Coalition of Civil Society Groups yesterday threw their weight behind the Central Bank of Nigeria’s (CBN’s) new policies towards stabilising the nation’s currency.
They said the development aimed at boosting the economy, would also promote local production ?of commodities mostly imported into the country.
President of the CSOGs, Comrade Etuk Bassey, who spoke on behalf of the coalition during a briefing yesterday in Abuja lauded the policies including the restriction of cash deposit of dollars.
He decried the huge importation which according to him has gradually degraded the nation’s economy.
Bassey said: “Given the fact that our major source of foreign exchange earnings has reduced drastically, we must commend efforts by the CBN to conserve our foreign reserves by preventing excessive imports of items like rice, eggs, private jets, and toothpicks, which are either luxurious or can be produced in Nigeria.
“By this action, the CBN is indirectly creating a huge opportunity for Nigerians to begin to look inward to produce these items here at home, thereby creating jobs for our teeming youths.
By allowing the importation of items like rice from Thailand, eggs from South Africa, beef from Zambia, furniture from Italy and textiles from china, we are simply importing poverty into Nigeria and exporting jobs to these countries.
”And this is the reason every well-meaning Nigerian should support the efforts of the CBN, particularly in this difficult time of low oil prices”.
1The groups emphasised that the restriction of cash deposits of dollars is a constructive step by the CBN towards stability of the Naira.
“The recent restriction on cash deposits of dollars is another positive step that must be commended. Notwithstanding the presence of our local currency, some individuals and business still prefer to demand dollars as a means of payment for businesses done here in Nigeria.
“The recent admission by many banks of huge volumes of dollars in cash in their vaults also raises questions on how these funds were obtained by bank customers. These huge cash deposits of dollars reinforce a recent international? report that ranks Nigeria high on movement of illicit funds.
“We therefore call on the CBN, along with relevant agencies, to trace the source of these huge cash deposits, in order to ensure that we do not have cases of money laundering or terrorism financing in our banking system,” Bassey added.
However, ?the coalition noted temporary discomforts the CBN policies and initiatives might cause but urged the people to bear sacrifices that are for the ultimate good of the nation.
Otunba Femi Pedro, banker, economist , former Managing Director of First Atlantic Bank (FinBank) Plc and former Deputy Governor of Lagos State, examines the assault against the Naira, which has left it nearly impotent
The Nigerian Naira – our national currency – is the only legal tender and means of exchange. In all its aesthetic glory, it is also meant to be a symbol of our national pride, our economic prosperity and our financial sovereignty. In reality however, it has been a national embarrassment.
Over the last decade, our currency has been battered and assaulted by speculators, rent-seekers, fraudulent importers, corrupt government officials and rogue bankers. There is clearly enough blame to go around, but a chunk of the blame has to lie firmly on the doorsteps of the Central Bank of Nigeria (CBN) – the institution that is legally empowered to be the nation’s monetary policy manager and the custodian of our Naira and foreign currency reserves.
So what exactly is wrong with our currency? Well, for starters, its value has been dropping like scattered raindrops from the sky. People have lost confidence in the currency, and foreign investors neither have any respect nor regard for the Naira. Even within our growing economy, the Naira has itself become a second-rate currency as a means of exchange and a measure of value. It continues to defer to the US Dollar and, to a lesser extent, the Euro and the British Pound. Indeed, the US dollar has become the currency of choice in pricing and payment for choice real estate transactions, luxury goods & services in certain sectors of our economy, and even bribes and underhand transactions. Specifically, the dollar is the ultimate currency of choice for corrupt officials, whose modus operandi is to cart large Ghana-must-go bags to black market operators in exchange for dollars, and then covertly (and sometimes overtly) ship these funds to exotic financial havens like Dubai, the Cayman Islands and Zurich. Worryingly, these activities take place under the noses of regulators and security agencies that find it convenient to turn the other way when these atrocities are committed. More on this shortly.
In truth, the backbone and epicenter of our currency’s challenges is the notorious black market. For the avoidance of doubt, the black market is illegality personified. It primarily consists of many floating players, including nomadic street operators; a number of Bureau De Change (BDC) operators who circumvent the CBN regulations; unlicensed foreign currency traders who buy and sell both cash and foreign transfers; and banks who round-trip with reckless abandon. Their illicit operations are interwoven, and in their interconnectedness, they are tragically all willing participants in doing serious damage to the Naira and the economy. In short, they are what we can call thriving economic saboteurs. What makes this tragedy more comical is that the major source of their supply is actually the CBN! These economic saboteurs get their dollar supplies directly and indirectly from the CBN. Unbelievable, you may think. But where exactly did this ‘black market’ come from, and why is it so deeply entrenched in our economy today?
The Central Bank started funding the black market when it (wittingly or unwittingly) churned out hundreds of BDC licenses under the guise of sanitising the market. This policy was aided, abated and expanded by subsequent CBN administrations that issued more licenses. Now, in theory, the concept of issuing these licenses to the right set of people seemed a rational economic policy to cater for the retail end of the foreign exchange market. However, the operative word here is right, and unfortunately, the wrong set of people for the wrong set of reasons have acquired these licenses. The CBN has further compounded this problem by continuing to doll out quantum amounts of dollars to BDCs on a weekly basis. Specifically, the CBN gives an average of about $30,000 to each of the approximately 3,000 BDC operators on a weekly basis. That amounts to a staggering $90 million in the hands of the operators (most of whom are the wrong set of people) on a weekly basis. Now, what happens when you empower the wrong set of people with these insane amounts every week? Well, you can expect a wrong set of decisions and the wrong set of results: We can safely estimate that over the last 10 years, no less than $50 billion (appx $5bn per year) has gone straight to the almighty black market!
