- CBN Moves on Forex to Boost Economy
Nigeria’s central bank has made moves to strengthen the naira currency to boost domestic manufacturing and lift the economy out of recession caused by the slump in global oil prices.
But analysts said the measures do not go far enough and foreign investment would only return to Africa’s most populous nation once the market determines the currency’s true value.
The naira has lost value against the US dollar, as Nigeria saw revenues from international oil sales dwindle because of the worldwide slump in crude prices.
Stalled investment has led to a shortage of foreign currency, making it harder for local businesses to source enough dollars to pay for imported raw materials and machinery.
It has also caused a yawning gulf between the official rate and that on the illegal, but tolerated, black market.
The Central Bank of Nigeria (CBN) currently sells dollars in the country’s multiple forex markets at 315 to 375 naira, allowing dealers to make a small profit on customer transactions.
This week it directed commercial banks to sell at 360 compared with the previous rate of 375, to forex users wanting to pay overseas school fees, medical bills and other “invisibles”.
“We believe that what has been driving the parallel market rate, apart from speculation, has been some of the invisibles,” bank spokesman Isaac Okorafor told AFP.
– ‘Not healthy’ –
Nigeria’s President Muhammadu Buhari has stated he does not want the market to determine the value of the naira and argued devaluation would “kill” the currency.
Since mid-February, the CBN has been pumping dollars into the market to strengthen the naira and bridge the gap between official and black market rates.
Official data show some $2.5 billion have been sold to end users, causing the local currency to rally to 380 on the open market as of Thursday, compared with a previous dollar high of around 520.
Monetary policy in recent months has been aimed at encouraging local production of what has previously been imported at huge cost.
In June 2015, the CBN prohibited 41 items, including tooth picks and luxury jets, from the official forex window.
Okorafor maintained the policy had “rejuvenated domestic production”, providing “an opportunity to change the economy’s structure, resuscitate local manufacturing” and create jobs.
The head of the Manufacturers’ Association of Nigeria, Frank Jacobs, said any move to strengthen the naira was “a positive development”, as not all members sourced forex officially.
“Some manufacturers, especially the small-scale firms and those affected by the ban of the 41 items, source their dollars from the bureaus de change and the black market,” he added.
“Lowering the rates will definitely help them and the economy.”
Financial analysts, industry operators and the International Monetary Fund, however, said the bank needed to go further and harmonise all of Nigeria’s forex market rates.
Bismarck Rewane, of the Financial Derivatives consultancy in Lagos, added: “A situation where the central bank is the sole supplier of forex is not healthy.
“It is creating an air of uncertainty for investors. The CBN is artificially funding the market to punish speculators and hoarders.”
Of particular concern was the use of foreign reserves to shore up the naira, he said.
“We are using up in six weeks what we ought to use for six months. This is not sustainable,” he said, urging the CBN “to move towards a market-driven” forex market.
That would give greater certainty for currently wary investors, he added.
– Precarious situation –
The director-general of the Lagos Chamber of Commerce and Industry, Muda Yusuf, said businesses had greeted the bank’s move this week with “relief”.
“Gradually investors confidence is returning to the economy,” he said. But he also expressed concern about whether the policy was sustainable.
“How far can the CBN go in making dollars readily available to industries and importers?”
OPEC member Nigeria relies on crude oil sales for 90 percent of its foreign exchange earnings and 70 percent of government revenue, making it particularly vulnerable to global shocks.
Crude prices have rallied internationally since the slump began in mid-2014, while militant attacks that hit production in Nigeria’s oil-rich south have tailed off, Yusuf noted.
But he said the situation was still precarious.
“The CBN should further liberalise the FX market to allow for other inflows of forex. If the current supply source dries up, we may be back to zero,” he added.
Naira Declines to N465 Against US Dollar on Black Market
Naira Falls to N465 Against US Dollar on Black Market
Nigeria’s economic uncertainties continued to weigh on the Nigerian Naira despite the Central Bank of Nigeria’s forex sale resumption.
The local currency declined by N3 from N462 a US dollar to N465 on the black market even with over $58 million injected into the forex market through the bureau de change.
Against the British Pound, Naira depreciated by N5 from N595 to N600 on Friday while it dipped by N3 against the European common currency to N548, down from N545 it traded on Thursday.
A series of weak economic fundamentals and anti-people policy continued to hurt the nation’s economic outlook and investors’ confidence.
In a recent event, the Nigerian government simultaneously raised electricity tariffs, pump prices and foreign exchange rates in an economy that depends on imports for most of its supplies.
Also, with the unemployment rate at over 27 percent, inflation rate over 13 percent and the number of companies shutting downing operation rising on a daily bases, foreign investors and even local investors are now holding back on investments needed to support the nation’s weak foreign reserves and cushion the negative effect of COVID-19.
While the exchange rates have moderated slightly from COVID-19 peak, it remains close to COVID-19 record.
Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month
Zenith Bank Caps International Spend Limit at $100 Per Month
Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.
In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’
It added that this review is in response to change in Nigeria’s macroeconomic factors.
The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”
This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.
Nigeria’s Foreign Exchange Inflows Decline by 43.2% in May
CBN Says Foreign Exchange Inflows Decline to $5.52bn in May
The total foreign exchange inflows into Nigeria in the month of May declined by 43.2 percent, according to the Central Bank of Nigeria’s report.
The report said the COVID-19 pandemic negatively impacted capital inflows during the month as the total foreign exchange inflows dropped to $5.52 billion.
It said “Inflows through the CBN and autonomous sources were negatively impacted.
“On a month-on-month basis, foreign exchange flows into the economy declined to $5.52bn in May 2020.
“The decline in inflow, relative to the level in April 2020, was attributed to the lower receipts from oil sources, which fell sharply by 55.2 per cent because of the continued fragility in global crude oil demand.
“Inflow through autonomous sources, particularly invisible purchases, declined by 7.0 per cent to $3.51bn, relative to the preceding month, while there was a 66.2 per cent fall in inflow through the CBN, which stood at $2.01bn in May 2020.”
However, foreign exchange outflows from the country declined by 23.9 percent to $2.50 billion in the month. Likely because of forex scarcity and the central bank forex rate adjustments that curbed outflows by foreign investors.
A break down of the report showed that outflow through the apex bank declined by 30.9 percent to $2.19 billion, below what was recorded in April.
But outflow through autonomous sources, mainly imports and Invisibles, rose by 152.2 percent to $0.32 billion. Higher than the amount reported for the month of April.
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