At the backdrop of sustained supply gap in Nigeria’s foreign exchange (forex) market, the local currency, Naira, has hit a new low at the weekend, trading N803.9 to a dollar in the Investors & Exporters (I&E) window which is the official forex market and N822/$ in the parallel market.
Financial Vanguard’s findings indicated a 6.6 per cent decline in volume of dollars traded in the I&E window as dealers said they were disappointed that the increase in supply they expected last week did not materialize.
A week-on-week trend in the parallel market shows a 5.5 percent depreciation to N822/$ as against N779/$ closing rate previous week.
In the I&E window, the local currency depreciated 3.9 percent W-o-W to N803.9/$ from N776.9/$ the previous Friday.
Financial Vanguard currency monitor shows that after the initial massive depreciation on June 14th, 2023 when the Central Bank of Nigeria, CBN, introduced reforms in the market, exchange rate had remained volatile with daily fluctuations until the record low was hit last weekend.
The reform majorly eliminated multiple exchange rates and reintroduced the ‘Willing Buyer Willing Seller’ market model in the I&E window.
Since the new measures were introduced, the Naira has depreciated cumulatively in the I&E window and parallel market by 70 per cent (N321.23) and 7.0 per cent (N58) respectively.
Meanwhile last week’s closing rate also indicated that the parallel market margin that narrowed to almost elimination following the new policy has started widening.
While the measures announced by CBN was aimed at increasing transparency and boosting confidence in order to attract increased forex supply, forex market operators who spoke to Financial Vanguard said the expected increase in supply is yet to materialize, adding that this, coupled with rising demand, and hoarding, are the factors driving the renewed depreciation of the naira in both segments of the forex market.
Speaking to Financial Vanguard, Mr. Ahmed Danjuma, a parallel market operator in Lagos Island, said: “I bought a dollar for N810 and sold for N819 and N820.
“People are demanding for the dollar. It is not easy to get dollars from the bank because it is very scarce.
“When you have access to dollars the way buyers demand for the currency is like when you take food to the prison.
“The supply is very low. Even Bureau De Changes have little access to the foreign currency.”
Similarly, Mr. Umoru Mohammed, a parallel market operator at Ikotun area of Lagos, said: “Dollar was very scarce today (last Friday) as we could hardly have access to it even from the banks.
“Every day the demand for dollars increases but the supply is very little. This is really hindering business especially for transactions requiring dollars.”
President, Association of Bureaux De Change Operators of Nigeria, ABCON, Aminu Gwadabe, in a chat with Financial Vanguard on the situation, stated: “The situation is tough, it even traded at N822 in some segments today (last Friday).
“You know now the restrictions have been removed, there is also competition and surge in demand. Most people are still holding assets in dollars, and we have not seen significant inflows even from the side of the investors.”
Turnover, external reserves fall
Reflecting the paucity of forex supply amidst rising demand, the volume of dollars traded (turnover) in the I&E window fell by 6.6 per cent or $57.06 million to $807.92 million in the first half of July, from $864.98 million in the corresponding period in June.
Following the same trend, the nation’s external reserves fell by $646 million or 1.9% in one month ending July 13th. Data from the CBN showed that the reserves fell to $34.047 billion on July 13th, from $34.693 billion on June 13th.
To reverse this trend and achieve the expected increased forex inflow, analysts said the CBN must introduce further reforms including removing forex restriction on 43 items and incorporating BDCs into the I&E window as well as clearing the forex demand backlog.
In this regard, Managing Director/CEO Financial Derivatives Company, Mr. Bismarck Rewane, in his Monthly Economic News and Views, said: “In the short term the CBN must tighten monetary conditions, eliminate forex restrictions (Ban on 43 items on the I & E window) and move effective interest rates towards the rate of inflation.”
The above, he added,
”must be complemented in the long term with export-oriented policies, elimination of structural bottlenecks that constrain production and export activities”
In the same vein, analysts at Lagos based CardinalStone Research, in their outlook for H2’23, said: “While the current policy reforms bode well for foreign providers of capital, additional investments into the country will also be partly dependent on the following: 1) the willingness of the CBN to clear existing backlogs, which is estimated at $2.5 – $3.0 billion; 2) the FX market reflects a genuine “willing buyers and willing sellers” structure and supply begins to improve notably. If the 2 highlighted points are achieved, we see legroom for a surge in foreign inflows from the multi-year lows of $5.3 billion in 2022 to about $12 billion over the next one year.”
On this Gwadabe averred that the CBN must increase participation in the official market to include BDC who can play the moderating role needed to stabilise the market.
“The trend will continue except if there is a turnaround, and there are changes in the I&E to bring in more players like BDCs to enhance competition. Once you have competition there will be stability, there will be availability
“They need to wear their thinking cap, because it is like the CBN is not in control of the market, it is the FMDQ. “We are still appealing to the CBN to include BDCs in order to increase liquidity, transparency, and ensure we stop the volatility in the market competition.”
Corroborating this position, a former top management staff of the CBN, who spoke on condition of anonymity said: “We must find a way out to stabilise the exchange rate and still keep the third leg (BDC) as part of the moderator of the market.
“We must eliminate abuses, corrupt practices and police the market for sustainability. We also need to restructure the BDC to trade in the market and not by allocation to moderate the rates.”