It is a dangerously vicious cycle. As long as the black market continues to be well funded, it remains the market of choice for government officials and politicians to convert stolen public funds to dollars and ship abroad; it remains the market of choice for banks and bankers to round-trip foreign currencies; it remains the market of choice for exporters to divert export proceeds, AND for rogue traders and money launderers to, well, roguely trade and launder money. This vicious cycle has made utter nonsense of our money laundering and foreign exchange laws. The cumulative effect of this cycle has rendered our local currency useless. In layman’s terms, as long as this market continues to thrive and grow, the Naira will remain battered and our economy will remain on the brink of a catastrophic collapse. The black market pricing model always makes the Naira weaker than usual and invariably, the gap between the official rate and the black market rate is usually wide, making the central bank to always chase the legal market rate. This also encourages round-tripping, rent-seeking and arbitrage opportunities.
So what exactly is the solution to this currency quagmire? First, the government has to annihilate the black market. When I say annihilate, I mean completely obliterate the market using every legal force available. The first phase of attack has to be the street operators. They are the delivery men if you will; (un)knowing agents of chaos who are simply making ends meet, but whose means of livelihood is coming at the expense of the Nigerian economy. At every corner they operate from, they are deeply entrenched and heavily connected. It goes without saying that they have to be shooed away with tact, guile, caution and a sprinkle of diplomacy. If they refuse these diplomatic overtures to cease and desist, then they must be treated as criminals, and subsequently arrested, charged and prosecuted for trafficking illegally in foreign currencies, all in line with our existing laws. This has to be executed nationwide by the sustained efforts of a security task force consisting of the police and EFCC officials, and must be done without tribal or ethno-religious sentiments.
Of course, a lot of people incorrectly assume that eliminating the black market will be a difficult, if not impossible task. Around the world, black markets only exist when there is an artificial scarcity of products, or where government regulations unwittingly stifle the legal market. In Nigeria, the black market for Petroleum Motor Spirit (PMS) only surfaces when there is artificial scarcity or when the market becomes apprehensive about a possible price increase or import shortage. The currency black market does not exist in any developed economy because currency trading is governed by a transparent set of rules and policies.
Secondly, a firm spotlight has to be beamed on the BDCs. The CBN has to enforce its existing regulations on BDCs by withdrawing the licenses of violators and prosecuting them accordingly. In addition, this nonsense of dolling out dollars to BDCs on a weekly basis has to stop. Alternatively, the BDCs should be made to bid for the foreign currency according to their actual needs (based on their customers’ demands), and should be re-upped only after they have exhausted the funds given to them, to the satisfaction of the CBN and in strict compliance with its stipulated guidelines. In truth, our BDCs’ operations should mirror the operations of their counterparts in the developed countries- where the foreign currencies are primarily bought and sold by retail travelers and subject to strict guidelines. They are primarily present at airports and high streets catering to travelers-in-transit and tourists respectively.
Finally, the Central Bank of Nigeria genuinely needs to overhaul its foreign exchange regime. It has been tinkering with its FX policies, and its flippity-floppity has only created confusion in the minds of Nigerian users, foreign investors and our partners abroad. There is nothing worse than an unstable foreign exchange climate, and, in its desperate attempt to control the slide of the value of our currency, the CBN has only aided this unstable climate. The CBN has tried to rein in on the incidences of round-tripping by implementing some half-baked measures and by introducing gazebo regulations like the banning of the payment of dollar cash into all domiciliary accounts and the restriction on certain imports eligible for foreign exchange transactions at the CBN window, but these moves are too broad-based and grossly ineffective. It almost amounts to treating cancer with panadol!
In truth, a more transparent and simple foreign exchange regulation needs to be put in place. Simplicity and transparency is critical to enable buyers and sellers understand the rules and apply them accordingly, thereby leaving little or no room for circumvention. Specifically, all foreign exchange inflows into our economy – oil export earnings, non-oil export earnings, taxation, foreign/home remittances, cash in-flow from tourists, foreign loans and grants – should all form a pool of our foreign exchange stock, with the information being made available by the banks to the CBN real-time. No foreign currency provider should operate outside this system. Likewise, all foreign exchange users – importers, government, tourists, payment for services, debt repayments etc – should equally tap from this pool of available FX under the strict guidance of the CBN, and only through authorized dealers (i.e the Banks and licensed BDC operators). End-users such as holders of Naira debit cards, retail users, small traders, importers and manufacturers, can be easily accommodated under this regime with minimum documentation but strict enforcement and prosecution of violators.
Of course, the elementary principle of the laws of demand and supply would apply here. The currency price (or exchange rate) will be determined daily by equilibrium, and the CBN’s role will be to intervene regularly to maintain and sustain the value of the Naira within a steady band. The government’s role will be to: 1. Put in place fiscal policies that will conserve our foreign exchange supply; 2. Curtail corruption and leakages within the system and; 3. Manage the nation’s resources judiciously to boost supply and curtail demand. This is not different from what other countries are doing successfully, and it will help the banks and the governments (via CBN) uncover all those who are dealing illegally. Unlicensed foreign exchange dealers must be treated as criminals because they are the major agents of money laundering criminals and drug traffickers. Since they deal more in foreign transfers, their activities would be easily curtailed with a specific ban on payment of cash into, and transfers out of, these flagged domiciliary accounts. As a follow-up, the security task force mentioned earlier should raid their offices regularly and push them out of business. Of course, the legislation already exists, but I strongly propose a more aggressive regulatory posture, combined with a sustainable and hard-nosed foreign exchange policy that will restore sanity and strengthen the Naira in the shortest possible time.
