Connect with us

Markets

CBN Directs Banks to Allocate 60% of FX Sales to Manufacturers

Published

on

Godwin Emefiele CBN - Investors King

Desirous of stimulating economic activities in the country, the Central Bank of Nigeria (CBN) monday directed commercial banks and other authorised dealers in the foreign exchange (FX) market to ensure that they channel 60 per cent of total FX purchases from all sources (interbank inclusive) to end users strictly for the purpose of importation of raw materials, plant and machinery.

The central bank said it took the decision following its review of returns on the disbursement of FX and observed that a negligible proportion of FX sales were being channelled towards the importation of raw materials for the manufacturing sector.

The CBN gave the directive in a circular signed by its acting Director, Trade and Exchange Department, Mr. W.D. Gotring. The letter dated August 22, 2016, was posted on the central bank’s website.

It said: “Following the review of returns on the disbursement of foreign exchange to end users, it has been observed that a negligible proportion of foreign exchange sales are being channelled towards the importation of raw materials for the manufacturing sector.

“Against this background and in order to address the observed imbalance, authorised dealers are hereby directed to henceforth dedicate 60 per cent of total foreign exchange purchases from all sources (interbank inclusive) to end users strictly for the purpose of importation of raw materials, plant and machinery.

“The balance of 40 per cent should be used to meet other trade obligations, visible and invisible transactions. For the avoidance of doubt, authorised dealers are to continue to publish weekly sales of FX to end users in the national newspapers and to render statutory returns on same to the CBN promptly. Please ensure compliance accordingly, until otherwise advised.”

The President of the Manufacturers Association of Nigeria (MAN), Frank Jacobs, recently voiced concerns that the FX scarcity and rising cost of funds had sent manufacturing output plunging to below 20 per cent.

But with the directive, analysts said yesterday that manufacturers would be able to get a substantial part of their FX requirements met.

One market observer lauded the CBN for the directive, adding: “The CBN with this directive has prioritised the real sector so that industries can bring in their raw materials, machines and equipment without having to wait for the banks for weeks and months on end to smile their way.

“This means that the banks and authorised dealers will be required to seek out and prioritise their customers who need to bring in raw materials, plant and machinery for production and not the other way round.

“This is bound to have a positive impact on productivity in the manufacturing sector and hopefully will lead to a drop in the prices of goods that they produce.”

In a related development, the President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, has said most banks were yet to comply with the CBN’s directive that they sell $50,000 from diaspora remittances to bureau de change (BDC) operators on a weekly basis.

In a statement yesterday, the ABCON boss said only 10 per cent of BDCs from the Lagos market had accessed dollars from banks since the CBN gave the directive nearly three weeks ago.

The banks that have complied include First Bank of Nigeria Limited, Ecobank Nigeria Plc, Fidelity Bank Plc, United Bank for Africa Plc, Unity Bank Plc, Diamond Bank Plc, Zenith Bank Plc and Stanbic IBTC Bank.

Gwadabe further disclosed that BDCs in Port Harcourt, Kano, Abuja, Onitsha, Maiduguri, Benin and Enugu were yet to buy dollars from banks.

He said the BDCs had been selling dollars between N345 and N355 to dollar, far above the interbank rate, because of the shortfall in supply.

The banks, he added, are supposed to sell to the BDCs on the same day within the week, but failed to do so.

“Instead of staggering the payment, the banks should sell to the BDCs on the same week day, so that the impact will be felt in the market.

“We also want the CBN to license new International Money Transfer Operators (IMTOs) to deepen the market.

“Our members across the country have funded their accounts two weeks ago but the banks are not selling to them. The BDCs that met the CBN’s policy guidelines on the disbursement and were cleared by the banks have still not received a dime from the banks,” he said.

Gwadabe called on the CBN to outsource the dollar distribution role to an independent distributor since the banks have failed in their assigned role.

“I think the banks are compromising the policy and CBN’s directive on the matter. And like I said earlier, since the banks are not co-operating, I expect the CBN to take that role from them and assign it to a reputable independent distributor,” he said.

The CBN had directed authorised dealers that are agents of approved IMTOs to sell foreign currency accruing from inward money remittances to licensed BDCs.

The spot rate of the naira appreciated on the interbank FX market to N308.73 to the dollar monday, as against the N316.55 at which it closed last Friday.

The gains made by the naira on the interbank market yesterday were attributed to dollar sales by the central bank to some banks. Traders said the central bank selectively sold dollars to commercial lenders just before the market closed.

The central bank remains the major supplier of dollar in the market and has been selling the greenback almost daily to boost liquidity as the naira continues to search for an equilibrium price.

