Exporters lead forex supply

Exporters have overtaken the Central Bank of Nigeria (CBN) as the dominant supplier of foreign exchange (forex) to the official market (the Investors and Exporters (I&E) window).

The apex bank lost its position after its monthly forex intervention dropped from $1.2 billion to $100 million, following the naira reforms that collapsed all exchange rates into the I&E window.

The expected capital inflows target from the naira reforms has not been met, Head of Treasury Sales at FirstBank, Mrs. Adeola Abioye said at the weekend in Lagos the bank’s Corporate Customer Engagement Forum.

She explained that forex proceeds from exports account for about 15 per cent of the total forex inflows to the I&E window.

She told the bank’s customers that exporters have shot into the lead as forex suppliers to the official market, and that the apex bank was not keen on regaining the dominant forex supplier status.

According to Mrs. Abioye, tight forex liquidity will persist as deadline for school fees payment for Nigerian students studying abroad draws closer.

She said: “CBN Forex supply has gone down from average of $1.2 billion to less than $100 million per month, at present. Unfortunately, the major contributors to the Importers and Exporters (I&E) window has been the exporters. Forex proceeds from exports account for about 15 per cent of the total forex inflows.

“And if the whole market is now relying on export proceeds, then you can understand why the market liquidity has been so tight for so long. It is not looking like there is going to be any major shift in that for now.”

Mrs. Abioye explained that there are hanging forex demands, made up of the covered obligations with forex allocations that have not been delivered.

She said: “We have about $7 billion of that. We also have uncovered obligations, for which there is no allocation whatsoever. And as long as those obligations remain unsettled, it will continue to distort the market. It will not allow for a proper discovery of exchange rate.”

“The news is that as we speak, between the monetary authority and bankers committee, and other stakeholders, a lot of discussion and dialogue are going on, on how to resolve the backlogs.

“This is because without taking out the backlogs, from the equation, it is going to be difficult to allow for a more efficient exchange rate discovery. That backlog is distorting the market, and need to be taken out.”

On the way forward, the FirsBank official said: “Businesses should look into non-oil export. We have seen a surge in the non-oil export, but the concentration has been on the agriculture. I think that businesses should be more deliberate and intentional about focusing more on non-oil export.

“The body language is that we are not going to be seeing as much supplies from monetary authority as we were seeing in the past. The generation of forex supply will then lie in the market because we are not likely to be seeing the CBN playing the major role that they played in the past in providing forex.

“Businesses now have to get their own source of forex, and one way to do that is to be more intentional and deliberate, focusing on export business. Not just for companies that are traditionally within the export business, but even for companies that are import dependent to look at export as a way of diversifying our businesses.”

According to Mrs. Abioye, available facts showed that the expectations for unifying the exchange rate market has not been met.

She said: “Of course, that is not to say that things will continue this way, because I am aware that a lot of dialogue is ongoing. There are lots of consultations with the CBN, and the markets.

“All layers of market participants, all options are being thrown open, to the CBN and everything is being reviewed. So, we expect that some further policy shift will have to occur for us to be able to unlock the liquidity within the forex market space.

“This outlook is based on the fact that if things continue this way, assuming there is no change in the current fundamentals that we are seeing now – in the structure of the market, then expect that the forex liquidity tightening will continue in near term, like end of this year before some of the other policies begin to shape.”

She said that within the monetary space, there is nothing to be done, except within the fiscal space that the economic managers have opportunity to effect major change in the direction of the market. However, such fiscal options are not likely to be realized between now and end of the year.

“Most likely forex liquidity will continue to be tight, exchange rate divergence will continue to widen, and could even widen further from where it is now.

“The reason I said it could widen further is because by the time we get to the deadline for school fees payment, and panic buying sets in, and there is no further supply on the other side of the market, there will be so much panic and the rates are likely to go up.”

Continuing, she said that as at the weekend, the rate at the parallel market was at N955/$ for cash.

“For transfer, it is higher than that. It is about N960,” Mrs. Abioye said.

Urging the authorities to focus more on non-agric side of exports, she said: “There are a lot going on in the solid minerals sector.

“There is also need for import substitution for things that we can produce locally. We should be more deliberate about that.”

“In the interim, we also encourage businesses to buy available forex. There is not much out there, but whatever is left, let us try as much as possible to buy them up to close up on our obligations.”

Founder/Chief Consultant of B. Adedipe Associates Limited, Dr. ‘Biodun Adedipe, said an organisation should have the ability to access quickly new funds, either to take advantage of an emerging opportunity in its market or to survive/stabilise during a crisis or major shock in its operating environment.

Adedipe, who spoke on “Policy shifts and disruptions- what, why and implications” advised business owners to be nimble, agile and responsive to the changing business environment, including the challenge of naira depreciation, petrol subsidy removal, taxation, among others.