Aside from the aforementioned solutions, public orientation has to be the order of the day. It has to be known by all and sundry that our precious Naira- the wonderful bastion of our economic independence- is the only legal tender in Nigeria. No other currency should be openly handled, traded or transacted in Nigeria. There should be no payment for goods and services within Nigeria in any currency other than the Naira. Under no circumstance should any entity – private, government, individuals – demand or accept payment for goods and services in any foreign currency.The law already exists to this effect, and it has to be rigorously enforced. There should be a public enlightenment campaign conducted by the CBN, perhaps in collaboration with the National Orientation Agency (NOA). Violators should be promptly prosecuted, and this will immediately serve as a deterrence to the abnormal practice of invoicing goods and services in dollars
Some economists have suggested that a more effective solution would be to navigate the Naira currency towards becoming internationally tradable in the not-too-distant-future, but our economy is not yet mature enough for this, and our foreign reserves have been depleted to insignificance. This is the subject of another debate we can have some other time. If we are truly serious about curtailing corruption and sanitizing our growing economy now, we have no other choice but to clean up the murky and corrupt foreign exchange market. I believe that if these remedies are applied swiftly, we will see immediate impacts on the value of the Naira. Of course, it is no secret that many bankers, government and security personnel are corrupt and can easily be influenced, and therein lies the danger of trying to implement some, if not all of, the aforementioned solutions. This is where our dear President comes into the picture. He should move swiftly by reading the riot act to these economic saboteurs, flushing them out of the system as a consequence. And with the diligent prosecution of these offenders, the system will become more sanitised, and our economy, the Naira and our collective peace of mind, will rebound in earnest.
The job of the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, was cut out from day one. He oversees the control and administration of the monetary and financial sector policies of the Federal Government.
Emefiele assumed leadership of the apex bank at a time the economy was sorely troubled. The naira was sinking deeper and deeper against the dollar, crude oil prices and foreign exchange reserves were crumbling and foreign investors were leaving the country in droves.
Although some of these indicators are not directly under the CBN’s control, Emefiele, a man who acts more than he talks, has taken strategic steps to ensure their implications do not distort his vision for the economy and the financial sector.
His priority seems to have been to oversee a central bank that is professionally run, apolitical and people-focused. That way, the apex bank will help in reducing poverty, create jobs and ensure macroeconomic stability.
The CBN under Emefiele seeks to achieve monetary and price stability, maintain sufficient external reserves to safeguard the international value of the naira, promote sound financial system and provide financial advice to the Federal Government. It also craves for high standards of banking practice through its surveillance activities as well as the promotion of an efficient payment system.
Therefore, the apex bank is instituting a broad spectrum of financial instruments to boost specific enterprise areas in agriculture, manufacturing, health, oil and gas as well as building a Secured Transaction and National Collateral Registry that improves access to information on borrowers and assist lenders to make good credit decisions.
For the naira, there has been far reaching measures to curtail its slide. In a country stricken by 9.2 per cent inflation as at July, one of the world’s worst; and declining foreign exchange reserves now at $30.5 billion from about $42 billion a year ago, its currency must be guided jealously especially now that oil revenues are falling.
Nigeria’s dependence on crude oil (currently above 80 per cent of total foreign exchange earnings) makes economic growth susceptible to oil price shocks, directly impacting on external reserves, creating negative effect that leads to capital flight, thus depreciating the naira.
It was the need to stem it that prompted the CBN chief to look inwards in finding solutions to Nigeria’s currency and economic crises.
To achieve exchange rate stability, he banned the sale of foreign exchange by banks to importers, stating that all imports involving electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions would be funded from the interbank foreign exchange market only.
The objective was to maintain stability in foreign exchange market and strengthen the various policy measures already initiated, including the regulation of the Bureau De Change (BDCs) that cut dollar supply to operators from $75,000 to $50,000 weekly.
For him, government will continue to intervene to keep the exchange rate stable because of the dire consequences of doing otherwise. Besides, allowing the local currency to find its level will not be in the interest of the economy and the larger population. Today, the naira is still exchanging at N197 to a dollar at the official market, and about N215 to a dollar at the parallel market. It was already heading towards N245 to a dollar before the CBN boss moved against FOREX speculators, promising them hell in return for the harm they were doing to the economy and the foreign reserves.
The CBN boss believes that the foreign reserves remain Nigeria’s common wealth that must be protected even as he seeks stakeholders support to protect them and prevent speculators and rent seekers from plundering them.
Hence, it was expected when the CBN banned import of 41 items, including toothpicks, private jets and rice from using official FOREX markets to fund their imports. For Emefiele, such controls would help stabilise the naira, replenish reserves and boost manufacturing, amidst criticisms that the measures are harming the economy.
But the CBN boss insisted that importers desirous of importing the affected items are free to do so using their funds without any recourse to the official FOREX market window. He wants Nigeria to produce those things it is importing today.
“We must diversify the structure of our economy from being import dependent to being an economy that produces what she consumes. We will try as much as possible not to hurt your business, but we need to be able to work together,” he told BDC operators and bank chief executive officers at a joint FOREX meeting in Lagos.
Besides exchange rate stability, the modernisation of the payment system is also Emefiele’s priority. The cash-less policy which now runs in six states and the Federal Capital Territory, Abuja was initiated against the backdrop of cash dominance in the payments system.
It was a critical part of the payment system modernisation designed to promote the use of Automated Teller Machines (ATMs), Point of Sale (PoS) terminals, web payment, online transfers and even mobile money in banking transactions instead of relying on cash.
He created more confidence in the cash-less policy by sustaining the Bank Verification Number (BVN) project initiated by his predecessor and removing three per cent charge on cash deposits above N500, 000 for individuals and N3 million for corporate customers which are the sanctions prescribed for defaulters. Today, more people are embracing cash-less banking in the overall interest of the economy.
Creating BVN
The BVN is meant to fix the rising cases of fraud in the financial sector and the need to protect customers’ transactions integrity. Emefiele said the BVN, a biometric technology driven project, involves the process of recording a person’s unique physical traits such as fingerprints and facial features. This record, he said, can then be used to correctly identify the person afterwards.
