LAGOS— The naira, yesterday, depreciated further to N385 per dollar in the parallel market as demand for foreign exchange intensified.
This implies the naira has depreciated by N60 against the dollar this week in the parallel market, when compared with the closing exchange rate of N325 per dollar last Friday.
The currency, however, remained stable at the official interbank foreign exchange market as the interbank rate closed N199.34, yesterday. Thus, the gap between the interbank and parallel market rates widened to N185.66 per dollar from N127.53 last Friday.
Vanguard investigation also reveals that the naira depreciated against the British pounds to N505 per pounds in the parallel market, yesterday, implying N65 depreciation when compared with the closing rate of N440 last Friday.
Investigations revealed that the sharp depreciation of the naira in the parallel market this week is driven by increasing demand by importers sourcing dollars to pay for imports from China. According to a BDC operator, who spoke on condition of anonymity,
“you know China had been on its one month annual holidays. But they resumed work on Monday, and people have to complete payment for goods ordered before the holidays.
“They had made 30 per cent down payment to order the goods and they now have to pay the 70 per cent balance otherwise they will lose the 30 per cent.
That is why they are desperate and ready to buy dollars at any rate. Meanwhile, supply is scarce and those who have dollars are not willing to sell because they might also need the currency soon.”
The naira has been on steady decline since Tuesday, January 12, 2016, when the Central Bank of Nigeria (CBN) stopped weekly dollar sale to BDCs. Prior to this action, the naira traded at N265 per dollar in the parallel market. Consequently, the naira has depreciated by N80 in the parallel market since the CBN took the action.
The steady depreciation was also aggravated by inability of the CBN to meet foreign exchange demand. Vanguard investigations reveal that the parallel market is being bedevilled with demand for foreign exchange from importers of the 41 items excluded from the official market by CBN last year as well as importers of items not excluded from the official market.
The naira hit a record low of 325 to the dollar at the parallel market on Thursday as desperate importers scrambled for dollars to meet their obligations overseas.
The local currency had closed at 318 against the greenback on Wednesday, after hitting 313.5 and 310 on Tuesday and Monday, respectively.
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“The dollar is falling because importers need forex to bring in their goods. They cannot keep on folding their arms because there is scarcity; they must keep buying; the only thing is that the quantity may reduce,” a forex dealer told our correspondent under condition of anonymity.
The CBN has left the official exchange rate unchanged at N197 to the dollar on its official interbank window.
“We see the naira falling further in coming days if the central bank fails to lift the dollar restriction,” the Acting President, Association of Bureau De Change Operators, Aminu Gwadabe, said.
Tumbling global oil prices have battered Nigeria’s oil-dependent economy, with external reserves down to an 11-year low at $27.89bn on February 9, Reuters reported.
President Muhammadu Buhari is concerned that further depreciation will hurt poor Nigerians, but the CBN’s refusal to revise the pegged exchange rate has widened a chasm between official rate and the parallel market.
Last month, the central bank halted dollar sales to the BDC operators and allowed commercial banks to accept dollar deposits, in a failed effort to shore up dwindling foreign reserves.
Around 90 per cent of the nation’s foreign exchange earnings come from crude oil exports, but mismanagement of the refineries means the country must also import expensive refined fuel.
The Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said it was high time the CBN came up with a forex policy that would address the forex crisis confronting the nation.
In an economic note released on Thursday, Rewane said, “Nigerians are perplexed at the endless slide of their currency, which is now trading at N325/$, the lowest point ever.
“This is happening even when the oil price is up at $31pb. The debate as whether to devalue the naira is not the real issue. The discourse should be whether we need an exchange rate policy or not. The absence of a policy is a recipe for economic anarchy and a race to the bottom.”
Monday’s stoppage of foreign exchange sales to Bureau De Change operators by the Central Bank of Nigeria failed to lift the naira on Tuesday as the currency exchanged for 300 against the United States dollar in Kano, 290 in Lagos and 292 in Abuja.
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Financial experts said the naira would decline further, while private sector operators described the move as a welcome development.
The ban was announced on Monday, when naira trading at 285 against the dollar at the parallel market from 278 on Friday.
The Acting President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, told one of correspondents in a telephone interview that the currency traded against the greenback at 300, 290 and 292 in Kano, Lagos and Abuja a day after the CBN announcement.
“There is cut of (dollar) supply to the market. The BDC sub-sector has been murdered. We are not coping. The naira is going to head northwards. There is no solution in sight,” Gwadabe lamented.
The Head of Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, said the stoppage of forex sale to the BDCs meant that the CBN wanted everybody to apply to the banks for dollars.