The CBN ditched its 16-month-old peg on the naira last June and introduced a flexible exchange rate regime to allow the currency to trade freely on the interbank market.

However, on the parallel market, the naira closed at N396 to the dollar yesterday, slightly stronger than the N396.55 to the dollar as of Friday last week.

Meanwhile, Nigeria’s search for an end to its dollar shortage woes dimmed yesterday, when oil prices fell more than two per cent from last week’s high, following expectations of more crude shipments from Iraq and Nigeria, coupled with rising US oil rig count and increased Chinese exports.

While Iraq’s plan to increase exports of Kirkuk crude by 150,000 barrels per day this week from northern fields weighed on prices, the weekend’s announcement by the Niger Delta Avengers that it was ready for ceasefire and dialogue with the federal government also raised expectations of oversupply in the international market.

A prolonged ceasefire by the Avengers will potentially lead to the recovery of over 700,000 barrels per day that was shut in due to the attacks on oil facilities by the militant group, thus adding to the oversupply in the market.

Minister of State for Petroleum, Dr. Ibe Kachikwu, said recently that Nigeria would require an additional 900,000 barrels per day to achieve the 2016 production target.

A stronger dollar was also said to have fuelled the price drop, as the currency rose yesterday against other major currencies on increased expectations that the US Fed could raise interest rates this year.

A stronger dollar makes oil, which is priced in dollars, more expensive for buyers using other currencies, reducing demand.

With the expectations of oversupply weighing on the prices, the global benchmark, Brent crude yesterday was down $1.34, or 2.6 per cent, at $49.54 a barrel, after hitting a two-month high of $51.22 on Friday.

US West Texas Intermediate (WTI) crude’s most active contract, October, fell $1.28, or 2.5 per cent to $48.32 a barrel, after hitting a six-week high of $49.60 on Friday.

Reuters reported that China’s July diesel and gasoline exports soared 181.8 per cent and 145.2 per cent respectively, from the same month last year, putting pressure on refined product margins.

Citing data from the oil service firm, Baker Hughes, the Wall Street Journal also reported that the number of rigs drilling for oil in the US has risen for eight straight weeks.

According to the data, US oil output has fallen for more than a year after companies sharply cut spending on new drilling, but higher oil prices in recent months have prompted some companies to put new rigs to work.

US producers added 32 new rigs in shale-oil regions in August, which could add 200,000 barrels a day of new supply, according to an analyst at SEB Markets.

Oil rallied with few stops over the past two weeks, going from a bear to bull market as it reversed a loss of over 20 per cent in early August on speculation that Saudi Arabia and the rest of the Organisation of Petroleum Exporting Countries (OPEC) will agree to a production freeze with non-OPEC members.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Markets

Black Friday Lull

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

Published

on

gold bars - Investors King

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

This isn’t really unusual and at the end of the week too, it really makes sense. Barring a flurry of big headlines from elsewhere, we could now see equity markets just drift into the weekend with investors already having an eye on next week.

Perhaps today people are trading in their charts for some Black Friday deals, the outcome of which will certainly be on everyone’s radar. Going into the holiday season, we’ll get an early idea of the state of play for household spending in the midst of a cost-of-living crisis.

Of course, it will naturally be difficult to distinguish how much of that bargain hunting will prove to be holiday season shopping brought forward in an attempt to get the “best deals”. But if Black Friday shopping takes a hit this year, it won’t bode well for the rest of the holiday period which is so important to retailers.

PBOC cuts the RRR

The PBOC cut the RRR by 25 basis points this morning in a bid to support the economy which is once more going through a difficult period. How effective that will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say. But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.

Oil pares losses as price cap talks continue

Oil prices are higher on Friday, continuing to pare losses after being hit heavily in recent weeks by surging Covid cases in China and discussions around the price cap on Russian crude.

Lockdowns in all but name appear to be popping up in major Chinese cities in an attempt to get a grip on record cases which will weigh heavily on economic activity once more and in turn demand. It’s now a question of how long they last but clearly investors’ enthusiasm toward the relaxation of Covid restrictions was a bit premature.

Talks will continue on a price cap but it seems it won’t be as strict as first thought, to the point that it may be borderline pointless. That’s hit oil prices again this week as the threat to Russian output from a $70 cap, for example, is minimal given it’s selling around those levels already.

Gold establishing a range ahead of key data releases

Gold is marginally lower today but has been quite choppy throughout the session, and broadly lacked any real direction. We could be seeing a little profit-taking as the dollar edges higher following the relief rally that followed the Fed minutes.

