The Nation Newspaper

Tag: I&E Forex Window

  • ‘I&E Forex Window raising investors’ confidence’

    The Investors and Exporters (I&E) Forex Window is seen as a game changer in the foreign exchange (forex) market. It has restored confidence in the market and given more options to foreign investors to play in the local market. Swaps & Derivatives WorkGroup Chairman and Financial Market Dealers Association (FMDA) President Samuel Ocheho speaks with COLLINS NWEZE on the state of the market, mutual funds, derivatives and the group’s market development seminar holding next week in Lagos. Ocheho says the event, which will attract financial market participants, bank treasurers, treasury operations, risk and legal teams, investors and other players in the financial market is an opportunity to deepen the derivatives market.

    What is your view on the state of the mutual funds market and what opportunities do you see in that market?

    There has been significant growth in the Collective Investment Scheme (CIS) industry in recent years, Assets under Management (AuM) have grown from N116 billion in 2013 to N655 billion in 2018 representing a growth of 465 per cent during the period. The number of Asset Managers and CIS offerings have also increased in the same period, as there are over 80 Mutual Funds available to the public in Nigeria. In addition to the traditional Equity and Fixed Income biased Funds, retail and Institutional investors can now access Dollar Based Funds, Exchange Traded Funds (ETFs) and Specialist Fund although there remains a strong preference for Fixed income biased Funds. Consequently, 83 per cent of the total AuM of CIS in 2018 was concentrated in Fixed income biased Funds.

    Given the low penetration rate (less  than two per cent of the total population) of subscribers to CIS, there is increased collaboration amongst Asset Managers through the Fund Managers Association of Nigeria (FMAN) to increase awareness of investment products. Asset Managers are also deploying various digital initiatives to reach out to the public.

    What are the opportunities available to asset managers and other players in the Collective Investment Scheme Industry?

    Some of the available opportunities include establishing a back-office company with the required infrastructure and technology to handle back-office operations for multiple Asset Managers.  In other climes, a number of Asset Managers outsource this responsibility to other players.

    Also, the development of Specialist Funds (Real Estate, Infrastructure, Private Debt etc.) targeted at Institutional Investors and High Net worth individuals (“HNIs”). There is a dearth of these funds in Nigeria and deployment of lifestyle, digital investment solutions targeted at millennials.

    They can also partner with foreign asset managers to offer investment products issued in Nigeria but linked to foreign assets such as Depository receipts, Structured Notes. The Securities and Exchange Commission of Nigeria (SEC) prohibits CIS from investing in assets not issued or incorporated in Nigeria. However, segregated portfolios of HNIs or institutional investors can invest directly in foreign markets.

    What is responsible for the level of stability in the forex market in the last one year? What impact will the Derivatives Market have on the market?

    The Nigerian Forex Market has managed fairly well, especially with the introduction of the Investors & Exporters Foreign Exchange (I&E Forex) window by the Central Bank of Nigeria (CBN) in 2017. This restored some level of confidence, especially from foreign investors at the height of the forex scarcity which began at the advent of collapse of oil prices about four years ago.

    The willing buyer- willing seller arrangement gave bearing to the structure of the market along with the CBN’s participation as an active buyer and seller of forex creating a stabilising force. The CBN being a player (buyer or seller) of last resort, their high level of responsiveness and closeness to the market have been key factors responsible for the relative stability over the last two years.

    The recent introduction of the FMDQ OTC Forex Futures, which can pass as a derivative, has positively contributed to the attraction of foreign flows in Nigeria. However, for a proper derivative market to flourish the underlying asset markets (interest rates, foreign exchange, equities among others) need to be vibrant, deep and market-driven to enable good price discovery.

    The impact of an active derivative market is that customers would be able to manage their interest rate cost and exchange rate risk. This will spur confidence in the market and act as a good planning tool for Chief Financial Officers of businesses instead of being left open to market volatilities.

    The Swaps and Derivatives WorkGroup of the Financial Market Dealers Association of Nigeria (FMDA) market development seminar will hold on March 19 in Lagos. What is it all about and who are those expected to attend?

