Lately, the embattled Nigerian naira may be on the path of strengthening moderately against the US dollar, informal traders say, basing their outlook on new schemes by the Central Bank of Nigeria (CBN) to free up gummed FX sources.
These policies include licensing an additional 11 international money transfer operators (IMTOs) to process diaspora remittances (Nigeria’s second largest source of FX), and a directive to commercial banks to sell the proceeds to Bureau De Change (BDC) operators.
Aminu Gwadebe, President of the Association of Bureau de Change Operators in Nigeria (ABCON), said that “It appears a two edged sword which will address the foreign exchange supply and demand side,” in a phone interview on CNBC. “Now that the apex bank is adopting these tactical and strategic approaches, I can assure you that in the next few days, we will begin to see the naira stabilise to the dollar.”
Gwadebe added that with 14 IMTOs operating in the remittance market, and the re-entry of the nine commercial banks hitherto banned from the FX market, “The CBN and the banks would be generating nothing less than $15 million dollars per day.
“This equates to $15 million daily, $25 million weekly, and $100 million in a month. Yet this is the least we should expect from tomorrow or next,” he said, also noting that the circular directing banks to sell FX proceeds from the IMTOs to Bureau De Change (BDC) operators will quell the burgeoning dollar demand.
The Nigerian naira has now weakened more than any other major oil currency in the wake of declining crude prices, losing almost half its value against the dollar, compared with 46 percent for Kazakhstan’s tenge and 35 percent for the Colombian peso.
Despite strengthening 0.16 at N314.75/$ in official trading as at 12:02pm on Thursday, the naira has plunged to new lows, as dollar supply wanes amid high demand.
“My final advice is that if you are speculating with the naira, this is the time to think twice, because there will be a kind of supply in the market,” said Gwadebe.
Nigeria’s forex sources have been gummed up, following low crude price and production cuts and foreign capital flight.
In a bid to draw some inflow through official channels, the CBN clamped down on unlicensed IMTOs, the window through which diaspora remittances flow in. However, in a circular on its website, the apex bank disclosed it has licensed 11 money transfer operators. Rounding the IMTOs to 14, from a paltry three (Western Union, Moneygram and Ria).
“Although I wouldn’t put a figure to the quantity of dollars to be unlocked in the FX market, I think what the CBN has done regarding unlicensed IMTOs is good,” said Ayo Akinwunmi, head of research at FSDH Merchant bank, by phone.
“It would help track the amount of inflows from Nigerians in the diaspora and shore up eroding dollar liquidity at the official market.”
Akinwunmi added that “lifting the ban on the nine banks would also ease pent up demand from the people who have been denied FX following their banks suspension from the interbank market by the CBN.”
He also said portfolio inflow is bound to look up “due to the positive yields on government’s fixed income securities, which is far higher than obtainable in peer countries. However, maintaining these policies is indispensable.”
Gwadabe of ABCON thinks “In furtherance of the quick wins of these fresh policies, we can outsource the distribution of FX to independent distributors.
I am certain that once that is addressed, we will begin to see an injection of at least between $300 million and $500 million monthly to the retail end.”
Nigeria is officially in recession, as the National Bureau of Statistics (NBS) confirmed GDP growth contraction by 2.1 percent in the second quarter.
“It is no surprise, as the macroeconomic woes which saw growth contract by 0.36 percent in the first three months of the year, intensified in Q2,” said Muda Yusuff, director-general of the Lagos Chamber of Commerce and Industry on the side-lines of the NSE-Bloomberg economic discourse Wednesday.
Selloua Chakri, head of market structure strategy, Middle East and Africa at Bloomberg told BusinessDay that “The gains of the FX market liberalisation may douse negative growth in Q3.”.
In separate reports by the NBS, inflation rate touched an 11-year high in July at 17.1 percent; while unemployment rate climbed to 13.3 percent in the second quarter from 12.1 in Q1.
LOLADE AKINMURELE