The project became exigent following increasing incidents of compromise on conventional security systems like password and Personal Identification Number (PIN) of bank customers, which has led to loss of funds. There is therefore a high demand for greater security for access to sensitive or personal information in the banking system. The BVN would make it extremely difficult for the fraud perpetrators to succeed.
Beyond banking security, the CBN under him continues to support the growth of the economy by supporting reforms in the power sector and supporting small businesses as well as agriculture.
For the power sector, the CBN boss linked the challenge faced by the sector to unattractive pricing of domestic gas and legacy debts that has inhibited investment in gas supply and infrastructure.
That prompted the CBN boss to institute the Nigerian Electricity Market Stabilisation Facility (NEMSF) where N213 billion has been mapped out and is being disbursed to settle legacy gas debts and shortfalls in revenue for operators to boost power supply.
Money laundering and basic travel allowance (BTA)
The CBN under him has also taken the fight against money laundering very seriously. It has read the riot act to travellers carrying more than $10,000 maximum cash or negotiable instruments across Nigeria’s borders.
The CBN under him also stopped banks from accepting foreign currency cash deposits into customers’ accounts. The policy shift is in line with CBN’s continued efforts to stop illicit financial flows in the Nigerian banking system which aligns with the anti-money laundering stance of the Federal Government.
The naira has gone through thick and thin in the last one year. And its problem is far from being over because its stability or otherwise is hinged on various factors.
One is the price of crude oil in the international market. Oil prices around the globe have continued to fall, posing serious challenges to Nigerian economy and its currency which, many believe, is overvalued and needed to be adjusted.
• CBN Governor Godwin Emefiele
But the Central Bank of Nigeria (CBN), under Godwin Emefiele, has insisted on exchange rate stability and defending the naira. For him, the apex bank is committed to safeguarding the value of the naira and has instituted various policies to achieve the objective.
The CBN has banned the sale of foreign exchange by banks to importers without the requisite shipping documents and also directed that only imports, which are backed with evidence of shipment and other relevant documents, will qualify for purchase of foreign exchange, among others, to keep the naira afloat.
The naira was devalued last November during the Monetary Policy Committee (MPC) meeting. The midpoint of the official window of the foreign exchange market was moved from N155/dollar to N168/dollar.
The committee also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent. The naira has fallen by 15 per cent in the year and exchanges at N197 to dollar at the official window.
Despite these moves, many analysts believe that further devaluation of the naira is imminent and will boost the inflow of foreign capital and enhance economic growth. For instance, the International Monetary Fund (IMF) had predicted that the Gross Domestic Product (GDP) growth for 2015 would be around 4.8 per cent from 6.3 per cent last year.
For the Head, Africa Strategy at Standard Chartered Bank, Samir Gadio, though a further devaluation of the naira may not happen soon, but an adjustment is imminent.
“Despite the Central Bank of Nigeria’s resolve, markets observers believe that it will eventually succumb to pressures and devalue the currency (again),” he said.
Also, Bond Fund Manager, Standard Life Investments, Kieran Curtis, said a further devaluation would restore the economy to competitiveness and promote more capital inflows.
“It will take a combination of weaker currency and higher interest rates to get us back to Nigeria,” he said, arguing that when Nigeria is compared to other oil exporters, it hasn’t had enough of a currency adjustment.
Still, Nigeria has a good number of indicators in its favour. Though at the detriment of local firms, its foreign exchange reserve position remains healthy. As of July 7, the external reserves had risen slightly to $31.89 billion from $29.1billion as at the end of June. Foreign currency reserves were $37.3 billion in June 2014.
Analysts have predicted that foreign investors will likely remain wary of Nigeria until there is more policy certainty and a further naira devaluation leading to a dollar surge in the interbank market.
Gadio added: “Even though international investors want a piece of Nigeria, they will stay away, because, right now, they expect to make a 10 per cent loss on the foreign exchange side since devaluation is likely to happen.”
Morgan Stanley analyst Martijn Rats said the global oil and gas industry reaction is like what happened in the slump of 1986, almost 30 years ago, when Saudi Arabia triggered an oil price slide by making a bid for market share.
Then, like now, “as the oil groups cut spending, the wider workforce shrank and costs in the supply chain tumbled. The majors shored up cash flow and, in time, investors reacquired faith in their dividends,” he said.
Oil demand picked up and non-OPEC supply growth slowed, rebalancing the market.
Managing Director, Afrinvest West Africa Plc, Ike Chioke, said a strong positive correlation exists between the exchange rate and crude oil price.
Nigeria’s crude oil – Bonny Light, which traded at $110.2 per barrel in January, last year, hitting $114.6 per barrel by June same year, is now trading below $60 per barrel.
“With the discovery of the shale oil, crude oil prices are projected to moderate in coming years. In addition, the threat by the United States (U.S.) to reduce oil imports constitutes a downside risk on crude receipts of OPEC members. Consequently, the CBN must establish a “real” and “sustainable” value for the naira as the opportunity cost of “substantial” support for the naira increases,” he explained in a report titled: Naira Trending Towards 2015.
Chioke said Nigeria’s dependence on crude oil (currently 70 per cent of total foreign exchange earnings) makes economic growth susceptible to price shocks.
Executive Director, Treasury and International Banking, UBA Plc, Femi Olaloku, said dwindling oil prices around the globe poses serious challenges to a developing economy like Nigeria’s, hence, the need for the government to also consider various diversification options.
For him, further devaluation of the naira is imminent, as such would make the importation of goods into the country more expensive, encourage local manufacturing and inflow of foreign capital.
CBN vs fiscal measures
With prolonged global crude downturn and sporadic lengthy fuel queues sprawled out at many petrol stations across the country, indigenous oil firms have adopted prudent approach amid fluctuating oil prices and adverse market and operating conditions.
The apex bank had last December directed all banks to reduce transactions with oil and gas companies following pending liquidity and fiscal hitches in meeting the funding demands associated with the sector, especially the upstream.