    The theme of this workshop is: Legal Documentation as a driver to introducing New Products and a Healthier Financial Market in Nigeria. We expect financial markets participants, bank treasurers, treasury operators, risk and legal teams, corporate treasurers, regulators, investors, and other stakeholders to attend this seminar. The event is to discuss standardisation of documentation in our market especially as it relates to derivatives and other vanilla transactions, with the view of boosting the integrity of our markets.

    How does introduction of derivatives market trading solve Nigeria’s exchange rate challenges?

     In the absence of a derivatives trading market, the bulk of forex supply falls into the spot market thereby creating a lot of uncertainties. An introduction of derivatives markets trading can help provide more forex liquidity and help reduce front-loading of obligations in the spot market.

    Can you explain standardisation of documentations in the financial market? What does it entail?

    In the financial markets, standardising documents relate to creation of minimum requirements to be fulfilled by the trading counter-parties, a product, process, service, or system.The document will state out the obligations, rights and entitlement of the parties in the trade. The terms stated therein become binding on all parties and it also helps in the event of litigation.

    What level of development is the derivatives market in Nigeria and how can the financial system, and stakeholders benefit from it?

    The Nigerian derivative market can be deemed shallow when compared to the international derivatives market in terms of volumes dealt and the bouquet of structures created/traded. Nevertheless, the current products being traded provide an adequate platform for stakeholders to hedge trade obligations. The market I must confess is still largely plain vanilla and we have a dream of raising its level in Nigeria to a state where it can be compared to the international financial market.

    What is transaction netting and what does it mean to financial market operators and the impact it can have on the economy?

    Netting involves offsetting the value of multiple positions or payments due to be exchanged between two or more parties. It can be used to determine which party is owed remuneration in a multiparty agreement. For financial market operators, this implies that the need to exchange principal amounts at the maturity of the derivatives transactions is eliminated, especially in cases which involve multiple trades with the same counter-party. Costs and time are saved and settlement risk is reduced as well.

    At what stage is the derivatives market and how can it be improved to benefit the economy?

    Derivatives trades in Nigeria are currently more bilateral between financial institutions and their respective customers. The more developed the derivatives market, the more banks are able to provide cheap hedging solutions to their respective clients. This ranges from interest rate cost reduction solutions for corporate which allow them to borrow more and expand their various businesses. Forex Derivatives also provide hedges for corporate and foreign portfolio investors.  Case in point is the OTC Forex futures market which provides stability and spurs confidence as investors can hedge exchange Risk.

    Many foreign companies play in the mutual fund market. Do you think local players have what it takes to compete favourably with foreign operators?

    The local players have a sound understanding of the local market in terms of drivers of the performance of the capital market, the taste and preference of various segments of the market and regulatory requirements. As such, local players continue to dominate market share of retail and institutional investors despite the continuous foray of foreign companies. Foreign operators tend to partner with the local players to offer their products or buy into existing local players to gain access to the Nigerian market.

    What is your 2019 forecast on Nigeria’s economic growth and performance of financial institutions?

    We expect GDP growth of 2.5 per cent in 2019, driven by the non-oil sector, as we foresee further recovery from fourth quarter of 2018. We expect further recovery in trade, agriculture, manufacturing and telecoms sectors. A stronger recovery in consumer sentiments and purchasing power should spur the economy further. We also expect a slight decline in inflation in 2019-year end to 11 per cent, from current levels of 11.44 per cent. Nevertheless, we see likely increase in energy prices as upside risk to our assumption. We expect moderate recovery in the financial sector in 2019, as we expect a growth in private sector credit vs. the decline in 2018. We also expect moderate improvement in asset quality which was weak at 14 per cent in 2018, we also expect a slight increase in capital adequacy ratio for the sector. Nevertheless, we foresee interest from investment securities driving interest income growth for the sector in 2019.

    Given that there is volatility in the market, what is your advice to investors on the best way to play in the equities market this year?

    The winners this year will be the investors trading contrary to general market sentiments this has been evident so far since the start of the year.  It is best to stick with quality names and with companies that have strong corporate governance paying high yielding dividend. We also recommend tier 1 banks which we believe will thrive in a high interest rate environment.