The yellow metal is trading roughly in the middle of what may be a newly established range between $1,730 and $1,780, potentially now awaiting the next catalyst ahead of the December Fed meeting. With another jobs and inflation report still to come, a lot could change between now and when the FOMC next meets.

Bitcoin still extremely vulnerable

Bitcoin is edging lower again today after recording three days of gains. That dragged it off the lows but didn’t really carry it that far from them. It’s trying to stabilize around the $15,500-$17,000 region and weather the storm but I’m not sure it will be that easy. There’s likely more to come from the FTX collapse and the contagion effects, not to mention potentially other scandals that could be uncovered. This may continue to make crypto traders very nervous and leave the foundations supporting price extremely shaky. ​

Continue Reading

Crude Oil

Lack of Inflows, Revenue Shortage Plunge Nigeria’s Excess Crude Account By 89%

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513

Published

on

markets energies crude oil

Weak foreign revenue inflow amid fluctuations in the global oil market has plunged Nigeria’s Excess Crude Account (ECA) by 89% in the last eight years.

The Excess Crude Account (ECA) is an account used to save excess crude oil revenue by the Nigerian government.

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513 in the same period of 2022, according to a statement from the Ministry of Finance, Budget, and National Planning.

Economists attributed the substantial decline to the nation’s persistent depreciation in foreign revenue inflows and the struggle with crude oil production amid global uncertainty.

According to Jonathan Aremu, professor of economics at Covenant University in Ogun State, the decline was a result of constant withdrawal without replenishment.

“For you to increase the ECA, the oil price must rise above the budgeted price. If it does not, nothing goes in.  Also, if what you are spending is higher than what goes in, it depletes. This is the situation,” he noted.

On Thursday, crude oil prices declined following the Group of Seven (G7) nations’ proposed plan to cap Russian oil at $65-70 a barrel.

Brent crude oil, against which Nigerian oil is priced, declined to $85 a barrel while the West Texas Intermediate (WTI) crude fell by 0.6% to $77.48 a barrel.

Despite the fact that the benchmark price for oil in the 2022 budget was $57, the price of oil today is still about $30 higher. In spite of higher oil prices, the ECA has been on a decline since early 2022, suggesting that the issue is internal.

“Nigeria’s crude production plunged below 1 million barrels per day (mbpd) for the first time since Buhari became President this year and has averaged about 1.2 mbpd most part of 2022. Therefore, it is impossible to take advantage of the Russian-Ukraine war inflated oil prices like we did during the Gulf war under former president Ibrahim Babangida,” Samed Olukoya, CEO/Founder Investors King Ltd stated.

The government needs to address internal issues, revamp refineries, reduce oil theft and diversify the economy to reduce overexposure to global oil fluctuations.

Continue Reading

Crude Oil

Crude Oil Opens at $85 as G7 Nations Move to Cap Russian Oil

The Group of Seven (G7) proposed to cap Russian crude oil at $65-$70 a barrel

Published

on

Crude oil

Crude oil opened lower on Thursday, declining to a two-month low following the Group of Seven (G7) proposal to cap Russian crude oil at $65-$70 a barrel.

A greater-than-expected build in U.S. gasoline inventories and widening COVID-19 controls in China added to downward pressure.

Brent crude dipped 50 cents, or 0.6%, to $84.91 a barrel, while U.S. West Texas Intermediate (WTI) crude fell by 46 cents, or 0.6%, to $77.48 a barrel.

Both benchmarks plunged more than 3% on Wednesday on news the planned price cap on Russian oil could be above the current market level.

The G7 is looking at a cap on Russian seaborne oil at $65-$70 a barrel, according to a European official, though European Union governments have not yet agreed on a price.

A higher price cap could make it attractive for Russia to continue to sell its oil, reducing the risk of a supply shortage in global oil markets.

That range would also be higher than markets had expected, reducing the risk of global supply being disrupted, said Vivek Dhar, a commodities analyst at Commonwealth Bank in a report.

“If the EU agree to an oil price cap of $65‑$70/bbl this week, we see downside risks to our oil price forecast of $95/bbl this quarter,” Dhar said.

Oil and gas exports are forecast to account for 42% of Russia’s revenues this year at 11.7 trillion roubles ($196 billion), according to the country’s finance ministry, up from 36% or 9.1 trillion roubles ($152 billion) in 2021.

The G7, including the United States, as well as the whole of the European Union and Australia, are planning to implement the price cap on sea-borne exports of Russian oil on Dec. 5.

Continue Reading
Advertisement
Advertisement




Advertisement
Advertisement
Advertisement

Trending