At the parallel segment of Nigeria’s foreign exchange (FX) market, the Naira fell to N900 a dollar on Tuesday following report by JP Morgan that estimates Nigeria’s net FX reserves at $3.7billion.
JP Morgan said that Nigeria’s FX reserves is “significantly lower than prior estimates, owing to larger-than-expected currency swaps and borrowing against existing reserves”, adding that “the foreign exchange market will remain in focus given the likely lower starting point for net FX reserves, with an overall balance of payments deficit pointing towards continued FX pressure”.
Parallel market FX dealers were on Tuesday, August 22 buying dollar at N885 while selling at N900, according to data by AbokiFX, an online platform that tracks the exchange rate on the parallel market.
Before this revelation, the naira had for the past days remained flat at N860/$ amid cooling demand pressure at the parallel segment of the market.
Nigeria’s Central Bank recently announced August 31 as the commencement date of the Price Verification System Portal (PVS) as requisite for Form ‘M’ application. The apex bank also announced the operational mechanism for Bureau De Change Operations in Nigeria.
For BDCs, the CBN said among others that the spread on buying and selling by BDC Operators shall be within an allowable limit of -2.5percent to +2.5 percent of the Nigerian foreign exchange market window weighted average rate of the previous day.
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This is in addition to mandatory rendition of BDC Operators statutory period reports on the Financial Institution Foreign Rendition System (FIFX)
CBN also said that from August 31, all applications for Form ‘M’, which is the declaration of intention to import goods into Nigeria, shall be accompanied by a valid Price Verification report from the PVS portal. With the PVS, the apex bank could distinguish those who genuinely need forex and halt the crisis in the sector.
While CBN rolls out these new policies in the FX market, analysts believe that Nigeria must work towards boosting the supply side of the FX market to meet genuine demands.
During the recent Naira conference themed “The Naira: Paths to Institutional Reform and Accelerated Growth”, stakeholders noted the volatility and uncertainty that pervades the Nigerian foreign exchange scene. During the panel session titled “from fragmentation to integration: shaping a more cohesive forex market”, Aminu Gwadabe, president of the Association of the Bureau-De-Change Operators of Nigeria (ABCON), one of the panellists was of the viewpoint that the volatility in Nigeria’s foreign exchange market is not demand-driven but the excess liquidity in the market created by graft.
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He provided suggestions for establishing a more integrated foreign exchange (FX) market, including, demonopolising the key players in the exchange market. He emphasised the significance of Bureau-De-Change (BDC) operators within Nigeria’s Forex market, asserting the necessity of incorporating registered BDC operators when shaping policies related to the forex market.
Ola Oyetayo, CEO of Verto also acknowledged some of the reforms made by the current administration, but noted that the country needs to fix the supply issue for foreign exchange, highlighting the decline in Foreign Direct Investment into Nigeria from about $4.7 billion in 2008 to about $468 million in 2022. Furthermore, he pointed out that despite the growing trend of Nigerians migrating abroad, there has not been a notable rise in diaspora remittances flowing into Nigeria.
While speaking to BusinessDay on how Nigeria can boost FX supply to stop the recurring volatility in the market, Abiola Rasaq, former Economist and Head, Investor Relations at United Bank for Africa Plc said, “Boosting FX supplies is the ultimate and sustainable solution to the current FX crisis, albeit it requires major structural shifts, including supposedly low hanging fruits such as boosting oil and gas production/ exportation, opening up opportunities for foreign director investments (FDIs) across different sectors of the economy and providing comfort and confidence to the investors in terms of property rights and ability to repatriate their capital and profits”.
He said Nigeria needs to encourage non-oil exports through various reforms, including effective collaboration of fiscal authorities and the CBN in ensuring that proceeds of non-oil exports are duly repatriated to Nigeria. “Of course, as the government addresses the supply side of the FX equation, there is also the need to address the demand side, not by use of fiat approaches to suppress demand, rather by creating the environment that naturally and steadily moderate demand through import substitution”.
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The analysts noted for instance that “to boost oil production, we need to conduct new rounds of oil licensing and accelerate the process for renewals of expiring licenses, both OMLs and OPLs, including marginal field licensing. Indeed, the Federal Government needs to work closely with the state governments in the Nigeria Delta area, including encouraging state and local governments as well as communities to take up minority equity stakes in new marginal oil and gas fields to further align their interest in stemming oil theft and stimulating production and exports”.
“I believe the community should be the first line of defence for oil assets and that can only be effectively done when there is an alignment of interest. Whilst I do reckon there are so many nuances to these, especially as there are ‘cabals’ who profit and would like to maintain the status quo, but we can improve on the current system through extensive engagements, consultations and negotiations, without compromising the powers of the state and federal government, as such is also important to avoid anarchy and hijack of a good and purposeful reform policy.
“Indeed, new licensing would ensure the flow of new investments into the oil & gas sector and ensure increased production today as well as guarantee better production/export volumes in the future. Definitely, we need to look at the value chain of the sector, especially oil refining, including a revisitation of licensing for more refineries to boost our local capacity and provide prospect for exporting refined petroleum products to our fellow African countries,” Rasaq.
