The naira has for the first time in several weeks made marginal recoveries at the Investors’ and Exporters’ (I&E) Forex window and parallel market. The modest appreciation of the local currency followed Central Bank of Nigeria (CBN’s) and Association of Bureaux De Change Operators of Nigeria (ABCON)’s prediction of heavy losses for currency speculators heating the forex market. The ABCON estimates that currency speculators will lose at least N10 billion in the coming months if they continue betting with their capital against the naira.
CURRENCY speculators are in the eye of the storm. After dragging the naira to its lowest position in decades and fueling rumours of further devaluation of the local currency, the Central Bank of Nigeria and Association of Bureaux De Operators of Nigeria (ABCON) are fighting back to restore the strength and integrity of the naira.
The currency speculators make spurious demand for dollar with hope to make good returns from the rising gaps between official and parallel market rates. But the apex bank and ABCON are promising the illicit forex traders heavy losses in the coming months as the market gains more liquidity through CBN’s interventions and planned resumption of dollar sales to Bureaux De Change (BDCs). The BDCs were temporary excused from the market following the economic lockdown and need to protect their members from being infected by the coronavirus.
The naira on Friday appreciated to N385.94 at the Investors and Exporters (I&E) window, which was N0.56 against the dollar when compared to the N386.50 to a dollar that is traded on Thursday. At the parallel market, the naira was exchanging at N460 to the dollar after gaining N1 from N461 to a dollar it exchanged early last week. The local currency has also remained stable at the official market where it is exchanged at N360 to a dollar and has remained at that rate after marginal devaluation in March.
The marginal recoveries across different platforms and stability seen in the market came after the CBN Governor, Godwin Emefiele advised businesses and individuals to stop patronizing operators in the parallel market because they are heating the foreign exchange market.
ABCON President Aminu Gwadabe warned the currency speculators about the looming danger for their trade if they refuse to retrace their steps.
He predicted that they would incur losses estimated at over N 10 billion in the next few months as the CBN prepares for BDCs return to the forex market after nearly six weeks of absence due to the Coronavirus pandemic and need to protect operators.
He said with over 5,000 BDCs spread across the country receiving weekly allocations for sale to the retail end of the market, and rising accretion to the foreign reserves to over $37 billion, the naira’s future looks bright despite challenges posed by the currency speculators.
Reopening Guidelines for BDCs
Gwadabe said ABCON is issuing their reopening guidelines to all its members nationwide to include onboarding on the queuing crowd ticketing management application by all members known as ABCON 360° QSM portal with over 80 per cent members registered nationwide so far.
“We are also updating all regulatory obligations during the lockdown, fumigation of members offices/markets, distribution of the second phase of face mask nationwide to our members. There is also the provision of wash hand basins, sanitisers at our distributions centres while members are to explore school fees, mortgage, subscription payments as one of their allowable scopes during post-COVID-19,” he said.
Kazeem Ibrahim, a forex speculator, said he would henceforth watch the market more carefully before committing funds.
He said that following the gradual easing of the COVID-19 lockdown both globally and in Nigeria, the CBN resumed provision of foreign exchange to all commercial banks for onward sales to parents wishing to pay schools fees and SMEs wishing to make essential imports needed to revamp economic activities across the country. That move, he added boosted dollar liquidity.
Ibrahim said the planned return of BDCs to the market means fewer people will be willing to buy from the unofficial markets, and that is likely to strengthen the naira.
CBN’s Message to Parallel Market Patronizers
Emefiele has warned domestic and foreign investors against patronising the unofficial market, saying it was helping to overheat that market.
Dollar sales have since resumed following a phased easing of the lockdown but foreign investor currency demand is yet to be met, analysts say.
Emefiele has warned firms and individuals against patronising the parallel market popularly called the black market.
He warned them to stop using black markets for foreign currency exchange, adding that patronising the parallel market is helping to overheat the foreign exchange market.
“I know some of you are involved, stop now. By going to the parallel market, you are helping to overheat that market. Not only that, but you will also lose money because you would have bought it at a price that is not realistic. I can tell you that you are going to lose money. But we have seen your account already. We are appealing to you, please stop and let’s do what is right, what is legal, so that Nigeria can continue to be a good place for you and to live in,” Emefiele appealed to businesses patronising parallel market.
Emefiele even went a step further appealing to industrialists patronising the parallel market to stop such practices in the interest of the economy and for the sustainability of their businesses, failure which they will equally, record the same huge losses like the currency speculators.
Role of BDCs in Exchange Rate Stability
Like in 2016 currency crisis, the market got a major relief after the BDCs’ began getting dollar allocations from the CBN. That same scenario will soon play out as the CBN team and ABCON Management begins to count days for the BDCs return to the market.