The decision was based on a recent risk-based supervision exercise conducted by the apex bank, which highlighted the financial industry’s level of exposure to the oil and gas sector combined with existing risk management deficiencies. It was seen as necessary steps to ensure that banks have sufficient capital buffers to mitigate rising risk in the industry.
Monetary policies and other regulations by the CBN have also become tighter as it continues to defend the naira and in turn, depleting banks’ earnings further.
For instance, the CBN shut down the retail Dutch Auction System/wholesale Dutch Auction System (rDAS/wDAS) segment of the foreign exchange market, and quoted an exchange rate of N198/ to dollar. That was indirect naira devaluation at the interbank foreign exchange market, igniting further pressure on the nation’s currency.
To curb naira speculation, the apex bank also banned commercial banks from re-selling dollars to other banks. it also directed that all foreign exchange needs are to be sourced from the interbank market, which has rate ranging from N197 to N198 to dollar.
Implications of CBN’s policies
The CBN’s policies have prompted petroleum marketers to rely on product allocations from the Pipeline Product Marketing Company (PPMC), the marketing entity of the Nigeria National Petroleum Corporation (NNPC), to alleviate the ongoing shortage.
“Marketers are caught between a rock and a hard place as importers of Premium Motor Spirit (PMS) under the Petroleum Subsidy Fund scheme, as a result of the huge outstanding fund due and payable to them by the federal government. Although the pricing template provides for a marketer to be paid the subsidy element within 45 days of submitting complete and verified documentation, the bulk of reimbursements due to importers are typically paid not less than 180 days or more,” analysts said.
They see these challenges created by liquidity squeeze, including mounting bank interest charges, and huge exposures to foreign exchange fluctuations as major threats to the survival of many operators, especially with foreign investors wary of the country’s present economic climate.
A Lagos-based analyst, Michael Obidike, said oil marketers face myriad issues ranging from fund sourcing, letters of credit, and more s restrictions on the purchase of forex, all affecting the steady flow of product importation.
“Oil marketers will find it very difficult to function without the appropriate fiscal backing required from the banks and the CBN in particular. The delays in the payment of petroleum subsidy funds by the federal government had previously led to the non-issuance of Letters of Credit for marketers, even within authorised bands of transactions. This was due to the CBN’s directive that banks become risk averse to oil and gas companies. The nature of it all is very cyclical,” he said.
The NNPC had indicated that the on-off shortage of fuel was caused by a halt in the importation of products due to ongoing delays in the outstanding payment of N264 billion subsidy claims to marketers by the government.
This payment is for product importation between July, last year till date, and marketers are also owed N100 billion in forex exposure – due to the naira devaluation – between January, last year till date and accumulated interest exposure from 2013 till date. The major marketers import close to 60 per cent of petrol consumed in the country, while the NNPC imports the balance.
Renaissance Capital (RenCap), an investment and research firm, said the clean-up of the downstream sector and how the outstanding fuel subsidies of N200billion to N300 billion is resolved, as well as regulatory/policy changes, which could negatively affect some corporates, are also potential drivers of non-performing loans (NPLs) in the sector.
“In gauging the asset-quality stress in the system and relative strengths of the banks through this rough patch, we establish each bank’s breakeven cost of risk and calculate what we call a ‘pain buffer,’ which estimates how much room we think the bank has to take on additional impairments before moving into a loss. Based on our 2015 estimates, GTBank, Stanbic, Zenith and UBA have the highest pain buffers in the sector,” it added.
Continuing, the investment and research firm in the report, also noted that with much talk about the federal government reforming the economy, in a weaker macro and fiscal environment, it would be unlikely that the banking sector would remain unscathed by some of the changes that could occur.
A year ago, the firm predicted that this year held green shoots of recovery for banks. Then, analysts at RenCap were cognisant of the tough operating environment in which the banks operate, exacerbated by an onslaught of regulatory headwinds since 2013.
“We were looking for an easing in the cash reserve requirements and a more market-friendly regulatory environment. However, the subsequent decline in oil prices,” it said.
The Bankers’ Committee met in Lagos yesterday and decided that hawking of the naira will no longer be acceptable.
Managing Director, Enterprise Bank Limited, Mrs. Mary Akpobome, who spoke on behalf of the Committee members, said it has been discovered that the naira is hawked by some merchants on the streets across the country, saying the practice has to stop.
She said such practice, which is not permissible in advanced countries like the United States of America and United Kingdom, should not be encouraged in Nigeria.
“We appeal to the people involved in this act to desist from buying and selling the naira on the streets or face the consequences of their actions,” she said.
Akpobome said the Committee notified various agencies to go after the perpetrators, adding that both the buyer and seller of the currency will face the wrath of the law.
Kola Balogun, who represented the Central Bank of Nigeria (CBN) Director, Banking Supervision, said the ongoing publication of the debtors’ list is to ensure that the financial sector is stable. He said the CBN will follow up on the prescribed sanction for the delinquent debtors, including ban from accessing the forex market, adding that the publication of bad debtors’ names on national dallies will continue on regular basis.
He expressed surprise that a bank can publish the name of a non-existent borrower in the media, adding that where such is the case, the bank and customer should resolve it amicably. “Some delinquent debtors have been named. The banks followed their loan books and I will be surprised if a bank publishes non-existent debtor as owing,” he said.
Managing Director, GTBank, Segun Agbaje, said nothing has changed in the operation of domiciliary accounts in the country, except that foreign currency deposits are no longer acceptable into the accounts.
He said: “Interested persons will continue to pay school fees or medical bills through the official forex window. I want to assure you that legitimate transactions will pass through the official window. The forex is available in the banks people with legitimate demands should follow the right procedure and get it”.
On the cash-less policy, Managing Director, Wema Bank Plc, Segun Oloketuyi, said only five states and Abuja are implementing the policy. The states are Lagos, Ogun, Kano, Rivers and Anambra. He said the Bankers’ Committee is working on getting the policy rolled out nationally and called on banks to embrace the policy nationally.
