By Omodele Adigun, Bimbola Oyesola and Uche Usim
Bookmakers were proved wrong last week as the Naira started clawing back some points lost to the Dollar in the wake of the flexible foreign exchange (forex) rate introduced last year.
A big thanks to the new intervention in the forex market by the Central Bank of Nigeria(CBN). The boost has again sent tongues wagging on which way the currency is heading . To some analysts, the lost ground covered by the Naira did not come as a surprise.In fact, it should be expected. This is because “CBN rate, hitherto, has in itself been arbitrary, not market driven, not realistic and has only helped in providing conducive atmosphere for round tripping and arbitrage. That is why you saw the black market rate widening as naira remains under constant attack by speculators and rent seekers,” says Rislanudeen Mohammad, a former Managing Director of Unity Bank Plc.
According to him, once liquidity is sustained in the market, rates will come down and margin between parallel and black market rates will begin to narrow. “That is exactly what this intervention has done positively,” he added.
Giving CBN a pat on the back, the Managing Director of May & Baker Plc, Mr.Nnamdi Okafor, applauded the injection of $500million into the forex market. He, however, cautioned that what the nation needs now is to create a very strong private sector that is driven by local production that will create jobs and export goods, and earn forex for the country.
Analysing the new policy, particularly as it affects the real setor, Okafor was miffed by the scant mention of manufacturing in the new policy without any specific roadmap.
His words: “What CBN has announced, how will it address the fundamental needs of the economy?
”There were no details on how they want to ensure that the retail needs are taken care of. There were no details when it comes to the allocation to manufacturers. For instance, nothing much was said, apart from the fact that it would remain a priority.Beyond saying that, nothing else.
“But the challenge that I see is from supply side of forex.And I sincerely hope that the CBN has thought through this new policy so that we don’t keep somersaulting with this policy.I said this because, from what I have read in the past three to four months,our foreign reserves have been going up because oil price has gone up, and handling the issue of Niger Delta will increase oil export.It is going up, but are we earning enough to be able to take on the quantum of unmet needs in the country? This policy is silent on the banned 41 items, but I want to believe that there is no longer such policy since the commercial banks are now free to allocate forex to anybody they want to. My question is that, has CBN quantified the needs for forex today and then match it up with supply side to be sure that it is going to be sustainable? If they have not, I believe that that is what they need to do, to be sure that it does not start and then it is discovered that it is not working again and we start looking for something else to do.
”I have read that banks should start to ensure that they provide funding for unfilled orders. I believe they have some kind of records or information based on what the banks have presented to them. But I want to say that whatever the bank has presented to them does not represent the unmet needs of manufacturers because, today, manufacturing is running at 50 per cent capacity utilization of our factories. I have planned to be somewhere around 75 to 80 per cent and, of course, we already had mapped out the product we want to produce and how we want to get it across because the demand is there in the market. But because of the situation that we had in the country, we have now decided not to even bother with presenting our needs to the banks because they were not accepting. So if the CBN is looking at what the banks are presenting as the needs of the manufacturers. Then they are making a big mistake because there is a lot of needs that we have not presented because the ones we presented were not attended to. So now that they have opened the door and asked people to bring whatever they need, they should expect some big demands coming from both the manufacturers and those who are into commerce. The question is are we ready to meet those needs?”
Toeing the same line of argument, the President of the Manufacturers’ Association of Nigeria (MAN), Mr Frank Jacobs, lamented that the government was not serious about reviving the economy, particularly as regards to providing forex to the manufacturers.
According to him, the CBN initiative is nothing else but policy somersault from a government that had earlier directed that 60 per cent of all available forex in the country should be allocated to the manufacturers.
“All this inconsistency in policies amounts to policy somersault. Though when I called the CBN governor to express our disappointment, he said part of the circular takes care of MAN’s demand, that we should wait to see if our request would not be addressed. So we are waiting to see where it would take us,”said Jacobs.
He, however, said that aside the failure to meet up with manufacturers’ demand, there are strong indications that the Federal Government was now ready to address the forex shortage squarely.
“At least, out of the $500 million made available by CBN to fund the market, the banks could only take up $371million, that means they are ready to end the forex shortage”, he said.
The Director General of the Lagos Chamber of Commerce and Industry (LCCi), Mr Muda Yusuf, also considered it a partial step in the right direction in the area of availability of forex to Nigerians.
He reasoned that it could marginally moderate the pressure of forex at the retail end of the market.
“The focus was essentially on retail transactions covering school fees, medical bills personal travel allowance[PTA] and business travel allowance[BTA]. It is good to know that the CBN had cleared all backlog of mature obligations that existed at the inception of the flexible exchange rate policy”, he said.
But he believed that what the CBN had done was just scratching the surface of the problem.
According to him, “the worry, however, is that the fundamental shortcomings of the foreign exchange policy remain unaddressed. The administrative allocation of forex subsists; the multiple exchange rates will continue to be; the liquidity challenges in the forex market would persist and the transparency issues in the forex allocation will continue unabated.”
He maintained that the beleaguered problems associated with forex would continue to weaken investors’ confidence.
He explained: “The forex market still suffers from overregulation. This regulatory stance should be relaxed for liquidity to improve, for the pressure on exchange rate to abate and for allocation efficiency to prevail in the foreign exchange market. These are the real concerns of key players in the economy. It is critical to remove all impediments to the inflow of forex into the economy.”
By critically looking at the policy, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said the forex ßdirective would lead to the emergence of new currency traders, and worsen the crises of multiplicity of rates.
“The rate disparity between banks and the BDCs will definitely breed another forex traders between the banks and the end users.
“We will see the return of what is normally called the proliferation of bank’s treasurers/account officers turning to BDC operators overnight,’’ Gwadabe said.
According to him, the directive would address liquidity challenges in the forex market, adding that its objectives will not meet the expectations of the apex bank in the short- term due to protracted liquidity challenges.
“Due to long time perverse lack of liquidity and the volume of forex done by the mega banks, the objectives will not meet the expectations of the CBN in the short term.
“The directive has added another dimension to the lingering crises of the multiplicity of rates in the market and is highly skewed in favour of the banks,’’ Gwadabe said.
The ABCON president said that the directive did not provide a level playing field for the banks and the BDCs on rates, the volume on the same product and the market, saying that it was a great source of worry to ABCON.
“The BDCs are not meant to be in competition with the banks. We are supposed to provide complementary roles. It is only in Nigeria that you want to buy 2000 dollars and you are meant to go to the banks and queue for two months, without allocations, which is in conflicts with the BDCs operations on cash and spot.
“The implication is that the BDCs will buy International Money Transfer Services Operators (IMTSO) proceeds at N381 per dollar and sell at N399 to a dollar, while the banks are to buy at N315 per dollar and sell at N375 per dollar for them to make their 20 per cent above the interbank rate.
“This is our concern as an association and the entire BDC operators in the country,’’ Gwadabe said.
The financial expert, therefore, said that the CBN should direct the banks to sell to BDCs certain percentage of their interbank sources and the liquidity would definitely be in the market.
But with this coming from the ABCON president, can the market watchers begin to assume that the current uptick in the value of the Naira is real or just a flash in the pan before the Naira heads south towards Zimbabwe?