     

     

  • I&E Forex Window: Still the game changer in forex market

    With $53.9 billion turnover in 15 months, the Investors’ and Exporters’ (I&E) Forex Window launched by the Central Bank of Nigeria (CBN) in April, last year, has surpassed stakeholders’ expectation. The window is not only a boost to forex liquidity, but to the recovery in the manufacturing sector. The June Manufacturing Purchasing Managers’ Index (PMI) report showed an upbeat in productive activities as manufacturers get more access to foreign exchange, writes COLLINS NWEZE.

    Not many investors – local and international – gave it any chance to succeed when it was introduced. But, 15 months after, the Investors’ and Exporters’ (I&E) Forex window was launched by the Central Bank of Nigeria (CBN), has attracted $53.9 billion to the economy.

    A report by FSDH Research, said that prior to the I&E Forex window introduction in April last year, the market and exchange rates were in turmoil. However, in a dramatic turn of events, the acute shortage of forex, which businesses and individuals grappled with, witnessed an unprecedented improvement, with banks and Bureaux de Change (BDCs) now desperately looking for forex buyers.

    The FSDH Research Monthly Economic and Financial Market Outlook, said  the  positive  domestic  and  external  environment  will  further lead  to  external  reserves accretion  in  the  short-term, a development the report predicted will further stabilise  the foreign exchange rate.

    It said the 30-day moving average external reserves increased by 0.36 per cent up from $47.49 billion at end-April to $47.66 billion at May 28. The month-on-month growth rate recorded in the external reserves was the lowest level since July 2017.  The pressure on demand from foreign investors  was  mainly  responsible for the low growth in the external reserves.

    “The total turnover at the Investors’ and Exporters’ FX Window (I&E Window) between April 2017 and May 2018 stood at $50.73 billion. The highest amount was recorded in January 2018. Our analysis between August 2017 and May 2018 shows that Nigeria recorded the lowest foreign exchange inflows through the I&E Window in May 2018,” the report said.

    According to the report, the  value  of  the  naira depreciated  further  at  the  inter-bank  and  parallel  markets  in May, compared with April. The demand pressure at the I&E Window occasioned by foreign  investors’  repatriation  of  their  matured  fixed  income  investments  was  largely responsible for the depreciation of the naira.

    So inclement was the business environment before the I&E Forex Window that investors were relocating to more investment-friendly environment. The development was triggered by the crash in crude oil prices that worsened the woes of the local currency.

    Besides, the local equities market and the foreign exchange (forex) market were in shambles.  The All Share Index (ALSI) was continuously shrinking and the naira weakened against other currencies, especially the dollar.

    The I&E window has become the attraction, making many of the business concerns to take another look at their exit from the country.

    The introduction of the window was followed by continuous interventions by the CBN which enabled banks and BDC operators to meet forex demand at the retail end of the market. Thus, the window has become a life-saving pill for the domestic economy as it has attracted over $20 billion into the market, enhanced transparency and made forex available to the end-users.

    The operations of companies, especially manufacturing, has been on the upward swing with an improvement in inflation figures as well as equities market performance.

    According to the CBN Director in charge of Financial Markets, Alvan Ikoku, the “Investors’ & Exporters’ FX Window” is boosting liquidity in the forex market and ensuring timely execution and settlement for eligible transactions by all parties.

    Before the stability in the forex market and naira, the economy witnessed a depressed Gross Domestic Product (GDP) growth, which culminated in a recession in 2016.

    “There was also rising inflation, which peaked at almost 19 per cent in January 2017 and a persistently rising unemployment rate to 14.23 per cent in 2016 fourth quarter from 6.41 per cent as at 2014 fourth quarter. There was also a significant depreciation of the exchange rate, reaching N525 to $1 in February 2017 and witnessed a fast depletion of the reserves which was drained down from about $23.6 billion in October 2016 from as high as $40 billion in January 2014.

    “The I&E Forex window, seen as a ‘willing buyer, willing-seller window’, allows foreign investors to bring in dollars into the economy at any price of their choice, provided they could find buyers at such rate. The figure at the window has also impacted positively on the Purchasing Managers’ Index (PMI).”

    A Lagos-based economist and Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, described the introduction of the I&E forex window as the best policy implemented by the CBN in 2017.