He stated, “But we feel the pressure now will move from the BDCs to the parallel market. We will see significant spike in the value of the naira at the parallel market because the little supply to the BDCs have also helped to cushion the demand at the parallel market.
“It will further compound or increase the spread between the parallel market and the interbank market. So, it will also increase round-tripping and unethical practices within the financial system.”
On the lifting of the ban on cash deposits into domiciliary accounts, Ebo said, “I am still sceptical about how this will work except they are also assuring us that if you deposit it, you can consummate business with it.”
A professor of financial economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, said, “I don’t think the stoppage of dollar sale to the BDCs will solve the problem. The currency will depreciate some more.
“This move will make the naira to weaken more as demand for dollar will skyrocket because of the short supply.”
Members of the organised private sector, however, applauded the CBN for the stopping the sale of dollars to the BDCs and lifting the ban on cash deposits into domiciliary accounts.
The President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, said industrialists had earlier kicked against the funding of the BDCs by the central bank, adding that with the development, the forex could be channelled towards funding the real sector in terms of importation of raw materials.
On the removal of the restriction of cash deposits into domiciliary accounts, Jacobs said manufacturers were still waiting for more clarification as to how the money deposited could be utilised by the customers.
The Director-General, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Mr. Emmanuel Cobham, said the forex sale ban was a welcome development.
According to him, although the BDCs are necessary in the economy, they are licensed entities and should, therefore, source for their own funds.
Also speaking on the matter, the Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, lauded the forex policy review, noting that it had addressed the concerns of economic operators.
According to him, it is a source of worry that the CBN continues to maintain its official exchange rate at N199 to the dollar at a time of dwindling forex inflow.
“The pressure on the official window will persist. The risk of round-tripping and distortions in the foreign exchange market will consequently remain high,” he said.
In March 2015, the News Agency of Nigeria(NAN) published a report, which was also syndicated in several Newspapers, that the All Progressives Congress Presidential candidate, Gen. Muhammed Buhari had promised “to ensure that the Naira was equal to the dollar in value, if voted into office”
President Buhari
Buhari made this statement during the South East Presidential campaign rally of his party at the Dan Anyiam stadium in Owerri on Monday, 23rd March 2015. The APC candidate apparently lamented that “it is sad that the value of the Naira has dropped to more than N230 to $1” and he therefore cautioned that “this does not speak well for the Nation’s economy”.
Furthermore, Buhari also assured his vibrant, traditionally mercantilist audience, that ‘corruption would be tackled headlong” if he became President and therefore urged the large crowd of supporters from Abia, Ebonyi, Anambra, Enugu and Imo states, who attended the rally to vote for APC.
Our peoples’ ardent desire for change and the expectation that Buhari would tame the monster of corruption and also strengthen the Naira, as he had promised, ultimately swept the retired General back into office as President. Buhari’s resolve to tackle corruption headlong, is probably evident in the apparent renewed vigor of the Economic and Financial Crimes Commission(EFCC) and the plethora of both old and new case files which are reportedly being processed.
Expectedly, the outrageous media revelations of grand theft have induced public perception that the new Sheriff will arrest the pervading impunity in governance and the brazen misapplication of public funds. It is probably too early, after barely eight months, to expect convictions and other appropriate penalties that would convince Nigerians that Buhari is actually the real deal and that he would deliver on his campaign promise with regards to corruption.
Instructively, however, Buhari may have also realised that unless the usual often protracted judicial process for the prosecution of financial crimes is promptly, radically reformed, some of the heavy weight corruption cases the EFCC is currently handling may sadly take forever to conclude.
Indeed, even if popular expectation still remains upbeat that corruption will become minimal and that indicted treasury looters will receive appropriate punishment, there is, certainly still no glimpse of hope that Buhari’s promise of making Naira equal in value to the dollar will materialise.
In this event, the Naira will remain increasingly rejected as a safe store of value, while an obviously bloated dollar demand will persistently burst the ranks of the official Naira exchange rate; for example, the wide margin of over N70/dollar which now exists between official and parallel Naira exchange rates, in the money market, would invariably also promote rent seeking and distort resource allocation with adverse consequences on inclusive growth and job creation.
Expectedly, the knee jerk reactions of CBN’s monetary strategies have turned out to be counter-productive to the dwindling Naira exchange rate. It is ironical that the same Buhari who condemned an exchange rate of N230=$1 in Owerri in March this year, has curiously, remained mute on the dismal fate of the Naira which currently trades officially at N197=$1 when the parallel market, in December 2015, simultaneously parades rates which exceed N265=$1, with still no respite in sight, in an economy that is presently, clearly unraveling and awash with surplus Naira.
