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CBN New Forex Policy Fails to Excite Foreign Investors

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  • CBN New Forex Policy Fails to Excite Foreign Investors

While the nation’s forex market has seen increased liquidity in recent days on the back of the Central Bank of Nigeria’s new policy action, foreign investors are not keen on bringing back capital into the country.

Industry experts, including the Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, say the issue of investor confidence remains unaddressed.

The CBN had on February 20 said it would provide direct funding to banks to meet the needs of Nigerians for personal and business travels, medical needs and school fees, effective immediately.

Although the weekly sale of forex to banks has helped to narrow the spread between the official and parallel exchange rates, pressure remains on the naira.

The naira, which posted some gains days after the CBN action, plunged to 475 per dollar at the parallel market on Friday from 450 on Thursday. It hit an all-time low of 520 to the dollar on February 20.

The Global Chief Economist, Renaissance Capital, Charles Robertson, described the increase in liquidity in the forex market as helpful, saying, “Foreign investors want to know they can take profits on their investments when they bring money in.

“But investors are deterred by multiple currency rates; so, the interbank rate too needs to align with the parallel rate, and this has not happened yet,” he said in an emailed response to questions from our correspondent.

The interbank rate stood at N305.25 per dollar as of Friday, according to the CBN.

Robertson said investors might be slow to return, noting that in mid-2016, some foreign investors put money into Nigeria when the currency was floated, but then found out that they were stuck again.

“They will be more wary this time. This new policy has been a positive move, but does not yet compare to the greater reforms in Egypt that have reportedly attracted $13bn back into the Egyptian banking system,” he said.

According to Rewane, the policy framework, the implementation and the process have to be consistent.

“Until you actually free up the market and do all the things that are required, you will have exchange rate movement that is not predictable,” he said.

He also described the CBN action as a move in the right direction “but there is a lot of more work to be done.”

“The parallel market has actually started depreciating again. The more forward transactions they do, the less spot transactions they do, the weaker the naira is going to become. And that is what is happening already,” he explained.

According to Rewane, there is a question of liquidity and a question of confidence, and liquidity does not address the question of confidence.

He said, “You have to win the confidence of investors. Investors’ confidence is not won because you put some liquidity into the market for one week.

“We have more work to do. We need to make the market transparent, allow the oil companies to sell into the market, allow the market move and don’t control the price.”

The President, Association of Bureau De Change of Nigeria, Mr. Aminu Gwadabe, said the fall of the naira to 475 per dollar was largely due to the increasing pressure on the transfer segment of the market.

“Also, the slow take off of banks is an impediment to the exercise. Some banks give a 30-day waiting period to consummate school fees transfer. The market is also witnessing a stronger demand from our neighbouring countries,” he added.

According to Gwadabe, the different applicable exchange rates and volumes by operators for the same product is also enhancing restriction to a single rate in the market.

“If the CBN reviews the distribution channel and ensure that the BDCs serve the critical retail segment of the market and maintain intervention, the strength of the naira will continue in the days ahead,” he said.

The Chief Executive Officer/Partner, National Finance, a US-based firm, Tor Langoy, stressed the need for proactive measures to entice capital into Nigeria.

“There is serious lack of liquidity across sectors. Everybody requires capital. But we can only help a few. Capital is only going to start flowing again when you let go of the interference with the currency,” he explained.

Citing the United Arab Emirates as one the countries that have successfully attracted capital, Langoy said, “By introducing business-friendly policies, the entire world is now aware of the benefits of doing business in Dubai. There is no problem of repatriating your capital, and you don’t have any forex issue; no capital controls.

“These are major things for foreign investors. If a country is not able to fix those basic things, the capital goes somewhere else. The capital moves around the world, and Nigeria is just one out of 193 nations or investment destinations that are competing for the capital.”

He said, why should anyone invest a dollar in Nigeria when they could happily invest in Dubai or in any other nations in Africa without currency issues and fiscal and monetary policies unconducive for investments?

“The global capital markets are just waiting for a free float of the naira. The naira may depreciate. But take the pain and get over it. If it’s 1,000/dollar; it doesn’t matter. Look at what happened to the Egyptian pound. It dropped 50 per cent but now money is coming back into the country. It is just like a few months of pain with decades of happiness,” Langoy stated.

According to JPMorgan Chase & Co, until Nigeria devalues or makes a clear switch to a free-floating currency, the country will struggle to lure back foreign investors.

The Acting Head of Economic Research, Ecobank, Gaimin Nonyane, said the nation’s foreign reserves, which had been rising since November, remained inadequate to meet forex demand.

He said in a note, “The CBN’s ban on importers of 41 specified goods will prevent the naira from effectively clearing in the forex market.

“We believe that the successful Eurobond issuance is a positive development for Nigeria, as the country seeks to source for forex to relieve pressure on the naira.”

The Ecobank analyst said the forex injection should help to boost Nigeria’s forex reserves, and potentially allow the CBN to loosen its hold on the naira.

He added, “However, the amount raised will not meet Nigeria’s estimated $5bn forex gap; this suggests that the operating environment will remain painful in the short term.

“As such, the naira will remain under pressure, exerting pressure on the CBN to devalue the currency further. We expect an official interbank market rate of close to N360-N380 to a dollar in the coming months.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Finance

NAIC Pays N1.7bn Claims to Farmers

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The Nigerian Agricultural Insurance Corporation (NAIC) said it paid a total of N1.7 billion claims to over 5,000 farmers in the past two years.

