Delayed Forex Policy Guidelines Unsettling Markets

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Trading activities on floor of the Nigerian Stock Exchange

As the euphoria that greeted the announcement of a policy shift in the foreign exchange administration in the country from a state-controlled regime to one that leans towards market-driven framework ebb, despondency appear to be growing in its place largely due to the continued delay in the release of the guidelines for the new forex policy.

The CBN had announced the new regime on May 24, upon the completion of its quarterly Monetary Policy Meeting (MPC).

But a growing number of operators across sectors are worried that the capital market and the economy at large are feeling the brunt of the delay in the release of the guidelines.

The delay, some insist, is causing the economy to continue to “bleed” as it is denied the much needed forex “inflow” from foreign investors, who are waiting in the wings and eager to come into the nation’s economy as soon as clear rules of engagement are released.

Analysts who spoke to THISDAY reiterated that the economy was in dire straits, pointing to the indicators, which range from negative Gross Domestic Product (GDP) growth rate, looming recession, rising cost of goods and services, and increasing unemployment rate, which was put at 12.1 per cent in March among others. They also opined that the right forex policy was the compass to navigate the economy out of the woods.

Interventions by CBN

Though the CBN has continually tinker with the its forex policy, many operators and proponents of a market-driven forex policy are not impressed just as they continue to insist that the policies cannot be said to have positively impacted the economy.

The measures so far adopted by the CBN include fixing the exchange rate of the greenback at N197 to a dollar; excluding Bureau De Change and a number of items from those allowed to access the greenback from the official forex market. Others were import substitution and inward integration among others aimed at reducing over-reliance on importation, especially against the backdrop of a dwindling foreign reserves. However, all of the measures have not visibly impacted the economy.

It is against the background that many observers welcomed the announcement of a policy shift by the CBN Governor, Godwin Emefiele, on 24th May, 2016. Emefiele had disclosed while addressing journalists after the completion of the apex bank’s Monetary Policy Committee meeting which held between 23rd and 24th May, 2016 that the committee unanimously agreed to adopt a flexible forex policy adding that “details of operation of the market would be released by the Bank at an appropriate time.”

However, more than two weeks after, operators across different sectors of the economy have begun to lament the continued non-release of the guidelines. This is as the capital market which reacted positively has begun to recede in the wake of the delay.

Possible Cause of the Delay

The delay expectedly has been generating discourse among operators, stakeholders and analysts.

Speaking to THISDAY in a telephone interview, Managing Director of APT Securities, Ahmed Garba Kurfi, argued that the delay portrayed the CBN as not prepared for the new policy. He argued that the appropriate thing was for the policy to become operational immediately it was announced.

According to him, the delay gives the impression that the CBN was waiting for a third party to conceptualise the policy framework. He argued that two weeks were enough time to prepare the details if it was being prepared by the CBN.

Also lamenting the delay, Lagos based economist and research analyst, Rotimi Oyelere, noted that “The delay is very worrisome. It has become obvious that the apex bank has not decided on how to run its flexible exchange rate policy before announcing it,” Oyelere stated, adding that “MPC ought to have pegged the rate ab initio before the official announcement since expectation usually welcomes any policy announcement.”

But analysts at Meristem Securities have a different view. They argued that, “The CBN, at the announcement of the intention to institute a proposed forex exchange policy, did not give a timeline to it, so it does not augur well to hold them accountable for delay barely two weeks after the MPC meeting. Although the MPC said the framework was ready, it said, “Details of operation of the market would be released by the bank at an appropriate time.” Furthermore, if it was something to be released shortly after the MPC meeting, it would have been imminent from the communication and that presupposes that it would take a little more time to be operational. In addition, given that the FX quagmire has subsisted for a sufficiently long period of time, any proposed solution must be optimal and comprehensive with minimal downsides.