The Central Bank of Nigeria (CBN), in its sustained drive to defend the local currency, has directed that all foreign exchange demand must now be backed by naira cover 48 hours before the request is sent to the apex bank’s intervention window.
The order which was communicated to the Deposit Money Banks yesterday, The Nation investigation revealed, is to take effect from today.
Consequently, some of the banks, in implementing the directive, have notified their customers who intend to purchase foreign exchange through the CBN intervention window, “to make funds available in their accounts two working days before each intervention day.”
In a document obtained by The Nation, one of the banks said: “Given the effective date of 6th August for this new arrangement, collation for intervention window of 10th August 2015 will be done on 6th August, 2015 when the bank will be expected to move funds to the CBN position.
“Kindly ensure that all customers’ requests are received in Trade Services on or before 12noon two days preceding their intended CBN intervention window,” the financial house stated, adding that ”in case of matured obligations that will require the booking of naira IFF (Import Finance Facility) to fund account, booking may be deferred until successful FX (foreign exchange) allocation in which case, Trade will debit customer’s account naira equivalent of FX sold, whether or not the account is adequately funded, while the Branch/Relationship Managers will be required to follow up with the relevant department, or unit for regularisation with same value date as original debit.”
The document clearly stated that bids supported with incomplete documentation will not be processed.
It said apart from the exception earlier highlighted for matured obligations, bids presented on unfunded account will not be attended, it stressed.
Eight months after the apex bank embarked on the latest roller-coaster ride of devaluation, Nigerians must wonder as to the fate of the national currency. In the latest wave of the battering, the naira hit a record low last week when it exchanged for N241 to the United States dollar at the parallel market. Officially, it traded at N199.150 to the US dollar.
In November 2014, the Central Bank of Nigeria (CBN) had brought the foreign exchange official window from N155 to N168 to one US dollar. At the time, the move was seen as a deft one to halt the run on the foreign reserves. Six months after, precisely on June 23, the CBN introduced a new rule under which importers of 41 items were barred from accessing foreign exchange from the official window – a move that appears to have exacerbated the problem with the consequence of further widening the gap between the official and the parallel market.
We agree to a point that there is nothing sacrosanct in the value of the naira – at least to the extent that the interplay of the variables seems stacked against it at the moment. First, we know that oil sales and prices have been going in negative direction with its implication for severe cutback in our foreign exchange earnings. At the same time, the absence of any significant export capacity means that we cannot take advantage of devaluation to boost exports and hence shore up foreign exchange earnings as would ordinarily be the case.
To compound the problem, importers and perhaps currency traffickers have been relentless in their demand for forex for all manner of goods and purposes. Clearly, the consequence could not have been anything different from what we have seen of the fate of the naira. In an economy which relies almost wholesale on imports – whether of raw materials or finished goods –the omens can only be anything but good.
Our worry however isn’t so much about the steady decline in the value of the naira per se but what we see as the virtual surrender by the apex bank to the parallel market. Only in November last year, the margin between the official and the parallel market was approximately N10. Today, the difference has grown in multiples. Indeed, since last month when the new forex rule became operational, the naira has fallen by 10.5 per cent from 218 to 241 against the greenback. For an apex bank that is ever too eager to make the point that it has sufficient forex in the official window for anyone who cared, the rise of the parallel market goes beyond merely illustrating the hollowness of its pretensions; the signs are of an institution not only entangled in the web of its own contradictions, but one clearly out of depth.
We think that the situation demands new thinking. Clearly, we do not expect the apex bank to perform magic; but then, asking a class of importers to source for their forex from inter-bank market or wherever is part of that long tradition of living in denial of reality. In practical terms, the measure is akin to legitimising the parallel market segment. We must say that no country can afford to surrender so cynically to the band of invisible players. And in any case, where are the guarantees that what is sold in the official market will not end up in servicing the parallel market?
The real challenge, in our view, is for stricter monitoring of financial transactions by relevant institutions of government. With too much money outside of the banking system, a chunk of which are easily proceeds of corruption and other forms of illicit activities, the task of tracking would not be an easy one. In all of these, the bureau de change operators have proven to be the weakest part of the chain. Yet, it is something that the apex bank and the Federal Government must find the will to take on.
‘Clearly, we do not expect the apex bank to perform magic; but then, asking a class of importers to source for their forex from inter-bank market or wherever is part of that long tradition of living in denial of reality. In practical terms, the measure is akin to legitimising the parallel market segment. We must say that no country can afford to surrender so cynically to the band of invisible players’
Nigeria would have to devalue its currency at some stage, possibly by more than 15 per cent, ratings agency Standard & Poor’s said yesterday.
It said although it saw the adjustments as likely, it said the implementation would be gradual.
Investors have seen a devaluation of the naira as long overdue for Nigeria, seen as Africa’s largest economy and biggest oil exporter, which has been battered by the recent tumble in crude prices.
Following devaluations in November and February, authorities have focused recently on curbing access to hard currency on the official interbank market for importers of some goods, introducing stringent restrictions three weeks ago.
But those measures just delayed the inevitable, said Ravi Bhatia, Director of Sovereign Ratings at Standard & Poor’s.
“Another devaluation is inevitable… they will have no option but to devalue,” said Bhatia at a media briefing. Many investors are positioning for a devaluation of around 15 per cent. Bhatia said that sounded “reasonable”, though even more might be needed.
Non-deliverable forwards (NDF)- derivatives used to hedge against future exchange rate moves – reflect expectations of currency weakening: six-month NDFs price the naira at N233 per dollar, some 18 per cent weaker than the central bank pegged rate of N196.95 on Tuesday.
Yesterday, the naira hit another record low of N242 against the dollar on the parallel market operated by dealers in bureaux de change, down 0.42 per cent from Tuesday. The naira has been hitting record lows on the parallel market since the latest apex bank measures introduced three weeks ago.