According to analysts at Cowry Assets Management Limited, “The Naira hit a new low in 2023 in the face of pressure demand for the dollar across various forex segments as forex demand and supply mismatch continue to play as an underlying driver with more backlog of unmet forex demand.”
Why We Seek Inclusion In Conditional Cash Transfer –Obiora Oti
THE National Vice President of Mobile Money and Bank Association of Nigeria (MMBAN), Obiora Oti, said money wallet bankers would improve their capitalisation and liquidity if the government included them as facilitators in the conditional cash transfer scheme.
Oti told The ICIR exclusively on Wednesday, November 8, that many young people involved in the money wallet business could be supported with a seed capital of about N50,000 and become part of the Federal Government’s cash transfer scheme.
This development, he said, would ensure enough liquidity for them to stay in business since many of them have undergone financial inclusion training under the Central Bank of Nigeria (CBN) policy guidelines.
Oti recalled how he supported someone with seed money of N20,000 in 2020, during the COVID year, and how the person has become an aggregator and now manages N15,000,000 capital.
“This is how financial inclusion works, and it is one of the fastest ways of removing people from poverty,” he said.
“Typically, you don’t grow the gross domestic product (GDP) by throwing money to people through interventions. When there is a channel for such distribution, it stimulates the economy’s growth,” he added.
He also argued that empowering money wallet agents was a sure way of driving Nigeria’s financial inclusion and economic base.
According to Oti, Nigeria has many lessons from Kenya in its financial inclusion success story because of the Kenyan government’s involvement and facilitation through policy direction and incentives to operatives.
Agency banking allows customers to deposit and withdraw money instead of going to the bank or using automated teller machines (ATMs.)
Currently, there is one agency banking agent for every 80 Nigerians and one bank branch for every 27,000, according to a 2023 report on the Nigerian Financial Services Market.
Naira Falls To N1, 000/$ In Official Market
Despite recent moves by the Central Bank of Nigeria to strengthen the foreign exchange market, the naira closed trading on the Investor & Exporter forex window on Thursday at N996.75/$.
This is a 13.95 per cent decline from the N874.71/$ it closed trading on Wednesday. So far, the naira has lost 27.75 per cent of its value since opening the week at N780.23/$ according to details on FMDQ OTC Securities Exchange.
Since firming up against the dollar last week, after news that the apex bank was clearing some of its backlog broke, the naira has been on a steady decline in both the official and parallel markets.
So far, the naira has lost about 40 per cent of its value in 2023, earning the tag of one of the worst performing African currencies from the World Bank.
In the parallel market, the currency has lost value too, falling from N950/$ as of Friday to close to N1,140/$ as of Thursday according to Bureaux De Change operators who spoke to The PUNCH. This represents a 20 per cent decline.
A trader who only gave his name as Kadri said, “Dollar is N1,100 if you want to sell. It is N1,140 if you want to buy.” Another trader, Awolu, stated that he would buy the dollar at N1,100 from our correspondent.
He said, “Dollar is N1,100 if you want to sell to me.”
Earlier in the week, the President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, told The PUNCH that the dollar was gaining against the naira because people who had bought it at a higher price were resisting its fall.
He said, “Speculators are always looking at elements of sustainability. Once they sense that it (the injection) is not continuous, they begin to react. They begin to react. It is the reaction of the market we are witnessing. Also, there is resistance. There are people that bought at a higher price that this does not favour. People are not willing to take further losses.”
Concerned with the fall of the currency, the presidency recently stated that it is planning policies to strengthen the local currency.
A Special Adviser to the President on Economic Matters, Dr Tope Fasua, who was representing the Vice President, Kashim Shettima, at an event, said: “For those who are speculating and praying and wishing that the currency would become nonsense, I believe that the central bank is rolling out the policies and the government that I serve, led by the President, will shock some of them.”
Dangote Repatriates $688m From African Operations
Dangote Industries Limited has revealed that it has so far repatriated over $687.98m through various banks in Nigeria.
In a statement on Sunday, the company said it brought in $576,008,672.41 through various banks in Nigeria, in addition to a $111,968,109.38 cash swap arrangement between Dangote Cement Plc and Ethiopian Airlines.
Dangote re-affirmed its determination and belief in Nigeria, noting that the government of President Bola Ahmed Tinubu had shown the will and resolve to get the economy moving again.
“We are not body-shop investors. We believe in Nigeria, and we believe in Africa. We are genuine and authentic about our investments, and we call on all relevant agencies to investigate our FX transactions in the past 10 years and make public any infraction noticed or discovered.”
Insisting that all forex purchased in respect of its African Project Expansion were genuine and fully utilised for what they were meant for, the firm noted that the projects for which the forex was utilised were visible for everyone to see.
“It is on record that some of these projects were commissioned by Nigerian top-ranking government officials and in attendance were chief executives of various banks, captains of Industries, and the Presidents of the host countries supported by their Senior Government officials.
“The commissioning events of these projects were well documented and covered by both local and international media. There are also print and electronic copies of the commissioning ceremonies as further testimony to the judicious utilisation of the funds.”
Dangote further explained that its massive investments in Africa would lead to the repatriation of forex in the very near future and boost foreign exchange earnings in Nigeria, as well as stabilise the forex market.