed to the devaluation of the Naira, which reached N769.25/$1 in June 2023, compared to its 2022 closing rate of N461.50/$1.

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Experts believe the new policy toward a collective and transparent foreign exchange system, and which is already enabling individuals and businesses to access financial services more efficiently, could contribute to Nigeria’s economic recovery.

With the unification of the forex rates, customers of deposit money banks (DMBs), have quickly embraced the initiatives introduced by the banks, which aim to provide seamless and convenient foreign exchange services.

With the option to convert forex to naira through online banking platforms, customers can now avoid the hassle of withdrawing cash and resorting to the parallel market for currency exchange. This shift reflects the increased confidence in the unified exchange rate system and the government’s commitment to creating a transparent and efficient forex market.

Nigerian banks are also becoming more creative, introducing innovative solutions to better serve their customers. One notable offering is the forex cash backed loan, which enables domiciliary account holders to access naira loans of up to 85 percent of their available forex balance. This financial product allows individuals to meet their immediate financial needs without the requirement to withdraw or spend their forex holdings. By leveraging their forex assets as collateral, customers can access funds conveniently, supporting their personal and business objectives.

The suspension of international transactions on naira cards has been lifted by one of the banks, offering individuals greater flexibility in conducting cross-border transactions. This development allows cardholders to make international payments and purchases seamlessly, eliminating the previous limitations that hindered international financial interactions.

The restoration of international transaction capabilities represents a significant step toward aligning Nigeria’s financial system with global standards and facilitating international trade and commerce.

Nigeria’s dollar-denominated sovereign bonds have experienced notable gains, reflecting the market’s positive sentiment. The announcement of the forex rules has resulted in an increase in the price of the country’s Eurobonds, with some issues reaching their highest prices in months. Issuance matured in 2033 up 2.4 cents to 78.625 cents, the highest in over five months.

It is worth noting that Nigeria has been grappling with severe dollar shortages, which have led many individuals to seek foreign currency in the parallel market. The implementation of the foreign exchange unification policy aims to address these shortages by promoting transparency, reducing the reliance on the parallel market, and aligning the naira’s value with its official exchange rate. These efforts will contribute to a more stable and efficient foreign exchange market, providing individuals and businesses with greater certainty and access to forex.

Economists believe that the forex unification policy is a significant milestone in the country’s quest for economic recovery. According to the Chief Executive Officer of Volition Cap, Subomi Plumptre, the market is going to become more competitive.

“The fact that customers can now convert dollars to naira on online banking platforms is expected to drive competition among International Money Transfer Operators (IMTOs),” she said. “This could spark innovation leading to lower transaction fees and better rates for the public. The FX Cash Backed Loan, which offers naira loans to foreign currency holders, serves as an example of how easing foreign exchange regulations can stimulate innovation among financial service providers due to competitive pressures.”

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, in a recent statement, said forex liberalisation will unlock the huge potential for investment, jobs and capital flows, and investors’ confidence would be positively impacted.

According to him, “A unified exchange rate regime will enhance liquidity in the foreign exchange market, reducing uncertainty, enhancing the confidence of investors, and showing more transparency as a mechanism for forex allocation.”

He said it minimizes discretion in the allocation of forex and reduces corruption vulnerabilities, while also reducing opportunities for round tripping and other sharp practices.

Another economist, Kelvin Emmanuel said the decision to book independent revenues from government-owned enterprises, at investors and exporters rates, its decision to have the CBN create non-deliverable forwards for short- and long-term foreign investors is leading to appreciation of bond yield curve and bringing investors back into both the capital markets and the real economy. He also believes that these reforms will contribute to economic reflation and long-term growth.

The new policy is not coming without its own challenges. For instance there has been a spike in the prices of goods and services due to inflationary pressures, but there is a consensus among economists that this will ease off especially with proper monetary and fiscal policies.

•Ugwu is a financial analyst based in Abuja.
October 26, 2023
Fed Govt unfolds forex, tax, jobs, investment policies
- 260 taxes to be slashed to single digit •Merging of BDCs, forex apps, dealers into official FX market
Far-reaching recommendations on the economic direction of the Bola Ahmed Tinubu Administration were submitted to the President yesterday.

The Taiwo Oyedele-led Presidential Fiscal Policy and Tax Reform Committee got the presidential stamp and the directive to present the proposals to the Federal Executive Council (FEC) for approval.