In the above event, some critics may conclude that Buhari’s Naira lamentation during the campaign trail was probably just crocodile tears to win critical electoral votes that would bring victory to his party and also return him to power. Some observers may however, suggest that Mohamed Buhari probably did not fully understand the economic dynamics that predicate the Naira’s exchange rate mechanism, when he made the campaign promise to reinvent a rate of N1=$1! Nonetheless, party stalwarts would claim, in defense of their principal, that no one outside the previous government could have foreseen the depth of dysfunctionality in the economy before PMB took over.
What is presently clear however, is that, Buhari’s administration obviously has no viable solution that would arrest the slide in naira exchange rate or even reduce the widening gap between official and parallel market exchange rates.
However, the current crash in crude prices and the need to fund the projected N2Trillion 2016 budget deficit, in addition to servicing an already discomfortingly heavy debt burden with the related oppressive rates, and with the intense pressure from local as well as international financial and banking moguls to further devalue the Naira, Buhari will become increasingly pressurised and may capitulate and further devalue an already beleaguered Naira by at least 25%, to exchange above N250=$1.
Clearly, such devaluation will inevitably further fuel the already oppressive, prevailing double digit inflation rate and invariably sadly aggravate mass poverty. Instructively, also, even though, crude oil price has crashed below $35/barrel to induce fuel prices below N90/litre without subsidy, nevertheless, if the Naira officially exchanges above N250=$1, the pump price of fuel will spike well above N130/litre and extinguish any hope that Buhari’s government will ever be able to abolish the contentious humongous annual subsidy values on petrol.
Indeed, the recent supplementary budget of well over N500bn to liquidate outstanding subsidy debts to marketers may have alarmed everyone who expected the ‘Honest one’ to frontally confront and eliminate the popularly alleged subsidy fraud which has reportedly drained our Treasury of over $35bn between 2010-14.
Nonetheless, in the light of PMB’s exemplary integrity rating, it is unlikely that he deliberately set out to deceive Nigerians, when he promised to “ensure that the Naira was equal to the dollar in value if he was voted into office”. Instructively, however, so long as the market dynamics of eternally surplus Naira and auctions of dollar rations subsists, it would be hopeless to expect that the Naira slide will be reversed .
Conversely, if the CBN does not devise other means for instigating excess Naira liquidity in the money market, the adoption of dollar warrants for allocations of dollar denominated incomes will steadily bring down the dollar rate below N100=$1 before December 2016.
Indeed, if the Naira appreciates to N100=$1, it would also become advisable to redefine the Naira profile by redecimalizing the domestic currency with two decimal points so that N100 becomes N1. Thus, a new currency profile with more valuable primary kobo coin denominations will become available to promote competitive pricing of goods and services.
In addition, if N1=$1, the highest Naira denomination would be N50 note which would be the equivalent of $50 rather than the current N1,000=$5 with the attendant problems of hygiene, and portability which discourage public acceptance, particularly for lower denomination notes and the unwieldy primary coins which have abysmally infinitesimal values.
There appeared to be a significant respite for Naira as it strengthened against the US Dollar in the unofficial currency market a day to the public holidays after suffering severe depreciation daily for three consecutive weeks.
As at close of business yesterday, the local currency gained 3.64 per cent relative to the greenback, USD, to close at N265/USD1.0 from N275/USD.0 in the preceding week at the Bureau De Change, BDC, market segment.
Similarly, the local currency appreciated by 3.57 per cent of its value relative to the USD at the parallel market segment to close at N270/USD1.0 up from N280/USD1.0 in the previous week.
Currency dealers told Vanguard that the development came on a temporal supply boost by homecoming diaspora Nigerians for the festive season.
However, the Central Bank of Nigeria, CBN, clearing rate and interbank rate closed steady at N196.97/USD1.0 and N199.1/USD1.0 respectively.
The naira fell to 257 against the dollar at the parallel market on Thursday. The local currency had traded against the greenback at between 251 and 252 on Wednesday.
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The naira has been falling since last Wednesday when the Central Bank of Nigeria stopped the sale of foreign exchange to some Bureaux de Change operators for failing to render returns on the utilisation of previous forex purchases.
The exclusion of the BDCs from the weekly forex sale, which continued on Wednesday, has been creating shortage of dollars, causing the greenback to rise at the parallel market.
However, the local currency traded at 198.97 to the dollar at the official interbank market on Thursday. The naira-dollar exchange rate has been moving between 197 and 199 at the official interbank market since February.
