STABILISING THE NIGERIAN ECONOMY

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Bilikis Abubakar argues that the government deserves a pat for stabilising the foreign exchange market

Given what time it is in the nation’s political calendar, it is understood, though unhealthy for the holistic development of the country, when commentators chose to spin narratives negatively for the purpose of politics and not for altruistic or developmental basis to favour their political persuasion or affinity. Such people however need to be cautioned and where they failed to take heed, others must situate issues in their proper perspectives.

It is common to read that the President Muhammadu Buhari administration has not achieved anything. Indeed, a common rhetoric is to accuse the PMB administration of plunging millions of Nigerians into the poverty snare. This narrative has been copiously backed up with data from foreign agencies and sometimes local ones too, that the country has become the global poverty capital on account of the policies of current administration.

Often times, the promoters of the negative or skewed narratives fail to ask the most fundamental question which borders on how the country’s economy got to where it is today. Against the foregoing, an appraisal of how the feats of the PMB administration in the foreign exchange market become necessary. The stability being enjoyed in the forex market remains one of the achievements that the current administration has recorded in the past since coming on board.

Nigerians have suffered from the FX challenges in the past. Before now, Nigeria has witnessed a significant decline in her terms of trade with crude oil price declining by 80 per cent in nominal terms from $110 per barrel in June 2014 to $22pb in January 2016. With crude oil contributing 90 per cent of exports earnings and 70 per cent of government revenue, exports earnings and revenues fell by over 45 per cent and 35 per cent respectively in 2015.

As a result, current account position, foreign exchange reserves and the naira exchange rate had come under severe pressure. At a time current account deficit is estimated -3.3 per cent of GDP, the first negative position recorded since 2009, while foreign exchange reserves fell by 27 per cent to $29 billion in 2015. The CBN had since taken several measures to stem the impacts of the external shocks on price, monetary and exchange rate stability; according to data sourced from the Nigerian Economic Summit Group (NESG).

In particular, the apex bank had adjusted the currency twice to N197 to the dollar and had also put in place several demand management measures including import restrictions on 41 items and capital controls, among other policies.

Nevertheless, the pressures on the naira exchange rate did not abate. While the interbank rate remains at N199, the parallel market rate was N305 as at January 2016, a 50 per cent premium on the official rate. The nation’s FX market was confronted with this challenge for the better part of 2015 and 2016. The cause was largely the recession that hit the nation’s economy at the time.

However, a deeper interrogation revealed other factors including the shambolic, multiple and unrealistic exchange rates, particularly the wide disparity between the official exchange rate and the more easily accessible rates at the autonomous markets. All of which the PMB administration inherited.

The wide gap in the exchange rates thus led to FX shortage in the system. The FX shortage came about because the CBN became the sole supplier of FX to the nation’s economy thus leading to a supply challenge.

Because of the unrealistic official exchange rate, many autonomous sources of FX inflow, particularly amongst exporters were not directly available to government coffers as the exporters chose to repatriate the returns through other source other than the CBN since the apex bank rates do not make any economic sense.

Findings at the time revealed that exporters were unable to access FX at the CBN rate and had to resort to the Bureau De Change operators, whose rates hovered around N500 to a USSD. Given the scenario, many financial market operators and analysts had argued that it would amount to economic suicide if they repatriate proceeds of their trades through the CBN which would only convert the USD to naira at the rate of below N200.

In the prevailing circumstance, stakeholders, among them the NESG conducted a survey, and based on it, authored an advisory note wherein it posited the way forward.

In the document, NESG urged the apex bank to “Adopt managed floating regime and drop the ad-hoc interventions as currently being practised. Such managed floating regime should be proactively managed to keep the size of the band close based on Nigeria’s economic fundamentals; ensure that the current exchange rate management framework allows quick adjustment in the system; participate as an active player in the foreign exchange market; review its method of conducting interventions in the market and ensure that information about the reserves level is timely disclosed to the public among other measures.”

The introduction of the investors and exporters window in the FX market in April 2017 proved the much needed solution. Other measures earlier introduced included a special FX window for small and medium scale enterprises (SME), to facilitate the importation of eligible finished and semi-finished items. Ban on 41 items from accessing FX in the official market among others.

But it was I&E FX window that eventually addressed the challenge for good. Tagged: “Investors & Exporters FX Window”, CBN’s Director in charge of Financial Markets, Alvan Ikoku, while announcing it via a circular had said the new window would boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

Before the introduction, investors in small businesses and exporters had always decried the closure of several investments due to lack of access to foreign exchange to procure necessary facilities to support their operations. The I&E FX window covered a wide range of transactions including invisible transactions, such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service and consultancy fees.

Also covered by the FX window are software subscription fees, technology transfer agreements, personal home remittances, bills for collection and any other trade-related payment obligations at the instance of the customer. Other eligible transactions, like ‘miscellaneous payments’ detailed under Memorandum 15 of the CBN foreign exchange manual were also covered under the new window.

Also, transactions and bills for collection were eligible to purchase foreign currency sourced from the CBN forex window limited to secondary market intervention sales, wholesale (spot and forwards) only.

Even though the FX window excluded international airlines ticket sales’ remittances, the apex bank made provisions for it through the CBN FX window.

Interestingly, the window was in line with what operators in the economy, trade group and financial, even economic advocacy groups had for long advocated. Among those who hailed the introduction were the President of the Manufacturers Association of Nigerian (MAN) Dr. Frank Jacobs; Director General of the Lagos Chamber of Commerce and Industry (LCCI) Mr. Muda Yusuf as well as other experts at the Nigerian Economic Summit Group (NESG) among several others.

Besides, the CBN also initiated periodic sales of FX. The periodic pumping of FX into all the FX markets in the economy including the Bureau De Change accompanied by a stern warning against hoarding by operators also ensured steady flow of FX to users including those travelling abroad on vacation. This was in line with the NESG suggestion that the apex bank play a more active role in the FX market.

The CBN window thus brought sanity to the nation’s FX market. With its introduction and a more realistic exchange rate of N365 to a USD, exporters became more comfortable on two fronts: they could access FX easily through the CBN window and at reasonable rates and were so comfortable to repatriate proceeds of the exports through the CBN.

This ensured that the CBN was no longer the sole supplier of FX to the economy. No doubt, the implementation of the Investors’ and Exporters’ Foreign Exchange (FX) Window had increased the supply of foreign exchange into the Nigerian economy, attracted more investments into Nigeria, leading experts to note the stability in the foreign exchange market as far back as August 2017.

Consequent upon the introduction, companies and individuals have been able to access more foreign exchange in the market than before to carry out eligible transactions and economic activities are gradually picking up. The CBN introduced the special window for investors, exporters and end-users of FX on April 21, 2017 as part of its efforts to deepen the FX market and accommodate all the FX obligations.

As at August 11, 2017 the total turnover in I&E FX window stood at US$7.62bn. A monthly analysis of the turnover showed that it increased consistently from US$0.61bn in April 2017 to US$2.17bn in July 2017.

Abubakar wrote from Minna, Niger State