Shock As Fayose, Others Endorse Buhari, Blow Hot With Powerful Statement

Post Nigeria - Governors of the 36 States have endorsed proposals of the Federal Government Economic Management Team, EMT, under President Muhammadu Buhari, to tackle the economic recession.

The Governors, at the meeting of the National Economic Council, NEC, on Thursday, September 22, in Abuja, also gave backing to the Minister of Budget and National Planning, Udoma Udo Udoma, and his Ministry of Finance counterpart, Kemi Adeosun, for their policies, which they said are tailored to revive the economy.

The NEC, is the highest economic decision making body, chaired by the Vice-President, Yemi Osinbajo. Other members are Governors, and key Ministers in charge of the economy, and also the Central Bank of Nigeria, CBN, Governor, Godwin Emefiele.

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The Governors met with Osinbajo, at the Presidential Villa, to deliberate on the state of the economy, where they endorsed Udoma and Adeosun, barely a day after the leadership of the Senate called for re-assignment of the duo, citing incompetence and inability to manage the economy as reasons.

No fewer than 23 Governors attended the NEC Meeting. They include: Governors Ayo Fayose (Ekiti), Abubakar Atiku Bagudu (Kebbi), Ifeanyi Okowa (Delta), Abubakar Mohammed (Bauchi), Willy Obiano (Anambra), Ifeanyi Ugwuanyi (Enugu), Abdufatah Ahmed (Kwara), Yahaya Bello (Kogi), Nasir El-Rufai (Kaduna), Olusegun Mimiko (Ondo), Aminu Tambuwal (Sokoto), Abiola Ajimobi (Oyo), and Badaru Abubakar (Jigawa).

Deputy Governors of Rivers, Nasarawa, Katsina, and Lagos, represented their Bosses.

A statement from the media office of the Vice-President on the meeting said: 

“Rising from its monthly meeting today at the Presidential Villa, members of the National Economic Council, NEC, presided over by Vice-President, Prof Yemi Osinbajo (SAN), expressed support for the plans and proposals of the Federal Government, to steer the country out of recession.
“While acknowledging the current economic challenges and difficulties, Governors at the meeting also endorsed the work of the President’s Economic Management Team, and specifically commended the Budget & Planning, and Finance Ministers.
“Council members in response, commended the Economic Management Team, and generally welcomed the presentation, and expressed support for the plan to steer the nation out of recession.
“Under AOB, Council members expressed confidence in, and unanimously commended the EMT and both the Budget and National Planning and Finance Ministers, for the presentations to the Council, praising their efforts, competence, and capabilities.”

"THE WORST IS OVER", CBN Gov. Emefiele Says, Reveals When Nigeria'll Recover From RECESSION

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has predicted that the nation’s economy will likely come out of recession by the fourth quarter of this year when the result of the various measures put in place by the Federal Government and the monetary authorities becomes manifest.

One of such measures, according to him, is the decision of the CBN to establish a bridge fund for the government to utilise to stimulate the economy whenever there is a need for it.

Emefiele, who spoke to media executives in Lagos on Saturday, said, “We are already in the valley, the only direction is to go up the hill and the government is doing everything possible to ensure that we move up the hill. I am optimistic that based on the actions being taken by the monetary and fiscal authorities, the fourth quarter results will show evidence that we have started to move out of the recession.

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“The worst is over. The Nigerian economy is on the path of recovery and growth. So, please if you are a bystander or sideliner, you are losing; join the train now before it leaves the station.”

While explaining the reasoning behind the bridge fund, the apex bank boss said, “Both the monetary and fiscal authorities are working together and that is why you can see a situation where today even when we have revenue shortage or deficit, the monetary authority is trying to bridge the gap.

“We said to the fiscal authority that we can give you a bridge to go ahead and spend, and when you obtain the foreign loan that you are negotiating, or when your revenue improve, you can repay the bridge that we have created for you in order to stimulate spending. That is a practical case of collaboration between the monetary and fiscal authorities.”

He alluded to the release of another batch of N350bn by the Ministry of Finance to stimulate the economy as another measure taken by the government to get the nation out of recession.

Following the introduction of a flexible exchange rate regime, Emefiele said foreign investors’ interest in the Nigerian economy was gradually increasing, adding that in the last three months, almost $1bn in Foreign Direct Investment had come into the country.