    Rewane noted that the naira traded flat at the forex market at N362/$ and that the CBN forex intervention in June, surpassing May by 53.8 per cent to $2.2 billion while external reserves pushed lower in June to $47.63 billion.

    He said: “Prior to this, investors were of the view that the naira was overvalued and not at a market-determined level. The I&E FX window, higher oil prices and production, and the CBN’s consistent intervention in the forex market are the main drivers of the stability and the convergence of exchange rates in Nigeria today.”

    The Global Markets Group Head at Access Bank Plc, Dapo Olagunju, said the window allows investors to sell dollars at any rate they choose and is expected to help bring investors’ confidence into the market.

    He said: “Investors/Exporters FX Window helps participants execute deals as based on their own market agreement. Today, both the dollar demand and supply sides are beginning to talk to each other and there is likely to be rate convergence soon.”

    A report by Exotic Capital, an investment and research firm, titled: ‘Fragile Recovery, Positive Outlook’, said that Nigeria’s forex regime, although still far from ideal, has begun to stabilise.

    It said: “A multiple currency regime evolved after the oil price fall in 2014 and the June 2016 devaluation of the naira, which led to a widening divergence between the official and parallel markets (the parallel market premium reached 100 per cent in January 2017.

    “The current regime has shown a vast improvement this year with the introduction of the I&E Forex window last April.”

    It said the parallel rate for the naira, in the range of N360 to N365, is nearly identical to the I&E Forex window rate, used for international investors as well as importers and exporters, and has seen close to $20 billion in cumulative transactions since its introduction.

    Commenting on the issue at the Access Bank forex seminar, Rewane stated that the creation of the this window was a good move on the part of the CBN as it will lead closer to the emergence of a Real Effective Exchange Rate (REER) for the country.

    His words: “Any measure that increases the supply of forex and the number of suppliers will help to reduce the dominance of the CBN as the major supplier of forex in the market and move us closer to the emergence of a REER. This will attract more investors and lead us closer to a perfect market.”

    Barely a month after trading at the window commenced, international credit rating agency, Fitch Ratings, released a report, stating that the establishment of the I&E Forex window had led to an improvement in banks’ forex liquidity situation.

    The naira has been stable at the official and parallel markets, with the foreign exchange (forex) reserves standing at $47.6 billion, a report by Exotic Capital, an investment and research firm, has said.

    The report said although the level of reserves was still below the record high of $64 billion realised in August 2008, it has nearly doubled the $24 billion recorded in October 2016, increasing by more than $22 billion in 17 months.

    The economy benefited from increased forex supply with over $20 billion inflow to the I&E window since inception.

    “We have written extensively on Nigeria’s multiple exchange rate system and will abstain from further discussion at present, suffice to say that a fairly valued naira at 360 to the dollar combined with high domestic rates has led to a tremendous increase in the level of gross foreign reserves held at the CBN,” the report said.

    A similar report by FBN Capital, entitled: “Towards the $50 billion threshold, and counting”, said the rapid accumulation of $15.96 billion over 12 months was due to two sizeable Eurobond launches, a small diaspora bond issue, the recovery in oil export revenues (through the Nigeria National Petroleum Corporation’s share of production and, more recently, the steady bid by the CBN at the I&E Forex window.

    The FBN Capital report said: “We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks. The steady bid by the CBN has been seen variously as a response to the softening of demand for forex by importers and other economic actors, and as a move to contain naira appreciation.

    “The CBN will be pleased with the healthy signals from I&E Forex window where the weekly average has now settled above $1 billion.”

    Speaking on the issue, CBN’s Acting Director, Corporate Communications, Isaac Okorafor, reiterated the bank’s commitment to ensure adequate forex supply to genuine customers to achieve the goal of forex rates convergence.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the window has won the confidence of foreign investors. He said the window attracted foreign investors’ appetite for Nigerian assets leading to impressive appreciation in the equities market and stabilising the naira.

    Before the introduction of the window, foreign investors’ appetite for local assets waned significantly on the back of currency crisis which in turn fundamentally weakened macroeconomic performance, dragged corporate earnings and also impacted on equities market viability.

    According to the CBN spokesman, forex supply to the window shall be through portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange to naira. The apex bank is a market participant at the window to promote liquidity and professional market conduct.