The central bank had sold $30.5m to 1,017 BDCs on Wednesday but excluded around 1,801 others from its weekly sale.
“We are in contact with the central bank to resolve issues around the exclusion of some of our members from forex sales and we are expecting a positive response,” the President, Association of Bureau De Change Operators, Mr. Aminu Gwadabe, said while reacting to the development.
The CBN Governor, Mr. Godwin Emefiele, on Thursday said at the annual Bankers’ Committee retreat in Lagos that the fall in oil prices had created pressure on the external reserves and the exchange rate.
The House of Representatives on Tuesday summoned the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, over the apex bank’s decision to bar deposit banks from accepting cash dollar deposits.
CBN Governor, Mr. Godwin Emefiele
The House resolution simply directed Emefiele to appear before the House to “explain the confusing policy.”
It was a day the House passed a separate motion seeking to investigate and “ascertain the state of Nigeria’s economy.”
A member from Akwa Ibom State, Mr. Emmanuel Ekon, who drew the attention of the House to the foreign exchange policy under matters of urgent public importance, said different actors in the finance sector were giving interpretations to the policy as it suited them.
Ekon cited a situation in which he claimed that banks were rejecting deposits for transfers for medical purposes.
“It is a very serious issue; you cannot even transfer money for medical services abroad,” he added.
Another lawmaker from Anambra State, Mr. Chris Azubogu, complained that his brothers in Nnewi, who engaged in import business, had been bombarding him with telephone calls since the policy was announced by the CBN.
According to him, the banks too did not seem to understand what the directive implies as they “resort to measures that are entirely unnecessary.”
Azubogu also alleged that some firms could be forced to lay off workers if delays in moving funds meant that they could not finalise their import transactions.
On his part, the Deputy Whip of the House, Mr. Pally Iriase, told the House that he did not see how the policy would shore up the value of the naira.
“The policy is so confusing to virtually everybody.
“How does it impact on the foreign exchange rate?” Iriase asked.
A move by some members to stop the motion on the grounds that it was not important was halted by the Speaker, Mr. Yakubu Dogara.
The Speaker, like some of his colleagues, also admitted that he was confused about the policy.
“Myself, I must say that honestly I am confused too. Let the CBN governor come and explain what this is about,” he ruled on an order seeking to stop the motion.
But Abubakar Blata argued that anybody describing the policy as confusing was not telling the truth.
Blata recalled that the CBN merely invoked the powers conferred on it pursuant to its Act by introducing a policy that could possibly shore up the value of the naira against the US dollar.
“There is no confusion in this policy.
“The CBN is looking for ways to rescue the naira from total collapse,” he said.
The House Whip, Mr. Alhassan Ado-Doguwa, advised members to support the motion and allow Emefiele to come and give explanations.
“There is no problem in allowing him to come and make the explanations.
“The explanations may lay the confusion to rest. Recall that when the CBN came up with the cashless policy, similar reservations were expressed.
“But after the former CBN governor (Lamido Sanusi) came here to speak on it, a lot of nerves became calmed,” Ado-Doguwa added.
The sponsor of the motion on the state of the economy, Mr. Bede Eke, stated that the investigation had become necessary on the heels of conflicting statements by government officials on the true state of the economy.
He cited a case in which President Muhammadu Buhari told the nation that he inherited a near-empty treasury, but went ahead to approve N804.7bn as bailout fund for states and local governments.
The Federal Ministry of Finance, the CBN and the National Planning Commission and other agencies of the Federal Government are to appear before the House in the course of the investigations.
The peaceful outcome of the recently concluded presidential election has seen massive offloading of the United States dollars at the parallel segment of the forex market since Monday.
This has also seen a significant appreciation of the naira at that segment of the market as politicians, investors and other currency users in the country who hitherto were storing the greenback for fear of post-election violence have been flooding the market with the greenback.
Specifically, the naira which had been hovering between N215 and N222 to a dollar since this year closed at N200 to a dollar on Friday. However, at the interbank market, the naira has remained at N197 to a dollar
“The dollar supply in the market presently is more than the supply and that is why we are seeing the current level of appreciation in the parallel market,”
Alhaji Yusuff Ganiyu, who trades in foreign currency in Marina, Lagos, said.
Currency analyst at Ecobank Nigeria, Mr. Kunle Ezun told THISDAY that the outcome of the presidential election was in line with analysts’ projections.
“The emergence of Buhari connotes positive market sentiment. A lot of people thought there would be post-election violence, but that phone call from President Jonathan completely changed the perception about Nigeria in the international market.