He stated, “I wasn’t optimistic that the FDI would come initially, but with what we have seen in three months, almost $1bn, I feel very confident that there will be more inflow into the system and more and more people will have foreign exchange available for them to do their business.

“That will improve industrial capacity. The rate may be high now, but there’s high possibility that with more availability of foreign exchange, the rate will come down. I am very optimistic that a lot of positive things will happen.

“I have talked about how the fiscal authority is trying to push in liquidity to stimulate consumption, demand consumption expenditure; and of course, when consumer consumption is stimulated, demand for goods will go up and if the demand goes up, the industrial capacity will improve. If we maintain a steady course in the way we are going, and if all those who have foreign exchange repatriate them, more and more people will have foreign exchange to do their business, that will improve industrial capacity.”

Another way to inject liquidity into the system, according to the CBN governor, is for the Federal Government to sell some of its assets in the oil and gas industry in order to raise money.

Emefiele said, “In April 2015, even before this government came on board, I had opined that there was a need for the government to scale down or sell off some its investments in oil and gas, particularly in the NNPC and the NLNG, at that time when the price of oil was around $50-$55 per barrel. We actually commissioned some consultants that conducted a study and at the end of that study, we were told that if we sell 10 per cent to 15 per cent of our holding in the oil and gas sector that we could realise up to $40bn.

“Unfortunately, the markets have become soft. If we choose to do that now, we can still get $10bn to $15bn, or maybe $20bn. If we have that kind of liquidity, it will be easy for us to really stimulate spending and also to turn the economy around. That proposal is still on the table, because I have also heard that some of our colleagues in the Federal Executive Council have talked about it and a lot of people too.

“If we take that option, I am optimistic we will be able to stimulate the economy and earn the foreign currency that we can really use to kick-start it.”

Another measure being considered by the Federal Government, according to him, is the shortening of the procurement process in order to accelerate the process of executing capital projects in view of the fact that the budget was not passed until May.

On the factors that pushed the economy into recession, the apex bank boss said the plunge in the prices of crude oil in the international market severely affected Nigeria’s earnings, in addition to the country’s inability to save when the prices were high and invest massively in infrastructure.

He also blamed unbridled appetite for the consumption of foreign goods for the recession, adding, “In 2005, Nigeria’s import bill was only about N70bn, but by 2015, Nigeria’s import bill had risen to about N790bn. What were we consuming?”

While reacting to the governor’s optimism that the recession would start easing off in the fourth quarter, economic and financial experts said on Sunday that it would be nearly impossible for the nation to come out of recession this year.

They said if the Federal Government implemented appropriate measures to tackle the problem, the country might be fortunate to witness a positive growth sometime next year.

“I am not sure we can come out of recession this year. Already, we are at the end of the third quarter. If the policymakers allow liquidity into the system and adopt appropriate measures, we may be lucky to come out of the recession early next year,” a professor of Economics at the Olabisi Onabanjo University, Sherriffdeen Tella, said,

The Head, Research and Investment Advisory, SCM Capital, Mr. Sewa Wusu, is of the opinion that the nation may not be able to come out of the recession until the second or third quarter of next year if appropriate measures are taken.

He said, “Recession is not something you come out of easily. It is going to be a long haul thing. We must take counter-cyclical measures to reflate the economy and get us out of recession. Nigerians need to be patient with the government. Countries that went into recession and came out did not come out so quickly.

“We need to spend money on sectors that can stimulate growth easily and also spend massively on infrastructure. Sectors that can stimulate growth, create employment, production and consumption, which we need to spend on are transportation, manufacturing and housing.”

The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “It is not possible for us to come out of recession this year. There is a time lag between the time policies are implemented and the time we begin to see their effects on the economy.

“We are already at the end of the third quarter. The stimulus package will come in the fourth quarter. Before we can begin to feel the effect, it will get to next year.”

...Punch Newspaper

RECESSION: The Real Causes And 10 Solid Expert's Solutions

Nigeria needs to rapidly apply solid solutions to rescue the nation from its current recession. Millions have lost their jobs – 4.6 million according to the national statistics bureau – and millions more are suffering severe hardship and dying and at risk of death. The further down Nigeria sinks, the steeper will be the climb out of the hole.