    He said that the apex bank assured that the exchange rates of the transactions would be as agreed between authorised dealers and their counterparties.

    Besides, he said the regulator reserved the right to intervene as a buyer or seller, as it deems fit, in the window, even as information on transactions between authorized dealers is reported to the CBN on a daily basis. Manufacturers and other foreign exchange (forex) end-users also seem to be having a great time over the coming of the window.

    The improved access forex by local manufacturers is positively impacting on the economy as the manufacturing sector, which was in comatose for nearly two years, has been upbeat in the last four months.

    Manufacturing picks up

    The Manufacturing Purchasing Managers’ Index (PMI) of June stood at 57.0 index points, indicating expansion in the manufacturing sector for the 15th consecutive month, a CBN survey shows.

    The Manufacturing and Non-Manufacturing PMI Report on businesses is based on survey responses, indicating the changes in the level of business activities in the current month compared with the previous month.

    A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding, 50 points indicates no change and below 50 points indicates that it is generally contracting.

    The CBN report showed that the index grew faster in June when compared to the index in the  previous  month.

    It said:  “Of  the 14 subsectors surveyed,  10 reported growth in the review month in the following order: paper  products; furniture  &  related products; printing  &  related  support activities; food,  beverage  &  tobacco products; plastics & rubber products; electrical equipment; textile, apparel, leather & footwear; chemical & pharmaceutical products; petroleum & coal products and nonmetallic   mineral   products.

    It added: “The transportation equipment; fabricated metal products; primary metal; and cement subsectors declined in the review month.”

    The CBN report explained that at 59.2 points, the production   level index for the manufacturing sector grew for the 16th consecutive month in June. The index indicated a faster growth in   the   current   month, when compared to its level in the preceding month.

    “Ten of   the 14 manufacturing subsectors recorded increase in production level, one remained unchanged, while the    remaining three recorded declines in the production level in the month under review. At 56.2 points, the new orders index grew    for the 15th consecutive month, indicating increase in new orders in June,” it added.

    Continuing, it said eight sub-sectors reported growth, two remained unchanged while four were contracted in the review  month.

    “The manufacturing supplier delivery time index stood at 56.5 points in June, indicating slower supplier delivery time    for the thirteenth consecutive month. Eight subsectors recorded improved suppliers’ delivery time, while six remained unchanged,” it said.

    Also, the manufacturing sector inventories index grew for the 15 consecutive month in June 2018.   At 57.7 points, the index grew at a slower rate when compared to its level in the previous   month. Eleven of the 14 subsectors recorded growth, two remained unchanged while one recorded decline in raw material inventories.

    “The composite PMI for the non-manufacturing sector stood    at 57.5 points in June 2018, indicating expansion in the non-manufacturing PMI for the fourteenth consecutive month. The index grew at a faster rate when compared to that in May. Fourteen of the 17 subsectors recorded growth in the following order: repair, maintenance/washing of motor vehicles; agriculture; information & communication; professional, scientific, & technical services; finance and insurance; utilities; water  supply, sewage & waste  management; health  care  &  social  assistance; real  estate  rental  & leasing; electricity,  gas,  steam  &  air  conditioning  supply; wholesale/retail  trade; construction; management of companies; and transportation and warehousing,” it said.

    The arts, entertainment & recreation subsector remained unchanged, while   the accommodation & food   services; and educational services subsectors recorded contraction during  the period under review.

     

  • I&E Forex Window attracts $50.73b in 13 months

    The Investors’ and Exporters’ (I&E) Forex Window has attracted to the economy in 13 months $50.73 billion, a report by FSDH Research has shown.

    Prior to the introduction of the I&E Forex window in April 2017  by the Central Bank of Nigeria (CBN), the market and exchange rates were in turmoil. But, in a dramatic turn of events, the acute shortage of forex, which businesses and individuals grappled with, has improved, with banks and bureaux de change (BDCs) now desperately looking for forex buyers.

    The window, which offers investors the opportunity to sell dollars at rates of their choice, provided they find willing buyers, has restored confidence to the forex market and boosted the foreign exchange reserves.