“While it is not a perfect solution, it should, to a large extent, address most of the current and potential FX challenges. This invariably requires wide consultation with and buy-in from key stakeholders, and this, of course, should take time. We acknowledge the need to speed up the process, but the quality of the solution has a lot to do with its sustainability.”.

Also speaking on the delay, President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, appealed to the CBN Governor Godwin Emefiele to expedite action on the release of the guidelines arguing that the non-release is causing serious hiccups in the economy.

He added that “I am aware of the challenges of having to synchronize the different foreign exchange windows currently in place (inter-bank, autonomous and Bureau de Change markets), but unless this is done, there would be confusion in the economy. As I said earlier, I am aware that the CBN is working hard to get the document ready.”

Implications of the Delay

Disturbed by the negatives that the delay has caused, particularly in the Capital Market, operators contended that the uncertainties surrounding the current forex policy regime was fuelling a sub-optimal performance of the market in recent days. This is contrary to the euphoria that greeted the announcement of the policy on May 24.

“The delay is causing the government to lose revenue. Had the details been released before now government would have been making money from the sale of forex which would have been sold at the new and higher rate as against the current lower rate; especially now that all the three tiers of government are lamenting that they need money.

“Besides, this would have saved the capital market. All the nose-diving in the capital market is because the policy is not clear. Investors want to be sure of how the policy will work before bringing their money into the market. If investors are clear on how to come in and get out, foreign investments will come in and we’ll have more foreign exchange to play with,” Kurfi insisted.

But, responding to questions bordering on the implications of the delay, a note from analysts at Meristem Securities stated thus: “There is an increased level of uncertainty in the economy. However, this uncertainty is not reflected in the prices as the FX rate has been stable at NGN/USD 350-355 range post the MPC meeting.”

In his own analysis, Oyelere contended that, “The delay is eroding investors’ confidence that was built around the intended policy. From what has been reported and observed so far, the apex bank is still consulting with stakeholders. This trial-by-error policy administration is really getting me concerned,” he maintained.

Speaking further, he added that ”In the short term, the delay is denying the economy foreign capital, Foreign Direct Investment (FDI) as well as Foreign Portfolio Investment (PFI) it ought to have received. Foreign investors are in haste to dispose their holdings of Nigeria equities and debts instruments.

This will further reduce the value of the naira. Going to the medium term, Nigeria government proposed issuance of foreign denominated bonds may witness low subscriptions as concerns over claims gather momentum. Finally, using foreign capital for funding critical infrastructure becomes seemingly impossible,” he added.

Like operators in the capital market, operators in the real sector are also ruing the delayed released of details of the promised flexible forex policy. THISDAY investigation revealed that planning among manufacturers has become “problematic and business projections may be dislocated.”

Speaking further on the impact of the delay on the real sector, Jacobs stated that, “It is impacting negatively on the manufacturing sector because we already have a serious situation by the on-going scarcity of forex and now there is confusion as to the rates that would apply in the market.”

He added that, “The implications are that there would be uncertainties in the operations of manufacturing companies as planning would be problematic and business projections may be dislocated. On the other hand, this situation will serve as a wake-up call for manufacturers and investors to imbibe, very seriously, back-ward integration and import substitution in their manufacturing processes. Our industrialisation should be resource-based.”

“The CBN should try to release the guidelines soonest,” he urged.

Bankers’ Committee Intervenes.

Last week’s meeting of the Bankers’ Committee has reassured Nigerians and the business community that the policy framework being worked out in consultations with stakeholders would check the prevailing speculations in the forex market.

Explaining the delay in the relase of the framework, Group Managing Director/Chief Executive, United Bank for Africa Plc, Mr. Phillips Oduoza, said it arose from the need to produce a comprehensive and robust flexible exchange policy that would address all exchange rate problems.

Assuring stakeholders that the document would soon be released to the public, he said the flexible forex policy was being finalised by the central bank.

“It’s important to get it right, we are coming up with a framework that would address current issues on foreign exchange,” Oduoza said.