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Gwadabe: CBN Must Deepen Forex Market

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  • Gwadabe: CBN Must Deepen Forex Market

The President of the Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, in this interview urges the Central Bank of Nigeria to create more sources of foreign exchange for operators in the market. Obinna Chima presents the excerpts:

Is there need for the CBN to continue to sell dollars to BDCs?

You see the sovereignty of any currency is the sovereignty of that nation. No nation will just fold its arm and allow others dictate the exchange rate of its currency. Every nation protects their currency. Now having said that, one of the determining factor of this currency stability is the buffer or the external reserve. And I want to congratulate the CBN. The buffers have been good and there is projection of $45 billion reserve by the end of next year. So that will continue to generate positive outlook for the exchange rate. And I am happy that the CBN Governorrecently said the central bank has the ammunition to fight anybody that will joke with its exchange rate regime. So, the sustainability of CBN intervention in ensuring continues growth, continuous stabilisation of the exchange rate is just too important.

Now, for the BDCs, for the past one year, we have not been relying on the CBN sources. Our sources have been diversified from the CBN sources to IMTO sources. So, all that the CBN needs to do is to see, in conjunction with the association how we can deepen the market. It is all about deepening the forex market. We can come in with other products or other sources of supply.

Even the Investors’ and Exporters’ (I&E) window, as far as I am concerned should be another window for the BDCs to be buying dollars. The CBN, like what they are doing right now, coordinating the IMTO proceeds; they should also begin to coordinate the proceeds of I&E window so that we have enough of liquidity for the BDCs to ensure the stability is maintained. Even the Diaspora remittances, you see the association is working on a lot of automation projects to enhance standards, to enhance competition, global competitiveness, in terms of our visibility even for the world to see that there is honesty and transparency in our system. So, we are building confidence and we are working with the Nigeria Interbank Settlement System (NIBSS) to ensure that most of our operations, most of our systems are being transparent and very soon our members will start doing online real-time rendition of their returns. We have perfected that with the CBN, we are only waiting for the tokens to be provided. So our members will not need to go to CBN branches to submit their returns, they will now be doing it from the comfort of their office. So, it is germane for the CBN to continue to deepen the forex market. Statistics and experience have shown that the only reliable and efficient tool to achieving this convergence is the BDC sub-sector.

Why are your members agitating forincreased margin and are thereother challenges your members are facing?

Right now, the BDCs are operating under what I call the challenge of multiple exchange rates. That has been a very key issue in terms of also continued transparency and stability of the forex market. However I am also not unaware of the fact that the sovereignty of the currency is the sovereignty of that nation. So, the CBN is having two or three different exchange rates to ensure liquidity. But you see that has been posing a challenge because even the bank rateis at N358 per dollar and we are buying N360 per dollar from the CBN. So, it is a very big challenge for our members to operate. So that has been making the business very unprofitable. It is very unprofitable to the extent that some members are not able to meet up with their overhead cost, salaries. Each BDC has about six staff and another challenge is the bank charges. What the banks are charging on BDC transactions is usually high, and these are some of the potent challenges we are facing.

The CBN should allow a level-playing field and competitive rates among the various operators in the forex market. A situation where banks are buying dollars from CBN at N358 per dollar and sell the same dollars to BDCs at N360 does not represents a level-playing field or fair competition given the fact that we operate in the same market segment.

But we have hope because you will see the CBN also review the exchange rate rules. I am sure they are working now on inflation, once they can achieve single digit inflation, then they will begin also to ensure that the exchange rate is headed south-wards to ensure growth, increased output and more employment.

That is because up till now, despite the fact that inflation has dropped to15.9 per cent, it is still higher than the MPC rate. Remember that the MPC rate is 14 per cent, and we are talking about inflation rate about 16 percent. So by next year, with projections and a lot of revenue coming in, from increased oil prices, from recovery of assets, I am sure we will have a lot of buffers to ensure that the major sectors are working perfectly. More especially the manufacturing sector. So, we expect a positive outlook by next year.

But do you think it is possible not to have multiple exchange rates?

It is very possible. When you look at determination of the exchange rate now, we have what we call managed float. And if you look at even where the exchange rate should go, if not the inflation rate that is higher than the MPC rate, am sure by now, the prediction of dollar should be N250 per dollar. It is feasible.

What is your outlook for the naira in 2018?

My outlook for the naira is that I see the naira going to about N300 to the dollar. The basis for my outlook is that we are going to have robust external reserves next year; we have cut down our food import and we are diversifying our exports. You will alsosee that in all we are doing now, everybody is imbibing the rules of corporate governance, Know Your Customers (KYC), Anti-money laundering rules, among others.

The third quarter GDP report showed that except for the oil and gas and agric sectors, all other sectors contracted. This prompted some analysts to argue that the economy is still in recession. From the BDC industry perspective, what is yourtake on this?

I think economics have already provided the answer to the issue of recession. We cannot start redefining what a recession is. Recession as defined by economists is two consecutive quarters of negative growth, and if there are statistics that indicates otherwise that we had positive GDP growth then I also want to agree with that statistic. However, I agree that it’s like a single sector driven positive GDP growth, where it is only the oil and gas sector that is contributing most of the growth we are having. But I think it is not a bad analysis, it is also something that can keep us in our comfort zone, that we are doing well. However, in terms of the BDC sub-sector contribution, we have contributed billions of naira in turnovers. Because each BDC is doing a minimum of N15 million transactions per week, multiply that by 3,500 BDCs.

