• Friday, December 08, 2023
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BusinessDay

Markets more focused on aftermath of $10bn inflow

CBN pegs loan to 100 for 100 initiative at N5bn

The $10 billion inflow expected in the country in the next few weeks is expected to go a long way towards quenching the dollar drought in the foreign exchange market.

Analysts in the financial markets are however concerned about what would happen after clearing the FX backlog estimated to reach $10 billion.

Unsettled FX backlog has remained a source of concerns among analysts in the financial service sector, as the persistent delays worsened investor confidence.

FX inflows into Nigeria and the external reserves have been on a steady decline and the demand for dollars remains high, thereby creating pressure on the exchange rate. More so, limited access to FX in the official market are incentivising players to purchase FX in the black market.

Wale Edun, the finance minister, said Monday that the country was expecting as much as $10 billion in new foreign currency inflows in the next few weeks to ease acute dollar shortages in the FX market.

Read also: Nigeria’s ginger export hits N10bn in Q2

BusinessDay’s findings showed the $10 billion is expected to be sourced from two tranches of forward sales by the Nigerian National Petroleum Company Limited (NNPC), which could yield $7 billion while the additional balance is expected from Qatar, which will provide a soft credit without strings.

Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said there is a need to clear the matured FX outstanding so that manufacturing companies can continue business.

“The business environment needs to improve so that companies can produce and export. Bottlenecks at the port will need to be addressed to ease export of goods. Government needs to intensify its efforts in the development of the mining sector so that it can contribute to exports,” he said.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said when the backlog is cleared, there would be more space for intervention in the FX market by the Central Bank of Nigeria (CBN), which will help stabilise the market and attract further inflows.

“If you clear the backlog, you will have more space (for CBN, NNPC) to regularly intervene in the FX market. Right now most of what they have is what they are using to clear the FX backlog. If they are not clearing the backlog and they are able to intervene the way Godwin Emefiele, former CBN governor, was intervening – maybe $1 billion every month – the market will stabilise,” he said.

Read also: Naira seen to stabilise if announced $10bn flows into economy

According to him, the problem is that there is no adequate supply to clear the backlog and also supply the market at the same time.

Yusuf said: “So if you take away the black it will be easier to regularly supply the market. Secondly, if you clear the backlog, it will be easier to attract inflows from other sources because the level of confidence would have improved.

“For instance, investors will say, ‘okay if I take my money to Nigeria, it will not get stucked,’ because at that point, there would have been an established liquidity in the FX market. It is not that we are not earning FX at all, the little we get are being swallowed by backlog and things like that. There is no capacity at all to intervene in the market because supply has practically dried up and because there is no capacity to intervene in the market, there is loss of confidence in the market and those expected to bring in money are not bringing in money. So the whole idea is to restore confidence in the FX market and in the economy; once confidence is restored, the situation will normalise.”

Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said the only sustainable way to boost FX supply is to diversify the export base that enables multiple sources of FX including through massive investments in agriculture and solid minerals in partnership with the private sector.

He said: “It’s still not clear the sources of the expected $10 billion and its nature and purpose. If it’s coming from the IMF (which I doubt) then it is short term and can be used to clear FX arrears and intervene in the FX market to stabilise the exchange rate.

“If it comes from development finance institutions, then it is long term and the focus should be on financing critical infrastructure such as power that encourages foreign direct investments.

Read also: How Nigeria plans to source $10bn to fix FX crisis

“If some FX inflows are realised on the back of the proposed forbearance/amnesty, these can also be utilised to meet FX forward obligations and intervene in the market.”

Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, said: “Are we not jumping the gun because a lot of promises have been made in the past? If the $10 billion is already in the system, we will now be discussing what next.”

He said the first step will be to have a guaranteed supply by increasing oil production and reducing oil theft. “In the medium to long term, improve on export production and then talk about an efficient market.”