The committee made 20 recommendations covering diverse areas such as taxation, job creation, foreign exchange reform, ease of doing business, investment, temporary action to relieve the pains of petrol subsidy removal and general direction of the economy.

Oyedele made the recommendation public on his X (formerly Twitter) handle last night.

On Monday, during the 29th meeting of the National Economic Summit Group (NESG), Minister of Finance Mr Wale Edun hinted at an impending digitisation of the Forex market.

Oyedele’s panel has proposed the digitisation of the foreign exchange (FX) regime.

Specifically, it wants the modernisation of the FX system to discourage speculation and hoarding of foreign currency in cash.

Another demand made of the government by the Committee is the imposition of excise tax on FX transactions.

It wants taxes imposed on FX transactions that occur outside the official market to generate revenue.

The committee also wants the government to implement forward contracts for the importation of Premium Motor Spirit (PMS) as a short-term solution while waiting for improvements in key economic indicators.

A breakdown of the recommendations are:

Taxation: The committee suggested to the Federal Government the resolution of the contentious issue of multiple taxation.

It is asking for the suspension of multiple taxes by temporarily suspending those that disproportionately affect low-income individuals and small businesses and compensating for lost revenue from certain agencies.

Tax ProMax Modification: Modifying the Tax ProMax system will allow taxpayers to make partial payments of their outstanding tax liabilities.

Data4Tax: This involves utilizing technology, especially a data-driven system, to expand the tax base, making it easier to identify and collect taxes from a wider range of individuals and businesses.

Personal Income Tax: The committee would like to see an increase in the threshold at which personal income tax is applicable and allow for a higher personal relief allowance, which would reduce the tax burden on individuals.

Tax Break for Private Sector: When implemented, this will offer tax incentives to the private sector, such as tax breaks for increasing wages to low-income workers, providing transport subsidies, and creating more jobs, encouraging economic growth.

Payment of Taxes in Naira: This will allow Nigerian businesses to pay taxes on foreign currency-denominated transactions in Naira, thus simplifying tax compliance.

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The committee has called for withholding tax reforms. By simplifying the withholding tax regulations, the committee wants to reduce the financial burden on businesses’ working capital.

Waiver of Penalties and Interests: Oyedele and his team are advocating the granting of waivers on penalties and interest charges for taxpayers who fully settle their outstanding tax liabilities before December 31, 2023. This will incentivize tax compliance.

FX Reforms: The committee wants the FX market expanded. Specifically, they want the incorporation of Bureau de Change (BDCs), forex apps, and retail forex dealers into the official foreign exchange market, aiming to curb the black market.

There is a call to digitalise the FX regime. Modernising the foreign exchange system is intended to discourage speculation and hoarding of foreign currency in cash.

Excise Tax on FX Transactions: The committee has recommended the imposition of excise taxes on foreign exchange transactions that occur outside the official market to generate revenue.

Forward Contracts for PMS: Implementing forward contracts for the importation of Premium Motor Spirit (PMS) as a short-term solution while waiting for improvements in key economic indicators is another demand made by the committee.

The committee wants the discontinuation of the FX Verification Portal.

Discontinuing the foreign exchange verification portal and relaxing the requirements for certificates of capital importation and export proceeds restrictions will potentially make foreign investment and forex transactions more accessible.

Social Intervention: To cushion the effects of the decision to put an end to fuel subsidy, the government has been advised to implement VAT suspension and tax waivers. Temporarily suspending Value Added Tax (VAT) on diesel and granting tax waivers on Compressed Natural Gas (CNG), CNG conversion will bring down the cost of transportation and more vehicles will change from using PMS to diesel or CNG. Bringing down the cost of transportation will spill over to a reduction in the price of transported items and invariably either hold inflation steady or force it downwards.

On the international scene, these decisions will position Nigeria as a country determined to use renewable energy items and cleaner energy sources.

Mobile Phones for Cash Transfers: This will promote the use of mobile phones for conditional cash transfers and create a framework to manage the subsidies’ removal and forex reform windfall, with transparency through a national portal to track government spending.

Civil Service Reform: This suggests streamlining government functions to avoid redundancy, managing public finances wisely, and optimising the use of government assets and natural resources to ensure efficiency and cost-effectiveness.

Policy Signaling and Collaboration: This is to encourage collaboration among various government agencies (MDAs) and economic management teams to align policies, signal intentions, and coordinate efforts for effective policy execution.

Global Employment Opportunities: Removing obstacles that hinder Nigerians in Nigeria from accessing global job opportunities can potentially boost income and employment prospects.