So, this is the turnover we contribute to the economy. In fact, I don’t think the oil sector has the kind of turnover we are having. And with our automation drive, we believe inflow from investors as a result of the confidence so far established on the stability of the exchange rate, will double or tripple. And with the continued determination of the government to ensure peace, the diaspora remittances and estimated at $35 billion, we also predict, will go up to between $45- $50 billion. So, these are other sources that will empower the CBN with more ammunition to use the BDCs and ensure that the exchange rate continues to stabilise, and the rates continue to converge, and the spikes is no more in the market.

You said that the CBN should allow BDCs access dollars from the I&E window. How workable is this?

Yes, it is very workable. If you look at the IMTO window now, the proceeds come to the banks, which is been coordinated by the CBN, and it is disbursed to BDCs operators. So, the same concept or procedure can be adopted in I&E window. In fact what we are even looking at is that there should be a Diaspora window like I&E window. The modalities, the technicalities are the same. It is the same institutions that will be involved. So, it is the same players, it’s just coordinating them and make sure the same thing is applied and everybody is happy.

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

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Crude Oil

Nigerian Oil Theft Escalates to 400,000 Barrels a Day, Exposing Systemic Corruption

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A recent report has revealed that Nigeria’s daily oil losses surged to 400,000 barrels as efforts to curb crude oil theft remain ineffective.

This escalation from 100,000 barrels per day in 2013 underscores the severe and worsening challenge facing the nation’s oil sector.

The report, produced by the public policy firm Nextier, is the result of several months of in-depth investigation.

It reveals a complex web of sophisticated networks involving powerful actors, foreign buyers, security personnel, transporters, and government officials.

This elaborate system facilitates the large-scale theft of crude oil, which has been a significant drain on Nigeria’s economy.

From 2009 to 2021, Nigeria lost 643 million barrels of crude oil, valued at $48 billion, due to theft. This loss represents more than half of the nation’s national debt as of 2021.

The situation has also severely impacted Nigeria’s ability to meet its OPEC quotas, which have dwindled from 2.5 million barrels per day in 2010 to just 1.38 million barrels per day.

The report, authored by Ben Nwosu, an associate consultant at Nextier, and Ndu Nwokolo, a managing partner at Nextier, paints a grim picture of the local dynamics fueling this crisis.

It highlights the involvement of multiple small-scale artisanal actors, who are often supported by local political and security forces. These local actors contribute to the creation of underground economies, further complicating efforts to curb theft.

Environmental hazards are another grave concern. Illegal refining processes, characterized by uncontrolled heat and poorly designed condensation units, have led to numerous explosions. Between 2021 and 2023 alone, these operations resulted in 285 deaths.

Despite these dangers, illegal refineries continue to thrive due to economic necessity and systemic corruption.

Nigeria’s four refineries, which have a combined capacity of 445,000 barrels per day, are currently operating at only 6,000 barrels per day due to mismanagement and corruption.

This shortfall forces the country to rely heavily on imported refined products, further exacerbating the situation.

Massive corruption in oil importation and subsidies has led to billions of naira being unaccounted for between 2016 and 2019.

Moreover, the government’s inability to support modular refineries has perpetuated reliance on illegal operations.

Security forces are often implicated in the theft, providing protection for a fee. Although recent measures, such as the destruction of illegal refineries, have offered temporary relief, these efforts have been short-lived.

New illegal operations quickly emerge, perpetuating the cycle of theft and corruption.

The authors of the report emphasize that addressing this complex issue requires more than punitive measures. They call for a comprehensive approach that tackles the root causes, including the need for effective governance and economic opportunities for affected communities.

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Crude Oil

Brent Crude Falls Amid Anticipation of China’s Industrial Output Report

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Brent crude prices fell on Monday, reversing some of last week’s gains as traders anxiously awaited the release of key economic data from China, the world’s largest importer of crude oil.

After climbing 3.8% last week — the first weekly rise in four — Brent crude edged down toward $82 a barrel. Similarly, West Texas Intermediate (WTI) crude was trading near $78 a barrel.

The market’s attention is now focused on China’s scheduled release of industrial output and crude refining figures for May, which are expected to provide crucial insights into the economic health and energy demand of the country.

China’s oil refining — known as crude throughput — is anticipated to be flat or even decline this year for the first time in two decades, excluding the downturn experienced in 2022 due to the COVID-19 pandemic. This projection is based on a survey conducted by Bloomberg among market analysts.

In 2023, China processed a record volume of crude oil as demand rebounded, but signs of robust supply and persistent concerns over Chinese demand have kept oil prices trending lower since early April.

The situation was further complicated by OPEC+’s recent decision to increase output this year, which initially unsettled the market. Key members of the cartel have since clarified that production adjustments could be paused or reversed if necessary.

“Crude has room for growth,” said Gui Chenxi, an analyst at CITIC Futures Co. “The third quarter is typically the peak season globally and should drive oil processing and demand higher.”

Market participants are keenly watching the forthcoming data, as any indications of weakening demand could weigh heavily on prices.

Conversely, stronger-than-expected industrial activity could support prices and offset some of the recent bearish sentiment.

The ongoing uncertainty has led to cautious trading, with investors reluctant to make significant moves until more concrete information is available.

This cautious approach underscores the delicate balance the oil market is trying to maintain amid fluctuating global economic signals.

As the world’s top crude importer, China’s economic performance is a key barometer for global oil demand. The data expected from China will not only influence immediate trading strategies but also provide longer-term market direction.

In the meantime, the oil market remains on tenterhooks, reflecting the broader uncertainties in the global economy.

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Crude Oil

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17

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Crude Oil - Investors King

Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

 

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