Emeka Okoanyanwu
The Naira, Nigeria’s currency last week received its worst bashing in history, falling to N718 to one United States Dollar in the parallel market. This was just as bemused Nigerians woke up to behold the naira crashing to an all-time low of N670 to US$1 the previous week. The Naira still remained N415.96/$1 at the official market.
Economy watchers are worried over the low value of the national currency against some other international currencies, blaming it on the inability of the Central Bank of Nigeria (CBN) to formulate policies that would alleviate the situation. They warned that if not adequately handled, the naira may crash to N1000 to US$1 by the end of the year.
But surprisingly, CBN last week in two statements absolved itself of any blame from the falling Naira value, instead pointed accusing fingers at the Nigerian National Petroleum Company Limited and the speculative activities of foreign exchange traders.
The CBN had in a statement titled, “The forex question in Nigeria: Fact sheet,” said the non remittance of foreign exchange by the NNPC and speculative activities of foreign exchange traders are the problems bedeviling the Naira.
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According to the CBN, there has been zero dollar remittance to the country’s foreign reserve by the NNPC, noting that as a corporate body, it does not print dollars.
The apex bank said monetary policy alone could not bear all the burden of the expected adjustments needed to manage the present difficulties, and noted that it was the collective duty of all Nigerians to shore up the value of the naira.
According to the bank, Nigeria earns foreign exchange from four sources, namely, proceeds from oil exports; proceeds from non-oil exports; Diaspora remittances, and Foreign Direct/Portfolio investments, that is, capital flows.
It noted that the past six years have been characterised by two recessions triggered by a slowdown in the global economy as well as the effects of COVID-19, including sharp declines in the prices of crude oil.
The CBN lamented that Nigeria’s heavy dependence on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash, has severely affected the government’s naira revenue and other macroeconomic aggregates, including economic growth. It also noted that the rate of exchange between the naira and other currencies has widened over the past few years.
The bank said: “There is unabating demand for foreign exchange for both goods and services, thereby creating a demand challenge. The current exchange rate of the naira, like other major currencies, is not driven by crypto currencies, given the volatility in the crypto currency space, which lost over two trillion in the past two years in face of high inflation.”
While giving further reasons for the low value of the naira, CBN said the United States dollar is gaining against all major currencies of the world, and posited that the crisis in Nigeria’s tertiary educational sector had triggered an exodus of students from Nigerian schools, with its attendant payment of fees in foreign exchange.
The CBN added that summer travels by Nigerians had also impacted on the demand side of the foreign exchange market.
According to the apex bank, Nigeria is not producing hence the propensity to import is directly affecting the value of the naira, saying the bank has attempted to address the challenge through policies.
It listed policies like the RT200 FX Programme 100 for 100 Policy on Production and Productivity, Naira4Dollar Scheme, Anchor Borrowers’ Programme (ABP), Export Development Facility (EDF); and the Non-Oil Export Stimulation Facility (NESF).
The bank said that all these and many of its other initiatives were aimed at diversifying the economy, stimulating production, enhancing inflow of foreign exchange, maintaining the stability of the naira against other currencies and reducing foreign exchange demand pressure.
It, however, warned Nigerians against getting involved in the speculative activities of some players in the foreign exchange market.
Osita Nwanisobi, Director, Corporate Communications at the CBN, last week said the bank remained committed to resolving the foreign exchange issues confronting the nation and as such has been working to manage both the demand and supply side challenges.
While admitting that there was huge demand pressure for foreign exchange to meet the needs of manufacturers as well as those for the payment of tuition fees, medical fees and other invisibles, Nwanisobi said the bank was concerned about the international value of the naira, adding that the monetary authority was strategizing to help Nigeria earn more stable and sustainable inflows of foreign exchange in the face of dwindling inflows from the oil sector.
He noted that recent initiatives undertaken by the bank such as the RT200 FX Programme and the Naira4Dollar rebate scheme had helped to increase foreign exchange inflow to the country.
According to him, the bank’s records showed that foreign exchange inflow through the RT200 FX Programme in the first and second quarters of 2022 increased significantly to about US$600 million as at June 2022.