Export: The committee wants the removal of bottlenecks for export expansion grants, allowing easier repatriation and utilisation of export proceeds by exporters, which in turn will encourage international trade.

Tariff Review: Oyedele’s committee is asking for a comprehensive review of tariffs on the 43 items unbanned from accessing forex in the official market and a fiscal policy review of other items prohibited for imports. This suggests that the committee would like to see the re-evaluation of the tariff on these 43 items and others to facilitate beneficial cross-border trade.
October 25, 2023
Forex crisis: Fed Govt to inject $10b in weeks
- ‘Unauthorised dollar transactions to become illegal’
- Consumer Credit scheme soon, says President
The Federal Government is taking steps to inject $10billion into the nation’s foreign exchange market to clear outstanding obligations on forward contracts. They are also to boost our foreign reserves.

Minister of Finance, Wale Edun, made this known at the opening of the ongoing Nigerian Economic Summit Group (NESG) meeting in Abuja yesterday.

President Bola Ahmed Tinubu, who attended the 29th edition of the NESG meeting, said his “government will uphold the sanctity of every legitimate contract, consistent with our commitment to enshrining fairness and the rule of law in the country”.

The President added: “Specifically, as it relates to foreign exchange obligations of the government, all forward contracts that the government has entered will be honoured and a framework has been put in place to ensure that these obligations are met in due course.”

The President also said a framework has been established to ensure that the government meets its foreign exchange obligations as stipulated in the contracts. He said there must be consumer credit, saying the scheme “will have to come to effect as soon as possible. I task my team and my colleagues to build this programme, develop it now. We cannot talk about anti-corruption when you have to look for cash to buy a car, when there’s no mortgage for homeownership.

Tinubu asked rhetorically: “Where do you expect a civil servant to have N3 million or N5 million for housing without corruption? If you don’t change and plan the welfare of your judiciary and you ask them to be fair, render justice with mercy, with a hungry stomach? he queried.

President Tinubu noted that Nigeria aims to achieve a $1 trillion economy by 2026 and $3 trillion within this decade through sustainable and competitive growth.

He said the private sector is crucial to achieving this goal, and that the government is seeking collaboration and support from industry leaders to realize this vision.

Public-private partnerships and successful models from the past, he said, will be utilised to ensure a prosperous Nigeria for all. “The private sector is encouraged to bring their ideas, leadership, and capital to build a hopeful future.

”I am confident that by working closely with all of you in the private sector, financing our $3 trillion National Infrastructure Stock can be achieved in 10 years and not in 300 years.

“Building megacities in every geopolitical zone of the size and scale of Lagos must not take us another six decades. We can do it in one decade. A fully networked and connected Nigeria by rail, gas, fibre optics and road network can be constructed in less than 20 years. Establishing thriving Industrial zones in every part of Nigeria is possible before 2030”.

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Govt to streamline forex transaction

Also, the Federal Government said it has outlined a comprehensive framework to transform the foreign exchange market. In addition, the government said an expected inflow of $10 billion in foreign exchange is coming into the economy in a few weeks time to boost the country’s foreign reserve.

The goals of the new forex market will be the simplification, digitalization, and regulation with the aim of creating a formal market where all legal and legitimate transactions will be actualised.

There will be strict enforcement and rules in place to prevent unauthorized activities and fluctuations in exchange rates caused by individual transactions, with the expected outcome resulting in more liquidity, culminating in stable foreign exchange market.

Edun, spoke at NESG meeting, added: “As part of a wider review, there’s a revamping of the foreign exchange market such that the foreign exchange market will be simplified, it will be digitalised and will be reformed, such that all legal and legitimate transactions will fall within the purview of the authorities and a formal market. Anything outside that will be illegal and will be a criminal offense and will be punished.

The new Forex market he said, “will be robustly followed up, so that if you want to pay school fees, if you want to pay a health bill, it will be simplified. And you’ll be able to just provide perhaps an identity such as a BVN or NIN and you do your transaction, it will be formal”. He said the foreign exchange market is undergoing changes to make it more straightforward and technologically advanced so that currency exchange processes will become easier to understand and more accessible through digital platforms.

Edun said all legal and legitimate foreign exchange transactions will now be part of a formal market, regulated by the authorities, adding that any currency exchange activity outside this formal market will be considered illegal and may lead to criminal consequences and punishments.

He said there will be strict enforcement of these regulations, saying any unauthorized, or unregulated foreign exchange transactions will be considered a criminal offense and will be subject to robust follow-up and potential legal consequences.