    The FSDH Research June 2018 Monthly Economic and Financial Market Outlook, said  the  positive  domestic  and  external  environment  will  further lead  to  external  reserves accretion  in  the  short-term  and  this  development  should provide further stability for the foreign exchange rate.

    It said the 30-day moving average external reserves increased by 0.36 per cent up from $47.49 billion at end-April to $47.66 billion at May 28, 2018. The month-on-month growth rate recorded in the external reserves was the lowest level since July  2017.  The pressure on demand  from foreign  investors  was  mainly  responsible for the low growth in the external reserves.

    “The total turnover at the Investors’ and Exporters’ FX Window (I&E Window) between April 2017 and May 2018 stood at $50.73 billion. The highest amount was recorded in January 2018. Our analysis between August 2017 and May 2018 shows that Nigeria recorded the lowest foreign exchange inflows through the I&E Window in May 2018,” the report said.

    It said the  value  of  the  Naira depreciated  further  at  the  inter-bank  and  parallel  markets  in May 2018, compared with April. The demand pressure at the I&E Window occasioned by foreign  investors’  repatriation  of  their  matured  fixed  income  investments  was  largely responsible for the depreciation in the value of the naira.

    “The value of the  naira  depreciated month-on-month at the  inter-bank  market to  N305.95/$ as  at end-May  2018,  a  depreciation  of  0.08 per cent  from  N305.70/ $  at  end-April.  The average exchange rate at the inter-bank market also depreciated by 0.06 per cent to stand at N305.80/$ in May, compared with N305.61/$ in April,” it said.

    Besides, the value of the naira also depreciated at the parallel market in May to N363.50/$, a drop of 0.14 per cent, compared with April. The average exchange rate at the parallel market also depreciated by 0.29 per cent to stand at N363.90/$ in May, compared with N362.86/$ in April. FSDH Research expects the value of the naira to remain stable in the short-to-medium term,” it said.

    The fixed income market analysis for the month of May 2018 shows a net outflow of about N224 billion, compared with a net outflow of about N749 billion in April. The major outflows in May were the Open Market Operation and Repurchase Bills (REPO) of N1.81 trillion, CBN’s Foreign Exchange Sale of  N413 billion, Primary Nigerian  Treasury  Bills  (NTBs) of  N178 billion  and  the  Bond  auction  of N50 billion.

    It said a total inflow of about N1.79 trillion is expected to hit the money market from the various maturing government securities and the Federation Account Allocation Committee (FAAC) in June 2018. “We estimate a total outflow of approximately  N781 billion  from  the  various  sources,  including  government  securities  and statutory withdrawal, leading to a net inflow of about N1.01 trillion.

     

    FSDH Research expects the market to remain relatively liquid in June. This may necessitate the issuance of OMO to mop-up the liquidity in the system,” it said.

    The research firm expects the inflation rate to drop below the current level. “We believe the yields on the treasury bills may drop marginally from the current levels. However, the yields on the Federal Government of Nigeria Bonds may increase from the current levels as government begins the implementation of the 2018 budget,” it said.

    FSDH Research said the equity market is approaching an oversold position, hence, there  may  be  a  reversal  of  the  current  downward  trend  very  soon  as  the  economic environment continues to improve.

    “The factors that should drive the performance of the equity market include stability in the foreign exchange market due to positive developments in the crude oil market, bargain hunting investors taking advantage of current prices, strategic positioning ahead of half year 2018 results and repositioning of portfolios as a result of the drop in yields on treasury bills,” it said.

    Investors are advised to take strategic positions in the stocks that pay interim dividends and have prospect for capital appreciation from current levels. Some stocks in the consumer goods, building materials, petroleum marketing and banking sectors are attractive at their current prices.

  • I&E Forex Window: From scarcity to surplus

    Prior to the introduction of the Investors’ and Exporters’ (I&E) FX window in April, last year, by the Central Bank of Nigeria (CBN), the market and exchange rates were in turmoil. But, in dramatic turn of events, the acute shortage of foreign exchange, which businesses and individuals grappled with, has turned to surplus of dollars in the market with banks now desperately looking for forex buyers. COLLINS NWEZE writes that the I&E Forex window has not only brought stability into the market, but it has strengthened confidence of foreign investors in the domestic economy.