Similarly, he disclosed that the Naira4Dollar incentive also increased the volume of Diaspora remittances during the first half of the year, noting that interventions such as 100 for 100 Policy on Production and Productivity, Anchor Borrowers’ Programme (ABP) and the Non-Oil Export Stimulation Facility (NESF), among others, were also geared towards diversifying the economy, enhancing inflow of foreign exchange, Stimulating production and reducing foreign exchange demand pressure.
Nwanisobi said that the bank would continue to make deliberate efforts in the foreign exchange sector to avert further downward slide in the value of the naira, which he observed is fuelled by speculative tendencies.
He urged Nigerians to play their role by adjusting their consumption patterns, looking inwards and finding innovative solutions to the country’s challenges, submitting that monetary policy alone could not bear all the burden of the expected adjustments needed to manage the challenges around Nigeria’s foreign exchange. He insisted that it was the collective responsibility of Nigerians to shore up the value of the Naira.
As Nigerians were still wondering how the country got to this sorry state, the Association of Bureaux De Change Operators of Nigeria (ABCON) blamed the CBN on the free fall of the naira, saying it had laid out plans to save the naira from further decline and enhance exchange rate stability.
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The ABCON National Executive Council said the move to save the naira was agreed on by the body at the conclusion of its meeting in Lagos recently where it unveiled strategies to save the local currency, bridge the exchange rate gaps and curb volatility in the market.
ABCON President, Aminu Gwadabe listed the steps taken by the association that would save the local currency and economy from the impact of election spending.
He said the depreciation of the naira against global currencies was due to pressure from rising dollar demand without sufficient liquidity to meet the demands from retail end users, manufacturers and other key players in the economy.
“The Naira has consistently come under serious pressure due to dollar scarcity making it difficult for foreign exchange end users, manufacturers and key industry players to access dollar needed to meet their needs. ABCON under my leadership will continue to encourage our members to play the vital role of closing the exchange rate gaps in the market and reducing widening premium between the parallel market and the official window,” he lamented.
Gwadabe listed several factors that continue to undermine the naira stability and the local currency’s value against other currencies and called for the creation of BDCs’ Autonomous Foreign Exchange Trading Window (BAFEX) with determined maximum daily limit for legible BDCs to access dollars from banks, autonomous market and Diaspora foreign exchange widow at the prevailing market prices.
He requested for enhancement of existing BDCs’ automation portals to file transaction returns on CBN/ABCON/NFIU/NIBSS portals for effective regulatory monitoring and supervisions. He also sought for the creation of an automation portal to encourage registration of undocumented and unlicensed operators for effective monitoring, identification and tracking of their transactions.
Blaming the CBN for the low naira value, he said the reluctance of the Central Bank of Nigeria (CBN) to open new windows through which foreign exchange can be attracted to the economy remains a key factor in the naira continued fall, adding that the non-inclusion of BDCs in the list of channels through which Diaspora remittances flow to Nigeria, under the CBN’s guidance and regulation, has reduced the volume of dollar inflows to the economy.
According to him, the World Bank’s latest Migration and Development Brief showed that sub-Saharan Africa attracted $49 billion in 2021. The bank said officially recorded remittance flows to low- and middle-income countries are expected to increase by 4.2 per cent this year to reach $630 billion.
Gwadabe said Nigeria’s contribution to the remittances fund is expected to rise when BDCs are allowed to receive funds from Nigerians in Diaspora into the economy, adding that the BDCs are to perform this role through contactless and digitized channels that make collections easy and seamless.
He said there was urgent need to review the guidelines on BDC’s Scope of Operations to include participation in payment space, such as agency banking, Point of Sale (PoS) services, inbound and outbound forex transfers, ATM Forex services, to reflect global business model practice.
He suggested that the BDCs should be allowed to access dollars or Diaspora remittances through the autonomous forex windows that enable operators to receive IMTOs proceeds, carry out online dollar operations and Point of Sale (PoS) Agency, among others.
Gwadabe insisted that now is the time to break the current industry monopoly that puts the remittances market in the hands of few players depriving others from tapping into the plan.
The ABCON boss also called for the establishment of training institutes to enhance capacity and infrastructure in the industry and broaden players’ business scope with cash-back incentives for those that patronize BDCs while also implementing a less cumbersome and complex documentation requirements for end users.