Bhatia did not expect the adjustment to be done in one go. “I think at this stage, the plan is to move in increments, not to do a ‘one big step’ devaluation like they would in the old days,” he said.
The central bank has said it is in no mood to devalue the naira, given the risks to inflation from a weaker currency, and that it will not be focusing on the thinly traded parallel market when determining the exchange rate.
Investors have also been nervous Nigeria might lose its place in the benchmark GBI-EM local currency debt index. Bhatia said this was a “real possibility”, although he expected the government to adjust policy enough to maintain its membership.
“At some point they have to decide: do they want to go with their policies or do they want to stay in, and at the moment they are trying to do both, and it has worked,” said Bhatia. “But there are issues there, and it is a concern.” JPMorgan warned in June it could eject Nigeria from its benchmark index by year-end unless it restored liquidity to currency markets in a way that allowed foreign investors to transact with minimal hurdles.
•CBN’s exclusion of some importers from official forex sale is long overdue
The free fall of the nation’s currency, the naira, to the American dollar, and the wanton deployment of the latter for frivolous pursuits demand serious approach from the Central Bank of Nigeria (CBN). So, we are not astonished at the latest measure by the apex bank to salvage the naira and prevent waste in the foreign exchange market, so that local industries can regain their rhythm. As a matter of fact, the measure ought to have come earlier than now.
The concern of the CBN to curb unnecessary deployment of the dollar was the thrust of a circular signed by Olakanmi Gbadamosi, its director, trade and exchange, dated June 23, 2015. The CBN in it declared: “In the continuing efforts to sustain the stability of the forex market and ensure efficient utilisation of forex and the derivation of optimum benefits from goods and services imported into the country, it has become imperative to exclude importers of some goods and services from accessing foreign exchange at the Nigerian forex markets in order to encourage local production of these items.’’
The circular gave a list of items whose importation, though not banned, would henceforth be denied access to forex utilisation at the official level to include: rice, private jets, textiles, cement, tomato paste, margarine, palm kernel, vegetable oil, poultry products like chicken, eggs and turkey; Indian incense, tinned fish in sauce (Geisha, sardines), cold rolled steel sheets, galvanised steel, roofing sheets, wheelbarrows, head pans, metal boxes and containers, and enamelware. Others are steel drum, steel pipes, wire mesh, steel nails, wire rods, security wire, wood particle and board, wood fibre boards and panel, plywood board and panel, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles and wooden fabrics, plastic and rubber products, and soap and cosmetics.
What is of great concern now is that the country’s external reserve, in the face of dwindling oil price, is being eroded at an alarming rate. Apart from the items listed above on which the country spends a lot of hard-earned foreign exchange, the quantum of hard currency expended on mostly unverifiable fuel imports and presidential waivers on inconsequential things over the years are too much for a healthy foreign reserve or for the naira’s value to be kept reasonably high. This is compounded by the conspicuous consumption of public office holders, especially the governors across the federation, who mostly take delight in buying private jets that not only have negative effects on the public till but also leaves the foreign reserves greatly eroded.
The CBN should try everything to arrest the free fall of the naira so as to save local industries by boosting local production, thereby generating employment. It is an open fact that the discouragement of importation of the avoidable will bring down the escalating price of dollar; and a satisfactory realisation of this goal can also drastically mitigate the recurring balance of payment deficit being faced by the country.
Stoppage of forex sales to importers of the listed items that can be produced locally is good but we doubt whether there will not be a relapse in enforcement somewhere along the line. Without attempting to be an incurable pessimist, given our experience, we are compelled to ask; how effective will this idea be in the long run?
Well, we can only hope this latest initiative from the CBN will not be just one of those policy initiatives that will go with the wind.
‘Stoppage of forex sales to importers of the listed items that can be produced locally is good but we doubt whether there will not be a relapse in enforcement somewhere along the line. Without attempting to be an incurable pessimist, given our experience, we are compelled to ask; how effective will this idea be in the long run?’
Last week’s meeting with bank chief executives and their treasurers to preserve the naira and the foreign exchange reserves shows how determined the Central Bank of Nigeria (CBN) is to achieve exchange rate stability. Although the apex bank acted to save the naira and foreign reserves against falling oil prices, many doubt that this measure will do the magic in an import-dependent economy like Nigeria’s, writes COLLINS NWEZE.
• Gwadabe
It was long expected, but when it finally came, it was below expectations. Alhaji Aminu Gwadabe, President, Association of Bureau De Change of Nigeria (ABCON), said of last week’s closed door meeting between the Central Bank of Nigeria (CBN), bank chief executive officers and their treasurers.
The meeting focused on issues surrounding CBN’s policy on the foreign exchange market, the conditions of the naira and foreign exchange reserves and the need to review the tight control on the forex market.
It also discussed JPMorgan’s threat to eject Nigeria from its Government Bond Index (GBI-EM) by the year-end unless it restores liquidity to currency markets in a way that allows foreign investors tracking the benchmark to transact business with minimal hurdles.
The CBN had imposed tight controls on the foreign exchange market in February to curb speculation on the naira and save the dwindling foreign reserves, which closed 2013 at $43.6 billion, about $500 million below the $44.1 billion recorded on December 28, 2012. The reserves have dropped to $29 billion. The CBN set its exchange rate peg at N198 to the dollar in February but has changed it to N196.90 against the dollar last week, with dealer, saying the tweaking was not a reflection of the market.
Before setting the restrictions meant to protect the reserves, the apex bank had been battling to prop up the naira after a sharp fall in the price of oil, which triggered a sell-off in assets by foreign investors. The CBN has also fixed the rate at which banks can buy dollars from oil companies.
But Bureau De Change (BDC) operators said the meeting would achieve nothing positive because its members and other critical stakeholders in the forex market were shut out of the discussions.