Sadly, most of what we read from so-called economic experts is advice for the Nigerian government to consult them or others to address the economic recession. None of them has opened up in the public space, if they have the ideas, and proffered the solutions to the current economic quagmire. They keep talking like it’s some sort of riddle and as though Nigeria is not their country and they are not part of those who got the nation where it is today. Indeed we are all responsible, but most especially those who have been in governments in the past; however blaming is disingenuous and counterproductive. What Nigeria needs now is solutions.

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The solutions for an economic recession, if it can be solved, are not private or secrets of any kind. This is why anyone who keeps it a mystery does not have anything good to offer. The U.S. recession was solved with simple open processes including for a big part, the “2009 Stimulus” [the American Recovery and Reinvestment Act of 2009 (ARRA)].

A few “solution” comments I have read which include, flooding the economy and diversifying, are palliative and long-term and not to address the fundamental, acute and chronic issues that are not peculiar to Nigeria. While I am not an economist by training, as an educated Nigerian with preservation of my nation at heart, it is my duty to contribute my researched analysis on the solutions for the current problem(s).

How Did Nigeria Get Here?

While the Obasanjo and Jonathan governments definitely played a major role in getting us here by selling (Obasanjo privatization frenzy) all of Nigeria to cabal and looting all its earnings, it is counterintuitive to keep blaming them. The truth is that there is more to this recession than the tens of billions of dollars they and their private cabal partners looted and the infrastructure they failed to build. We must recognize that the recession is not limited to Nigeria. Venezuela is feeling it too; even Saudi Arabia is laying off workers in the thousands.

Two global factors played the biggest role in bringing on this economic famine.

The first was the Saudi oil war-games. By pumping oil at above quota, Saudi Arabia single-handedly determined to crash oil prices and punish all oil producers. Saudi pumps oil at under $10 a barrel which makes low prices still profitable for them, unlike Nigeria where the Obasanjos, Babangidas and other semi-intelligent, money worshipping lowly organisms exploited the country permanently with deals that produce our oil at as much as $33/barrel. Low oil prices, with oil being Nigeria’s mono-economic singular export, naturally crashed the Naira. Unfortunately when teased during an Al-Jazeera interview, President Buhari said he will never challenge Saudi Arabia on the kingdom’s crippling decisions and will not even dare threaten to pull out of Saudi-run OPEC in order to push for Nigeria’s survival. So we are stuck here as far as oil prices go.

The second factor that really triggered this recession, most specifically, the tissued Naira was a U.S. decision made public – and thus, operative– as early as March 2014, to increase interest rates. Floating this decision alone caused investors to buy-up the dollar and through 2014 before the rate was even increased, the Benjamin appreciated the most it ever had in a decade, rising as much as 12% in value that year alone. Naira crashed as did Cedis and other currencies. By December of 2015, the U.S. Fed finally increased interest rates to between 0.25 and 0.5% and the fortunes were sealed. The Dollar continued to appreciate, investors in the U.S. would get more money on their bank deposits and mortgages would rise. The rates are on course to further increase to about 0.875% in 2016. It’s summer for the dollar and winter for the Naira.

It is important to always compare what is happening in Nigeria to peer nations. Our analysts compared the changes to the Naira to the Cedis. Like the 2012 fuel subsidy removal which was not a puppet Jonathan thing per se but a mandate from the IMF as we noticed that the same subsidy was removed across West African nations at the same time on the instance of Lagarde, so also the Forex crash has been virtually identical in Nigeria and Ghana. While the Cedis dropped over the past three years under highlight, gradually, reaching a 1:4 value from the initial 1:1.7 it was in early 2014 post revaluation, the Naira was artificially retained at an inflated value and crashed in one swoop, also downgrading from about 1:160 to 1:425. Both have crashed the same proportion.

Bearing this in mind, next are frank solutions to Nigeria’s recession:

1. Actual Devaluation of the Naira

Why is there a black market, BDC in Nigeria? Why does the country have two dollar rates? This is supervised corruption and main reason why the Naira remains in free and turbulent fall.