“The BDCs should be able to operate a network of digital solutions for PTA/BTA. This would reduce overheads, and improve profitability. Some BDCs might still consider working closer with commercial banks. The ABCON can also be recognized as self-regulatory organization to enable it operate effectively and sanction erring members,” he stated.
“We wish to reiterate our resolve to align with the policy thrust of the apex bank and ensure that ABCON members play their roles professionally and strategically in the interest of the market and economy,” he said.
He said that de-marketing of BDCs by regulators and security agencies is not good for the stability of the market. The suggested the strengthening of over 4,500 BDCs to bring forex closer to the retail end users and boost market liquidity.
He said that ABCON has developed multiple applications for BDCs’ transformation from being CBN cash dispensers to globally competitive entities with capacity to attract foreign capital flows to the economy.
“We support any measures that would lead to compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), supporting CBN’s exchange rate stability policies and security agencies to punish any BDC operator breaching corporate governance and compliance guidelines. It is our sincere believe that the BDCs need to be integrated back officially to ensure their continuous potent role in exchange rate stability management,” Gwadabe said.
The ABCON boss reiterated that the recognition of the role of BDCs in Nigerian financial sector remains the first step to building a sustainable and viable forex market that is comparable to what is obtainable in other developed economies.
However, Nigerians have decried the rate at which the local currency is losing its value, saying if nothing urgent is done to check this, the naira will be one of the poorest currencies in the world. On why the naira continues to lose value daily, Dumebi Udegbunam, a Fixed Income trader at United Bank for Africa (UBA) recently noted that the depreciation of the naira was heavily based on forces of demand and supply.
He said that at present, the demand for dollars outweighs its supply, giving room for hoarders and speculators to take advantage, hence the sporadic increase to a 48-year high in the exchange rate at the parallel market.
According to him; “With a population of over a 200 million in Nigeria, it will be shocking for you to know that there is an over 60 per cent dollar element in a large number of our consumer goods which is set to increase more as seen in the new trade data released by the National Bureau of Statistics (NBS). Nigeria recorded a trade deficit of ₦1.9 trillion in Q2-2021. This simply shows an unfavourable balance of payment position (our imports more than our exports) i.e. as net importers, we are giving out more dollars than we are receiving.
Other demand pressures include an increase in education FX outflows as that has increased from $500 million in 2015 to $6 billion in 2021, showing a massive growth in demand for dollars over a 6 year period, he explained, saying that the lack of liquidity in the market was causing the naira’s downfall.
With the country being highly import-dependent, he said there isn’t enough dollars to match our growing demand, noting that the country’s capital imports fell to $875.62 million in Q2 2021 from $1.91 billion in Q1-2021. In 2020, capital importation dropped by 59.65 per cent from $23.9 billion to $9.68 billion (lowest in 4 years) showing a drop in dollar supply.
Other supply shortages, he said, include drop-in remittance. Diaspora remittances to sub-Saharan Africa declined by an estimated 12.5 per cent in 2020 to $42 billion, almost entirely due to a 27.7 per cent decline to Nigeria, which accounts for over 40 per cent of such flows to the region. “So, if you put this all together you can see that we are facing a serious supply shortage in dollars and quantum growth in the demand,” he said.
But Omobola Adu, a research Analyst at GDL, agreed that the BDC ban and also speculative activities by individuals were catalysing the naira’s depreciation at the black market, noting that a similar thing happened in 2016 when the CBN also stopped sales of FX to BDCs. He was, however, against a return to the status quo where the apex bank funds BDCs, as it is not a long-run fix.
“Going back to using BDCs will not solve anything in the long run. We need to create a functional system that can counterbalance the demand and limited supply of FX in the country. This will happen when our economy is competitive and businesses are encouraged to produce goods that are currently being imported,” he said.
Warning that the naira might fall further, due to the overwhelming pressure on the currency, he stated that: “We should expect further depreciation. Looking at the current account deficit shows us that we consume beyond our means and they will need to borrow to plug the gap leading to further decline in our foreign assets and consequently, more pressure on our currency.”
When probed on how Nigeria can safeguard itself from impending doom, he said, the only way the average Nigerian can safeguard against the falling Naira value is to invest in dollar assets, disclosing that there are several mutual funds that offer the opportunity for retail investors to invest and earn returns in dollars.