“Despite the Central Bank of Nigeria’s pledge to settle its foreign exchange debts of over $10 billion owed to Deposit Money Banks, recent investigations by The PUNCH reveal that the apex bank has not fulfilled this commitment. Meanwhile, Bureau De Change operators in Lagos, Abuja, and Kano were selling the naira at rates ranging from 990/$ to 995/$ over the weekend.
On the Investor & Exporter forex window, the naira did experience a slight improvement, rising to 747.76/$ on Friday from 772.98/$ on Thursday.
Former acting CBN Governor Folashodun Shonubi announced on September 6, 2023, that negotiations with commercial banks regarding dollar debts had concluded, assuring that all forex exchange arrears would be cleared within one to two weeks. He mentioned that deposit money banks had cooperated in clearing a significant portion of overdue FX forward contracts upon maturity.
However, top bank executives disclosed to The PUNCH on Sunday that nearly three weeks after the promise, the central bank had not fulfilled its commitment. This situation has severely impacted banks’ FX liquidity, leading many to temporarily suspend various FX transactions, including school fees and Personal Travel Allowance applications.”
These findings indicate that the situation has exacerbated the scarcity of dollars in the unofficial currency exchange market, as bank customers are resorting to the black market to fulfill their foreign exchange requirements.
An executive director of a commercial bank, speaking anonymously, expressed, “The FX backlogs remain uncleared, and the promise remains unfulfilled. We are hopeful that the new CBN governor will initiate discussions with banks to resolve this issue promptly.”
Additionally, a high-ranking official from a Tier-2 bank who is aware of the situation stated, “We have yet to witness the clearance of FX backlogs, including overdue forward contract obligations. It is uncertain when this will be resolved. Regrettably, this has worsened our FX position, causing several banks to postpone meeting some of their customers’ FX demands.”
According to a report by JPMorgan, a U.S.-based lender, the total amount of forward contract debt owed by the CBN stands at $6.84 billion. However, there have been reports suggesting that forward contracts and dollar swap deals between the central bank and commercial banks amount to over $10 billion.
As of Sunday, the CBN could not be reached for immediate comments on this matter.
Naira slumps
Friday witnessed increasing pressure on the naira within the black market, as Bureau De Change (BDC) operators in Lagos, Abuja, and Kano expressed concerns about the scarcity of dollars.
Sanusi Ibrahim, a BDC operator based in Abuja, shared, “We had to sell the naira for as high as 1,000/$ on Saturday. On Friday, we were buying and selling it within the range of 980/$ to 995/$.”
Yusuf Kareem, another BDC operator located in Ikeja, reported that the naira was trading at 995/$. He emphasized the scarcity, stating, “I cannot sell it for less because I also acquired it at a high cost. Only those in possession of dollars can sell.”
In the same parallel market, Pound Sterling was exchanged at buying and selling rates of £1,235/ and £1,250/, respectively, while the Euro was bought and sold at rates of 1,025/€ and 1,028/€, as confirmed by market operators.
However, there was a contrasting trend on the Investor & Exporter forex window, where the naira experienced a slight appreciation, closing at 747.76/$ on Friday, compared to the rate of 772.98/$ on Thursday.
Manufacturers fear closure
In the meantime, players in the economy are deeply concerned about the prospect of further increases in the prices of goods and services, along with the possibility of more business shutdowns due to the deteriorating value of the naira.
They are urgently appealing for intervention in the sector to alleviate the growing hardships faced by Nigerians.
Segun Kuti-George, the National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, has pointed out that the current exchange rate will inevitably lead to higher prices. He expressed disappointment that the decision to allow the naira to float, intended to discourage currency speculation, has, in turn, amplified speculative activities.
According to Kuti-George, unless the government acts swiftly to halt the depreciation of the naira, especially in the parallel market where many people access foreign exchange, more factories will be compelled to cease their operations.
He explained, “It’s paradoxical that strategies effective elsewhere don’t yield the same results in Nigeria. The cost of production is increasing because we still rely heavily on imported inputs, especially equipment. A significant portion of the raw materials we use are imported. So, when input costs rise, production costs follow suit. This, in turn, affects product prices. The critical question is whether people will be able to afford our products. Could imported products become more affordable than ours, to the extent that consumers prefer imports? Unless this trend is reversed, we’ll see more factories shutting down.”
Inflation
Francis Meshioye, the President of the Manufacturers Association of Nigeria, emphasized that the current exchange rate would inevitably result in an increase in product prices. This would be due to the significant challenges manufacturers would face in accessing foreign exchange.
In his view, the flexibility of the exchange rate would not yield positive outcomes if the naira continues to depreciate freely. Meshioye commented, “This is an unfavorable development because the major currency we use to procure goods internationally is being adversely affected. This implies that the costs of raw materials will continue to rise.”
He continued, “This situation is disheartening, and we hope the government will take corrective measures. While allowing the exchange rate to fluctuate, it should not be permitted to fluctuate excessively and reach unreasonable levels, which would not be in the best interest of the country. We must acknowledge that we don’t solely engage in trade within our borders. Consequently, the implication is that our prices may become unreasonably higher than those in other countries.”
Meshioye also noted, “This could lead to our products being perceived as overly expensive. When considering the limited disposable income among the citizens, the choice between buying Nigerian-made products, which may be costly, and foreign products, which are cheaper, becomes challenging. It’s a lamentable situation.”
Scarcity
Dr. Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria, expressed concerns about the continued volatility of the local currency, which he believes has been hindering the nation’s economic growth. He highlighted several factors contributing to this instability, including high demand pressure in both the Investor & Exporter (I&E) window and the parallel market, as well as the backlog of investors’ funds estimated at $6.8 billion and disincentives for fresh capital inflow.
Gwadabe also pointed out that the decrease in Diaspora remittances and the reintroduction of petrol subsidies have further deterred fresh liquidity in the market, leading to uncertainties and a loss of public confidence in the local currency. He emphasized the need for legislation to implement the willing buyer and willing seller concept to boost liquidity in the foreign exchange market and restore confidence. He also advocated for the inclusion of Bureau De Change operators in the I&E window to help stabilize and correct the markets.
Additionally, Gwadabe provided advice to the Federal Government on attracting more Diaspora remittances. He noted that the Central Bank of Nigeria (CBN) had recently issued a directive for BDCs to trade foreign currencies at rates similar to those in the I&E forex window, with specified spread limits and mandatory reporting requirements.
Dr. Muda Yusuf, Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise, emphasized that the new CBN Governor, Dr. Olayemi Cardoso, is taking office at a critical time in the country’s economic history. He highlighted the confidence crisis in the foreign exchange market, which has led to speculation against the naira, along with challenges related to exchange rate depreciation, rising energy costs, inflationary pressures, and the need to clear foreign exchange obligations and debt service.
Yusuf noted that there has been a re-emergence of political economy concerns, such as the reintroduction of fuel subsidies and exchange rate disparities. He called for strategic and transparent intervention in the forex market by the CBN to minimize volatility, the creation of an autonomous forex window in the banking system, and a focus on clearing the backlog of forex obligations to restore investor confidence.
In summary, both Gwadabe and Yusuf emphasized the need for swift and effective measures to address the challenges facing the Nigerian economy, particularly in the foreign exchange market, to promote stability and confidence.
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