The revamped system he said, aims to simplify transactions for common purposes like paying school fees or health bills, stating that Individuals may only need to provide certain identification details, such as a BVN (Bank Verification Number) or NIN (National Identification Number), to conduct these transactions in a formal, regulated market.

Edun said the new foreign exchange market will operate similarly to a stock exchange. This means that individual transactions, even if they are relatively small, will not significantly impact foreign exchange rates. Exchange rates will be determined based on rules, regulations, price discovery mechanisms, as well as price-setting terms.

The minister said the changes will affect all types of foreign exchange transactions, whether conducted through banks, bureaux de change, or mobile apps. All of these will be integrated into the formal market, ensuring uniformity and regulation, he said, adding that these changes are expected to increase liquidity in the foreign exchange market. This implies that the market will have more participants and a higher volume of transactions due to its simplified, formalized and regulated nature.

$10b coming into the market

With regards to the $10 billion coming in a matter of weeks, Edun said: “There is a line of sight on $10 billion worth of inflow of foreign exchange in the relatively near future, in weeks, rather than months. As a whole and comprehensively should lead to the flow of foreign exchange.”

Edun added that in terms of monetary — fiscal policy, “the 43 items that have recently, been allowed legitimate and eligible for foreign exchange, is really an example of the kind of overlapping that will not take place in the presidency of Bola Ahmed Tinubu.

“A monetary instrument, which is foreign exchange, was used to deliver a fiscal objective, which was to protect domestic industry, and to encourage local output. That is being rectified, the ban has been lifted. But on the fiscal side, there is a study under a very able fiscal policy and tax reform committee led by Taiwo Oyedele to make sure that industries that need to be protected are protected, to make sure that industries that actually needed to import, have tariff regimes which allow them to import. So that’s part of the correction, we are already in partnership with the private sector.

“Mr. President had announced that he has taken measures to deal with the illiquidity in the foreign exchange market, which we know is very problematic at this time. The market is illiquid, it’s not functioning properly because there is not enough supply of foreign exchange and there are various reasons for that.

“The solution that Mr. President has put on the table, is number one, he has signed an executive order that effectively, legally allows under forbearance, all the cash that is in the domestic economy to legally come into the formal money supply. People will be able to take the cash that they have and put inside the system.

“There’s another executive order that allows for the domestic issuance of foreign currency instruments, so that they will have an incentive to provide that foreign exchange from whatever source into income bearing instruments.

Also speaking at the session, the Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso said the attempt to unify the foreign exchange market has not been perfect, but it has resulted in more revenue.

He said difficult decisions have been made, and now the focus of the CBN is on managing the market to make it more predictable and accessible for everyone.

The CBN governor said, “he is working on creating clear rules and an ecosystem that will last for years. Foreign investors are interested in engaging with Nigeria, and the central bank is committed to maintaining price stability in the future”.

Minister for Budget and Economic Planning Senator Atiku Bagudu, said the Tinubu administration “is committed to a budget based on plan so that everyone will be clear and certain about what the policies are, we are going to either put more money in the budget, or generate more investment in the eight priority areas of the government, so that we can see with certainty that security will improve, agriculture and food security will be enhanced, inclusivity will be achieved by providing access to capital generating economic growth.

Aliyu Sabi Abdullahi, Minister of State for Agriculture said government will not deal with “paper or portfolio farmers, we will now be dealing with real farmers who are ready to work to feed the country.

”Food security is our priority, what we are doing in the Ministry of Agriculture and Food Security is to ensure we are going to increase availability of food, along with other actors in the sector and those who also impact on the price of food.

“We want a situation where there is food affordability and accessibility, one very important issue of nutrition, we are taking it seriously, I think the private sector has a lot to do here in terms of biofortification of food, we will be using the best technology to maximize our output.

Chairman of the NESG Niyi Yusuf said a Multi-Trillion Dollar Economy is viable within a decade of serious reform, consistent economic action and deliberate institutional reforms.

According to him “our nation stands at a critical precipice, and our challenges demand immediate, concerted efforts. We need to act now with a shared sense of urgency.

“Achieving a Multi-Trillion Dollar Economy will require a paradigm shift, Big, Bold Actions, tough Choices and significant sacrifices by all of us. We all are witnesses to outcomes of delayed and deferred action,” adding that “the NESG stands ready to support the Government to model the tough choices required and the associated palliative measures to ameliorate the short-term impact on the populace.”
October 24, 2023