The CBN has come to realize that BDC operators can be the difference between naira recovery and depreciation during volatile and uncertain times. That’s especially true now that the local currency has come under intense pressure that is purely driven by speculative demand for the dollar. The BDCs are essentially operators that help get dollars to the end-users no matter where they are and have for decades proven time and time again their relevance in stabilizing the naira.
According to Gwadabe, with the CBN’s planned lifting of a moratorium on dollar sales to BDCs, reopening of the airports for air travels, global ease on the restriction of movement are positive indications that dollar flows to the economy will soon improve.
He said: “The return of over 5,000 BDCs to the forex market will add great strength to the Naira and lead to major capital losses for forex speculators. It happened in 2016 and will happen again in 2020. The return of the BDCs will immediately boost Naira recovery and put the enemies of the economy to shame. We are committed to the CBN’s exchange rate stability and will take all necessary steps within set rules and regulations to keep the naira stable,” he assured.
Gwadabe said the return of BDCs to the forex market will help chase away speculators, curb rising inflation, boost productivity and employment, enhance price discovery, enhance market transparency and competitiveness.
Positive Indicators for Naira Recovery
Aside from positive developments in the global economy, the CBN has taken action to address the risks facing the naira, which will lead to rapid recovery for the local currency.
For instance, the recovery in the Chinese manufacturing sector and opening of the Asian tiger’s economy after months of closure due to the coronavirus pandemic have raised the country’s crude oil demand, many of which will be bought from Nigeria. Such purchases will boost Nigeria’s dollar earnings.
Besides, Nigeria is one of the few lucky countries that have secured an emergency $3.4 billion loan from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI).
IMF Managing Director, Kristalina Georgieva, said the fund will not only support Nigeria’s financial sector and address balance of payment hitches but has boosted foreign reserves and financing to the budget for targeted and temporary spending increases.
Nigeria’s foreign reserves have reached over $37 billion, which represents enough buffers for the CBN to deal with any act of illegal economic behaviour like hoarding, speculation, conversion of local assets among other illicit financial activities.
Gwadabe also added that the OPEC measures on sustainable price stability are commendable as many governments across the world have agreed to oil production adjustment targets and continued collaboration with all their partners, a move that will benefit Nigeria.
He said the CBN has also officially reviewed the naira exchange rate to N380 to a dollar. Aside devaluing the naira, the apex bank also adopted a unified exchange rate, and pushed the official rate of the naira to N376 to a dollar for International Money Transfer Operators rate to banks; N377 to a dollar for banks’ dollar sale to CBN and pegged CBN’s dollar sales to banks at N378, all aimed at attracting Foreign Portfolio Investment and strengthening the local currency. The BDC operators are expected to buy dollar from the CBN at N378 per dollar.
Gwadabe said the naira rate review and assurances by the CBN Governor, Godwin Emefiele to foreign investors that want to repatriate their funds from the country are positive for the naira continued recovery.
African Currencies’ Performances
ABCON boss Gwadabe said the impact of the Coronavirus pandemic on the naira was not as bad as seen in other African countries’ currencies.
Amid huge capital flow reversal driven by risk-off sentiment, currency rates of African countries show that the South African rand is the worst hit, down 20.6 per cent year-to-date.
This is followed by the Angolan Kwanza which has depreciated by 16.1 per cent, Mauritius Rupee (-8.8 per cent), Nigerian Naira (-6.6 per cent) and Kenyan Shilling (-5.3 per cent) followed in that order.
Others include the Tunisian Dinar (-3.8 per cent), Morocco’s Dirham (-2.7 per cent) and the West African Monetary Union’s CFA franc (-2.3 per cent ). Notably, the Egyptian Pound, up 1.3 per cent year-to-date, remains the best performer across the region.
Gwadabe explained that while an adjustment of the Nigerian naira from N360/$ to N385/$ broadly reflects the 6.6 per cent weakness observed in the official market, it must be noted that currency depreciation at the unofficial market is much deeper, currently at N461/$.
But looking ahead, the outlook for the naira is expected to remain relatively strong on the back of growing foreign reserves at over $37 billion, increasing global demand for crude oil, rising commodity prices and rising global trade.
Commitment to Exchange Rate Stability
Gwadabe disclosed that ABCON Executive Council under his leadership will continue to promote transparency and efficient market dealings while commending the CBN Management for its progressive policies and achieving stable exchange rate that aligns with its price stability.
He said the CBN has been able to create a people-focused Central Bank promoting macro-economic objectives such as low inflation and a stable exchange rate, along with a focus on promoting inclusive growth and reducing unemployment in the country.
Gwadabe said the BDCs remain at the centre of economic development and have the capacity to attract needed capital for the development of the Nigerian economy. He said that Nigerian BDCs, like their counterparts in other emerging or developing economies, have what it takes to deepen the forex market through the deployment of technology and adhering to global best practices.