NAIC, which is the only federal government owned insurance company authorised to offer agric insurance services to farmers at subsidised rate, said a breakdown of the paid claims showed that it paid N856 million to insured farmers in 2019 and N848 million in 2020.

Commenting on the development, NAIC Managing Director, Mrs. Folashade Joseph, said the claims were paid to the farmers to cover losses incurred in the course of doing business.

Joseph, enjoined agricultural investors and lending institutions to continue to partner NAIC by taking agricultural insurance cover that will enable them remain firm in business despite unforeseen circumstances from weather conditions and other risks in order to realise the food security agenda of President Muhammadu Buhari.

She said the above-mentioned amount was shared among five million farmers who suffered various setbacks in their farms as a result of natural course.

According to her, the NAIC Agric Insurance Scheme was launched in 1987 by federal government to restore the confidence and productivity of Nigerian farmers who suffered losses as a result of natural disaster such as flood, drought, pest and diseases.

The NAIC boss explained that the essence of the sensitisation campaign embarked by the corporation was to let the farmers know and understand exactly what NAIC does, the importance of insurance, and make them understand how insurance works, how they can access NAIC products and services, how to process their claims, as well as what insurance stands to do for them.

“Agribusiness is evolving fast and so many risks are being thrown up, many new participants are coming into the business of agriculture, and the risks are on the increase if you look at them across the value chain, there is no so many participants so we need to keep sensitising the farmers and let them know we are serving them, and we need to know from them how to serve them,” she explained.

Speaking further, she said, “our assurance to farmers is that when they are insured and they suffer losses covered by any of the policies they purchased, including natural disasters and whatever, they will get paid for their losses, and that is the purpose of insurance and setting up NAIC.

“Our motor is ‘Plowing the Farmer Back to Business, Plowing the Farmers into Prosperity’, and we settle claims.”

She said NAIC currently deals with thousands of farmers (Small, Medium, and Large scale farmers) across the country, adding that the corporation serves farmers with investment as little as N100, 000, and at the same time serves multinational farmers.

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Banking Sector

UBA Organises Capacity Building Forum

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As part of its commitment to support the growth and sustainability of micro, small and medium-scale enterprises (MSME) in the continent, the United Bank for Africa (UBA) Plc, is set to organise the next edition of its UBA Business Series.

The UBA Business Series which is a monthly event, is an MSME Workshop as well as a capacity building initiative of the bank where business leaders and professionals share well-researched insights on best practices for running successful businesses, especially in the face of the difficult operating environment that dominates the African business landscape.

Through this initiative, UBA has been assisting with essential tips to help businesses re-examine their models and strategies and ensure that they stay afloat and remain thriving, a statement from the bank explained.

The topic for the next edition of the series is, “Managing Performance for Business Growth,” and it will be held today, via Microsoft Teams.

At this session, the Managing Director, Secure ID Limited, Mrs Kofo Akinkugbe, will be sharing useful tips and insights on the key strategies of performance management to boost business growth.

Akinkugbe is the founder of SecureID Nigeria, a MasterCard, VISA and Verve certified Smartcard Personalization Bureau and Digital Technology company. She currently serves as the Managing Director/CEO, Secure Card Manufacturing, – a Smartcard manufacturing plant producing high security identity cards and documents for the Banking, Telecoms and Public sectors across Africa and beyond.

UBA’s Head, SME Banking, Sampson Aneke said of Akinkugbe, “with her vast experience garnered over the years from various sectors, she will help business owners understand how performance management strategies can be effectively implemented to ensure business growth.”

He emphasised UBA’s commitment and deep passion for small businesses, which according to him, remains the engine of any developing economy adding, “We know small businesses are the backbone of the economy in every country. In many climes, businesses with fewer than 100 employees account for 98.2 per cent of all businesses. This no doubt captures the importance of SMEs to a thriving economy which is why UBA is committed to seeing them flourish.”

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Banking Sector

CBN to Extend Credit Risk Management System to OFIs

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In an effort to curb growing bad debt, the Central Bank of Nigeria has said it will extend its Credit Risk Management System to Other Financial Institutions (OFIs) operating in Nigeria to protect them from bad debtors.

According to the apex bank, this is important following the successful implementation of the credit risk system in other lending institutions operating in Nigeria.

The bank disclosed this in a circular titled ‘Credit Risk Management System: Commencement of enrolment of all Development Finance Institutions, Microfinance Banks, Primary Mortgage Banks and Finance Companies’ and signed by Kelvin Amugo, the Director, Financial Policy and Regulation Department, on Monday.

In part, the circular read, “As part of efforts to promote a safe and sound financial system in Nigeria, the CBN introduced the CRMS to improve credit risk management in commercial, merchant and non-interest banks as well as to prevent predatory borrowers from undermining the banking system.

“With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of Other Financial Institutions on the CTMS platform.

“Accordingly, all DFIs, MfBs, PMBs and FCs are required to report all credit facilities (principal and interest) to the CRMs and to update same on monthly basis.

“OFIs shall note the Bank Verification Numbers and Tax Identification Numbers are the only basis for regulatory renditions”.

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