Central Bank, CBN’s Godwin Emefiele continues to play games with Nigeria, refusing to fully devalue the Naria. A rate duplicity is maintained with the current interbank dollar rate at N305 while the parallel market sells this at N425. This dual rate is corruption and set up to favor the cabal who have been dashed billions of dollars via CBN subsidized dollar sales. Godwin and his friends are able to make N115 on every dollar. The dual rate also maintains a competition for dollars which hikes the price at the parallel market with rebound effects on the interbank rate. A recent Reuters article highlighted how corrupt governments-made billionaire Aliko Dangote was literally dashed $100 million in just over two months of Buhari’s tenure in review. Extrapolate that to a year and you get a total gift of as much as $500 million dollars.

CBN GOVERNOR, MR GODWIN EMEFIELE; VICE-PRESIDENT YEMI OSINBAJO AND PRESIDENT MUHAMMADU BUHARI (29/6/15). 5067/29/6/2015/ICE/CH/NAN

CBN GOVERNOR, MR GODWIN EMEFIELE; VICE-PRESIDENT YEMI OSINBAJO AND PRESIDENT MUHAMMADU BUHARI (29/6/15). 5067/29/6/2015/ICE/CH/NAN

Nigeria can only come out of the recession if the Naira is truly devalued, and there is no longer pressure on the BDC (Bureau de Change). While the federal government of Nigeria is seeking a $1 billion Eurobond, it has within the same period dashed Dangote half a billion dollars in the span of a year and the cabal as a whole some several billion dollars in subsidized forex for their personal ventures while small businesses were shut out to die. This cannot continue. As Senator Ben Murray-Bruce said, the central bank is for all Nigerians and not only the cabal.

2. Recover Nigeria’s USD Billions And Do Not Borrow

The Federal government of Nigeria should not borrow money. It has no need to do so as this has no long term benefit. Rather the Buhari government should employ the services of Nigeria’s best lawyers including Attorney Femi Falana to exigently go after the more than 100 billion recoverable dollars Nigeria has abroad and with bailed-out local banks.

Falana explained in February of this year, “From the information at our disposal, the federal government is owed not less than $66.5 billion (about N13.3 trillion) which ought to be recovered without any further delay…In addition, following the crisis of global capitalism… in 2008, the Central Bank of Nigeria gave a bailout of $4 billion (N600 billion) to the commercial banks in the country… The CBN has not deemed it fit to ask for the refund of the total sum of $11 billion injected into the banking system…”

With the right legal maneuvers, Nigeria can immediately secure several billions of dollars in hard cash air lifts, just like Iran recently is reported to have. Nigeria must face its challenges from a position of power and not one of defeat. He who goes out with a begging bowl lives to tell a sorry tale. There are ways to twist arms and repatriate moneys rapidly. Every tool must be used.

Delete security vote: It must be mentioned that waste must be cut in the government. The security vote must be cut both at the federal level and at state levels. This runs into trillions of Naira mostly wasted or used to finance political, hate and terror campaigns including to pay for media attacks of individuals and groups which continue to promote deadly strife in Nigeria.

3. Take Advantage of the Devalued Naira

If it can’t be a win, win, it doesn’t have to be a lose, lose. Foreign investors are leaving Nigeria not solely because of the devalued Naira, but because of the government posture. Whereas, the crash of the Naira as all economic predicaments, should be exploited to Nigeria’s advantage with aggressive marketing of the opportunities for investors but most importantly with a strong government posture; the shaky and uncertain body-language of Buhari and his cabinet are making a double loss where there should be gain. This is the time for foreigners to invest dollars in Nigeria, most especially in its vast natural resource opportunities. A dollar goes 250% further than it used to.

Now is the time to set up quarries, to invest in mining, farming, fishing and other available opportunities in Nigeria. Now is the time to build and own estate. But why are foreign investors not coming? It is time Nigeria hones in on the opportunities of the low Naira by assuring of security of investment for foreign entities and governments. It is time Nigeria showed confident and eager leadership. We should at least turn it around into a lose, win, situation.

4. Scrap Import Ban List, Open The Market

The CBN’s import ban list has been described as a sham that has always been prompted by the cabal, the likes of Obasanjo and Dangote who typically institute these bans on products Dangote and other cabal manufacture. The import ban lists have always been set up in Nigeria’s history to promote the oligopolies of the cabal. Late Umaru Yar’adua opened the markets and prices fell. He dared to “disentangle” Obasanjo and Dangote till he was killed.