    THEY wound up their operations and relocated to more investment-friendly environment. No thanks to the crash in crude oil prices that resulted in the depreciation of the Naira.

    But, barely a year after their exit, the foreign investors are returning to the Nigerian market. The attraction is the Investors’/Exporters’ Forex (FX) Window introduced by the Central Bank of Nigeria (CBN).

    The window, which offers investors the opportunity to sell dollars at rates of their choice provided they find willing buyers, has restored confidence to the forex market.

    Before the introduction of the I&E Forex window, the local equities market and the foreign exchange (forex) market were in shambles.  The All Share Index (ALSI) was continuously shrinking and the naira weakened against other currencies, especially the dollar.

    The introduction of the window was followed by continuous interventions by the CBN which enabled banks and Bureau de Change (BDC) operators to meet forex demand at the retail end of the market.

    The window may have become a life-saving pill for the domestic economy as it has attracted over $20 billion into the market, enhanced transparency and made forex available to the end-users.

    The operations of companies, especially manufacturing, has been on the upward swing with an improvement in inflation figures as well as equities market performance.

    In April last year, the CBN opened a special forex window for investors and exporters.

    According to the CBN Director in charge of Financial Markets, Alvan Ikoku, the “Investors’ & Exporters’ FX Window” is boosting liquidity in the forex market and ensuring timely execution and settlement for eligible transactions by all parties.

    Before the stability in the forex market and naira, the economy witnessed a depressed Gross Domestic Product (GDP) growth, which culminated in a recession in 2016. There was also rising inflation, which peaked at almost 19 per cent in January 2017 and a persistently rising unemployment rate to 14.23 per cent in 2016 fourth quarter from 6.41 per cent as at 2014 fourth quarter. There was also a significant depreciation of the exchange rate, reaching N525 to $1 in February 2017 and witnessed a fast depletion of the reserves which was drained down from about $23.6 billion in October 2016 from as high as $40 billion in January 2014.

    The I&E Forex window, seen as a ‘willing buyer, willing-seller window’, allows foreign investors to bring in dollars into the economy at any price of their choice, provided they could find buyers at such rate. The figure at the window has also impacted positively on the Purchasing Managers’ Index (PMI).

    Lagos-based economist and Managing Director, Financial Derivatives Company Limited, Bismarck Rewane said the introduction of the I&E forex window was arguably the most important policy implemented by the CBN in 2017.

    He said: “Prior to this, investors were of the view that the naira was overvalued and not at a market-determined level. The I&E FX window, higher oil prices and production, and the CBN’s consistent intervention in the forex market are the main drivers of the stability and the convergence of exchange rates in Nigeria today.”

    The Global Markets Group Head at Access Bank Plc, Dapo Olagunju, said the window allows investors to sell dollars at any rate they choose and is expected to help bring investors’ confidence into the market.

    He said: “Investors/Exporters FX Window helps participants execute deals as based on their own market agreement. Today, both the dollar demand and supply sides are beginning to talk to each other and there is likely to be rate convergence soon.”

    A report by Exotic Capital, an investment and research firm, titled: ‘Fragile Recovery, Positive Outlook’, said that Nigeria’s forex regime, although still far from ideal, has begun to stabilise.

    It said: “A multiple currency regime evolved after the oil price all in 2014 and the June 2016 devaluation, which led to a widening divergence between the official and parallel markets (the parallel market premium reached 100 per cent in January 2017).

    “The current regime has shown a vast improvement this year with introduction of the I&E Forex window last April.”

    It said the parallel rate for the naira, in the range of N360 to N365, is nearly identical to the I&E Forex window rate, used for international investors as well as importers and exporters, and has seen close to $20 billion in cumulative transactions since its introduction.

    Commenting on the issue at the Access Bank forex seminar, Rewane stated that the creation of the this window was a good move on the part of the CBN as it will lead closer to the emergence of a Real Effective Exchange Rate (REER) for the country.

    He said: “Any measure that increases the supply of forex and the number of suppliers will help to reduce the dominance of the CBN as the major supplier of forex in the market and move us closer to the emergence of a Real Effective Exchange Rate. This will attract more investors and lead us closer to a perfect market.”