“Also, because of the fact that a lot of people anticipated that the dollar might fall, they are selling dollars and this is one of the reasons the naira is appreciating in the black market,” he explained.
The naira had slumped 18 per cent against the dollar as oil prices collapsed by almost half since June. This had prompted Central Bank of Nigeria (CBN) to lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods.
“One of the first big challenges the new government is going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock told Bloomberg recently.
“Steps have to be taken to ensure reserves don’t keep falling.”
Analysts at Renaissance Capital Limited specifically noted that the collaboration would ensure that corruption, wastage and revenue leakages, among others, are tackled.
The report added: “Overall, our views are mixed on the implications of a Buhari victory for Nigerian banks. Investors see the asset quality risks but given where valuations are, they have been waiting for three things to justify a re-entry: a recovery in oil prices; fairer valuation of the naira, and some level of comfort on the political environment. Oil prices have recovered somewhat from their 2015 lows but remain a wild card.”
Buhari’s win over President Jonathan marked Nigeria’s first democratic transition of power from one party to another since independence from Britain in 1960.
The naira’s current interbank value is appropriate and the discrepancy between that and the parallel rate isn’t an indication that it’s under pressure, the CBN Governor, Godwin Emefiele had said at the last Monetary Policy Committee meeting between March 23 and 24.
The naira hit an all-time low of 196.30 against the dollar at the interbank segment of the foreign exchange market on Monday following the announcement of the postponement of the general elections by six weeks.
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The Independent National Electoral Commission had on Saturday announced the postponement of the elections from February 14 and 28 to March 28 and April 11.
The postponement of the elections has cast a shadow on the naira’s outlook, pushing the forex markets into a panic mood, according to analysts.
Foreign exchange dealers and financial analysts told our correspondent on Monday that the poll shift had heightened pressure on the naira as investors became worried over whether the elections would hold or not.
On Friday, the naira closed at 193.90 against the dollar despite an intervention by the Central Bank of Nigeria. The naira had closed at 192.70 to the greenback on Thursday.
“The postponement of the elections was a major blow to the naira. The naira has fallen by this margin because investors are worried over whether the elections would hold or not. In a way, it has heightened the security risk on the country,” said a forex dealer who chose to speak under the condition of anonymity.
According to analysts, if the trend continues, the naira may cross 200 against the dollar at the interbank market.
This, they said, would push the value at the parallel market to about 230, up from the current 207.
Some industry analysts and investment advisory firms, including Afrinvest West Africa Limited and Financial Derivatives Limited, had predicted that the naira might hit 200 at the interbank market soon.
The Head, Investment and Research, Afrinvest West Africa Limited, a business advisory and research firm, Mr. Ayodeji Ebo, said, “The delay in the polls will increase election spending and outflows of funds from foreign portfolio investors. This will continue to put pressure on the naira. A lot of people are also now betting on the naira because of the uncertainty in the country. The issue of falling oil price is also there.
“If the naira should cross 200 against the dollar at the interbank market, the CBN may convene an emergency Monetary Policy Committee meeting to address the issue. If the pressure continues, the naira may be devalued before the elections.”
According to Ebo, the CBN needs to also build a policy around the informal activities that make use of the naira by bringing some of the imported items back to its Retail Dutch Auction System window.
This, he said, would help preserve the local currency.
Currency strategist at Ecobank Nigeria, Mr. Kunle Ezun, said recent decisions had led to some reactions in the foreign exchange market.
He said there would be a need to reassure investors that everything was under control.
The naira has been officially pegged at 160-176 to the dollar after an eight per cent devaluation in November.
The local currency has, however, traded outside the 160-176 band. This has fuelled speculations that the CBN might devalue it again.
“We think a move in the peg is very possible but it is political suicide to do it before the elections, but can they now wait until later, or is that economic suicide?” the Head of Dealing at Rand Merchant Bank in Johannesburg, Roy Daniels, told Reuters.
“Historically in Africa, political sway holds greater than economic sway; so, I would say they could probably use more reserves and delay the shifting of the peg for a bit longer,” he said.
The CBN’s next policy meetings are on March 23 and 24, just four days before the rescheduled presidential election, and then May 18 and 19, although the governor, Godwin Emefiele, can call an emergency meeting at any time if he wants to.
Last year, the central bank burnt through 20 per cent of the reserves as it spent an average of $2m a day defending the naira.
However, that and the November devaluation failed to ease the pressure on the currency in an economy that gets more than 90 per cent of its dollars from oil sales.
Although most analysts are predicting another devaluation to around 210, the naira non-deliverable forwards – currency derivatives traded offshore – pointed to it being priced at around 255-261 in a year’s time.
