Foreign exchange dealers and experts have called for the redefinition of some imported items excluded from access to the official foreign exchange rate by the Central Bank of Nigeria (CBN) so as to curtail the ongoing arbitraging and speculation opportunities in the foreign exchange market.
Godwin Emefiele, the CBN governor, alluded to the different definitions to the products being imported under the RDAS yesterday, when he spoke on a CNBC programme, but said that the apex bank is monitoring to ensure that those items that aid economic growth would enjoy the official rate.
Emefiele said items enjoying the official rate presently, are raw materials and petroleum products, adding that as an import dependent economy, there is no way Nigeria can float the naira.
However, BusinessDay investigations reveal that the process is being abused by dealers in connivance with agencies at the ports, as finished products are imported and falsely labelled as either spare parts or semi-finished goods, to take undue advantage of the official rate of N168/$.
The result is that large sums of dollars are acquired at the official rate and resold at the parallel market at between N205 and N210 to a dollar, thereby creating room for round-tripping which puts pressure on the naira.
Also, the CBN has been urged to incorporate the informal sector to the Retail Dutch Auction System, (RDAS), as the new directive appears to be momentarily pushing down the level of infractions at the market, which is giving impetus to the economy.
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The CBN had through a circular in November last year, directed that electronics, finished products, information technology equipment, generators, telecommunications and invisible transactions should henceforth be funded through the interbank foreign exchange market, currently at N196/$1 as against the official N168/$1.
The directive is one of the Apex banks concerted efforts to stem the free fall of the nation’s currency, enhance the value and maintain exchange rate stability, but the result is far from that anticipated.
Financial experts think that what is actually needed is a policy reversal that would shore up the naira and stabilise the economy.
“We have noted that there is the need for a reversal in the policy that excludes some imported items from participating in the CBN forex market. Nigeria is an import dependent nation and significant activities are executed through the informal sector,” Ayodeji Ebo, Head Investment Research, Afrinvest Securities limited said.
Ebo explained that, “a proper redefinition of the semi-finished goods, raw materials and invisible sub sector may help to reduce the confusion created by the directive, but that is not the only solution.
A policy that accommodates the informal sector in the CBN or interbank forex market as the government strategizes to reduce importation may be the silver bullet,” he added.
According to a top industry payer, “the widening gap between the official and parallel market rates seems to be ushering in the era of round-tripping, speculative activities and economic rent.
“The CBN should, as a matter of urgency, come out with clarification on the definition of what constitute semi-finished goods, raw materials and invisible sub-sector, among others, that enjoy the official rate at RDAS, or else the volatility in the forex market and pressure on the naira will continue for a long time.”
Ebo further said: “In our 2015 outlook report, we have projected an exchange rate of approximately N200 to $1.00 at the interbank segment of the forex market if oil prices dip further to $40pb and the policy excluding some imported items is not reversed.”
Bismarck Rewane, chief executive, Financial Derivatives Company limited, in the outlook for the month, from the Lagos Business School Breakfast meeting, looks at the possibility of CBN scrapping RDAS and adopting a pure interbank market, with a possible link up with the special intervention for Bureau De Change (BDC).
Analysts at Ecobank, in their market commentary, said that, “the naira depreciated 1.3 percent against the dollar in the Inter-bank (-6.4% YTD) on February 9, 2015. Increased demand for the dollar, to cover import bills (energy and manufacturing sectors), and uncertainties over outlook, undermined naira performance, closing at N196.4: $1.
“The naira outlook is significantly at risk due to uncertainties over crude oil price, along with election-related spending that is pushing liquidity above target.”
A top industry player told BusinessDay that “the current happening are as a result of the impact of declining oil prices, which has brought about a fall in forex reserves as export revenues drop.” This, according to him, “is followed by naira being under pressure, even as expectation of further adjustment heightens. These systemic inefficiencies and perverse incentives mean various ‘games’ by operators to take advantage of arbitrage opportunities which are becoming irresistibly attractive.”
The Lagos Chamber of Commerce and Industry (LCCI), recently cautioned the CBN over the policy which excludes some transactions from the RDAS as a result of pressure on the foreign exchange.
“This has caused serious shocks and dislocations for many businesses with most of them thrown instantly into loss positions as even raw materials and equipment for industrial use are being denied access to the RDAS window,” Remi Bello, LCCI’s President was quoted as saying.
John Omachonu