    Barely a month after trading at the window commenced, international credit rating agency, Fitch Ratings, released a report, stating that the establishment of the I&E Forex window had led to an improvement in banks’ forex liquidity situation.

    Today, the naira remains stable at the official and parallel markets, with the foreign exchange (forex) reserves standing at $46.9 billion, a report by Exotic Capital, an investment and research firm, has said.

    The report said although the level of reserves was still below the record high of $64 billion realised in August 2008, it has nearly doubled the $24 billion recorded in October 2016, increasing by more than $22 billion in 15 months.

    The reserves hit $46.7 billion on March 29 from just over $23 billion in October 2016 and the economy continued to attract huge investment inflows from foreign investors.

    The economy benefited from increased forex supply with over $20 billion inflow to the I&E window since inception in April 2017.

    “We have written extensively on Nigeria’s multiple exchange rate system and will abstain from further discussion at present, suffice to say that a fairly valued naira at 360 to the dollar combined with high domestic rates has led to a tremendous increase in the level of gross foreign reserves held at the CBN,” the report said.

    A similar report by FBN Capital, entitled: “Towards the $50 billion threshold, and counting”, said the rapid accumulation of $15.96 billion over 12 months was due to two sizeable Eurobond launches, a small diaspora bond issue, the recovery in oil export revenues (through the Nigeria National Petroleum Corporation’s share of production and, more recently, the steady bid by the CBN at the I&E Forex window.

    The FBN Capital said: “We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks. The steady bid by the CBN has been seen variously as a response to the softening of demand for forex by importers and other economic actors, and as a move to contain naira appreciation.

    “The CBN will be pleased with the healthy signals from I&E Forex window where the weekly average has now settled above $1 billion.”

    Speaking on the issue, CBN’s Acting Director, Corporate Communications, Isaac Okorafor, reiterated the bank’s commitment to ensure adequate forex supply to genuine customers to achieve the goal of forex rates convergence.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the window has won the confidence of foreign investors. He said the window attracted foreign investors’ appetite for Nigerian assets leading to impressive appreciation in the equities market and stabilising the naira.

    Before the introduction of the window, foreign investors’ appetite for local assets waned significantly on the back of currency crisis which in turn fundamentally weakened macroeconomic performance, dragged corporate earnings and also impacted on equities market viability.

    According to the CBN, forex supply to the window shall be through portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange to naira.

    The apex bank is a market participant at the window to promote liquidity and professional market conduct. The apex bank assured that the exchange rates of the transactions would be as agreed between authorised dealers and their counterparties.

    The regulator also reserved the right to intervene as a buyer or seller, as it deems fit, in the window, even as information on transactions between authorized dealers is reported to the CBN on a daily basis.

    Manufacturers and other foreign exchange (forex) end-users also seem to be having a great time over the coming of the window.

    The improved access forex by local manufacturers is positively impacting on the economy as the manufacturing sector, which was in comatose for nearly two years, has been upbeat in the last three months.

    The Purchasing Managers’ Index (PMI) survey report released for last month by the CBN has continued to show improvements in business and investment sentiment.

    On some of the stabilisation steps taken by the regulator, CBN Governor Godwin Emefiele said the apex bank has opened the market up for more people to come in.

    Emefiele said: “We want more people to come and invest in the economy, and that was why we introduced the Investors’ & Exporters’ Window. We want a forex market that will be determined by demand and supply. It has helped in forex flow and led to the appreciation in the naira we are seeing today.”

    The Global Markets Group Head at Access Bank Plc, Dapo Olagunju, said the new window allows investors to sell dollars at any rate they chose and that it is expected to restore investors’ confidence into the market.

    He said: “Investors/Exporters FX window help participants execute deals as based on their own market agreement. Today, both the dollar demand and supply sides are beginning to talk to each other and there is likely to be rate convergence soon.”

    The CBN has maintained its weekly intervention in the forex market has continued. The bank intervened this week in the forex market with $210 million injection into key segments of the economy.

    Analysts said that the introduction of a new forex window for investors and exporters targeted at increasing forex supply in the market and allowing the timely settlement of transactions helped achieve the current exchange rate stability.