Gwadabe told The Nation the CBN shut out critical stakeholders from the meeting, hence, it will be difficult for the outcome of the meeting to impact on the forex market fundamentals.
He said the exclusion of the nearly 3,000 BDCs and manufacturers made them feel shortchanged on a policy that will directly impact on their businesses and economy.
He said the CBN felt that only 22 commercial banks were needed to fix the mess in the forex market and falling foreign reserves, but it actually needs the collaboration of stakeholders.
“They CBN always see us as small players. But remembers we have nearly 3,000 BDCs, meeting the import demands of over 170 million people. Today, almost every Nigerian is an importer and we are the ones meeting their forex demands.
“I don’t see any sense in making a discussion that will affect the lives of over 170 million private. We feel short-changed. The CBN needs to know that the discussions should be a two-way process. Even manufacturers should not be left out,” he said.
CBN Spokesman Ibrahim Mu’azu said the outcome of the meeting would be published this week, but he refused to comment on BDCs’ exclusion.
Analysts said the battle to restore exchange rate stability had been long. Although the naira closed at N197 to the dollar at the interbank last week, it still exchanges at N210 at the parallel market and has remained in that threshold for nearly six weeks.
At its weakest, the naira sold at a record high of N235.60 to the dollar, a decline of 30 per cent since November. The naira also dropped to N220 at the parallel market before the apex bank closed the Retail Dutch Auction System (RDAS) in February.
Gwadabe said though some of the steps taken by the CBN have helped the market remove illegitimate transactions, he urged the regulator to continue to carry stakeholders along.
Also, Sub-Saharan Africa Economist at Renaissance Capital and co-author of the Fastest Billion Yvonne Mhango, said the CBN has shown commitment to dealing with the dwindling fortune of the naira.
“While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.
Head, Equities Market at FBN Capital, Olubunmi Ashaolu, said the CBN has, by the policy, an objective on its monetary policy. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading.
“As long as there is clarity and good investment climate, the equities market will benefit,” he said.
He advised that such action would make Nigeria’s investment climate more attractive to foreign investors.
CBN’s moves
Some of the steps taken by the CBN to fix the naira and reserves include fixing the rate at which banks can buy dollars from International Oil Companies (IOCs) at not more than N2 spread to its clearing rate, dealers said. The policy is the bank’s latest attempt to prop up the naira hit by the drop in oil prices. The CBN has pledged to stabilise the naira and has been deploying various measures. Dealers said the apex bank did not issue a formal circular on the directive, but instead resorted to persuasion, adding that the total outstanding dollar demand of about $600 million was not met.
Oil companies usually sell dollars through auction to lenders to buy naira to fund their local operations. The CBN has also scrapped its bi-weekly currency auctions and a market body said it would sell dollars only at N197, a move that amounts to a de facto devaluation of the currency.
This policy is part of what the CBN Governor, Godwin Emefiele, promised to stabilise the currency. He listed some of the challenges he is facing defending the naira, adding that the naira/dollar exchange rate has been under pressure over the last couple of months.
Explaining the difficulties in managing exchange rate stability, the CBN boss raised a poser: “What then can a Central Bank do to react to such a situation of falling reserves and pressurised exchange rates?
“One course of action would be to continue to deplete the foreign exchange reserves in trying to keep the official rate at a stable level. But there are several difficulties with this option.”
He said regardless of its critical nature in an import-dependent country, such as Nigeria, the exchange rate operates like any other ‘price’ in the market.
The dollar/naira exchange rate is simply the ‘price’ of dollars in naira. The forces of demand and supply, he said, determine its movement. “When demand rises, the price rises. When supply falls, the price also rises as well. In recent times, Nigeria has faced a perfect storm of simultaneous dwindling supply of dollars and rise in demand. Both forces have led to a rise in the price of dollars, that is, significant reduction in supply of dollars to the market, even with constant output of crude oil production,” he said.
The other global factor, which has significantly reduced the supply of dollars in the market is related to the end of Quantitative Easing by the United States (US) Federal Reserve.
At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the U.S. economy monthly, through asset purchases. This programme came to an end last October, thereby significantly reducing the supply of US dollars in the global economy.
Another difficulty, which has contributed to the continuing depletion of Nigeria’s foreign reserves, and its capacity to defend the naira is that the combination of a fall in oil prices and the end of the Quantitative Easing programme by the US Federal Reserve have led to a depreciation of most currencies in the world against the dollar.
Previous steps taken by CBN
The CBN has directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions will henceforth be funded from the interbank foreign exchange market only.
In a circular to authorised dealers, CBN Director, Trade & Exchange Department, O. I. Gbadamosi, told stakeholders that the policy was to maintain the stability in forex market and strengthen the various policy measures, already initiated by the CBN.
On the development, Head, Africa Strategy at Standard Chartered in London, Samir Gadio, said: “The importation of electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions importations shall henceforth be limited to the interbank market only.
“We’re seeing more foreign-exchange flexibility. Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”
BDCs policy
Last June 23, the CBN, among others, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000.
Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of the ABCON and both chambers of the National Assembly.
In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.
Naira crises complex
The misfortune of the naira seems complex. The thinking is that massive inflow of forex from surging oil prices and the boom in the capital market were responsible for the appreciation of the naira in the past few years. Unfortunately, oil prices have nosedived and Nigeria capital market is in a shambles. The fall in the price of oil has major consequences on government revenue, aggregate output, capital formation investment, employment, trade and fiscal balance.
The 2008 global financial meltdown also contributed to naira’s freefall. Chief Executive Officer, Financial Derivatives Bismarck Rewane, said Nigeria was unprepared for the shock.
“The economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.
Analysts said a gradual appreciation of the currency will require building confidence in the financial system and price of crude oil in international market. This is what is going to drive the exchange rate now and beyond. We cannot isolate what is happening in the global economy like the issue of diversification of energy sources.