It is poor economics to force dependence on a monopoly. This is why the rich get richer in Nigeria and the poor get poorer till there is chaos. Former CBN governor Charles Soludo has lambasted this policy. It is highly fraudulent and reeks of corruption.

You cannot invite investors and expect trade cooperation while you lock out goods to promote a certain exploitative cabal. In spite of successive government promoting the same cabal, Nigeria buys cement at the highest global prices, at least double the world average. Nigeria’s “.ng” domain name sells at $100/year by these same Obasanjo-related cabal, the highest cost in the world. Virtually every product the Nigerian cabal are assisted to have monopolies on end up exploiting the masses and put money in one pocket only – the cabal’s. Markets can grow on open competition. The cabal must be encouraged to be competitive and not “it’s so much it’s like voodoo money” exploitative.

5. Lower Interest Rates And Promote Small Businesses

Small businesses employ as much as 80% of labor. As small businesses are being killed, there will continue to be mass unemployment, no purchase power and economic recession. The current CBN policies are tailored to corruptly give undue advantage to the cabal and to exterminate small businesses. While cabal buy forex at CBN subsidized rates, small businesses get none. Small business entrepreneurs have limited access to loans and when they do, they get them at unreasonable interest rates.

The federal government must immediately create alternative sources of capital for small businesses. The cabal utilize stashed loot and launder money for former administrators to run their businesses while small businesses are forced out of existence. It is better the Buhari government supports 1000 micro industries than it supports one cabal company. Cabal must be properly taxed and the taxes used to build small industry. Rather the Nigerian government currently taxes the small people to give to the cabal who further exploit the small people with highest prices in the world for goods and utilities.

The cabal have been bailed out numerous times and given waivers and dashed subsidized forex while all governments including the current fail to bailout small businesses. Interest rates must be lowered and government cash must be pumped in an organized and supervised fashion at SMEs (small and medium enterprises). Local fruit juice companies, local chemical factories, metal works, parts plants, recycling plants, solar panel assemblies, mushroom refineries and the like must be encouraged by the government aggressively and immediately.

6. Promote And Standardize “Made In Nigeria”

It is past time for a #MadeinNigeria culture. But this must be more than just a slogan. There are reasons why Nigerians do not patronize made in Nigeria goods. These include reliability. The Federal government must update the standardization boards. All manufactured goods must have warranties that are enforced, with customers being 100% protected by the government. Nigerians should be able to see the warranty label and know that it is backed and protected by law. Failure of companies to fulfill the warranty must be treated seriously as a crime with the companies being immediately shut down and the customers compensated.

Furthermore the ministry of industry must certify products. Product certification in China has boosted the country’s manufacturing sector as its goods are better regarded in global as well as local markets. Nigerians need this assurance as do potential foreign markets where Made in Nigeria goods can be sold. A portal with licensed manufacturer names and information must be available online through which goods and parts can be sourced and Nigerians companies’ accreditation by the government can be reviewed.

Only the federal government has the capacity to develop piecemeal manufacturing where parts of products are made by various small manufacturers and then later combined by other small enterprises, i.e. “division of labor.” The government must do this. The importance of the government recognizing and promoting small entrepreneurs as it currently only does the cabal can not be overstated. The government must set-up to be the link between small piecemeal manufacturers and the market.

It is time for the federal government to actively promote, support and protect a Made in Nigeria culture.

7. Naira: Think Strength Of The People, Poor Economics

Forget strength of the Naira. Think strength of the people. When the people are strong the Naira will get strong; when the people are weak, the Naira will be weak. Nigeria must forget about its Moody rating. Countries have endured tough sanctions and come out superpowers. This is not even sanctions. The Federal government of Nigeria should put the cap on people suffering and dying and not the Naira devaluing. Pull reserves if needed to strengthen the people.

The Naira will continue to drop when the government gives a single cabal $500 million dollars in 12 months then seeks to borrow $1 billion for the entire nation. This corruption makes the people weak and the Naira weak. The Naira cannot appreciate when the Presidency hugs 10 wasteful presidential jets. The people will not be convinced. The people will not have strength, sacrifice and patronize when Lai Mohammed walks in, clad in a loud diamond-sharp starched agbada, to advertise “Change” a slogan copied from Obama, and the President reads more words copied from Obama. And the Naira will not be strong. The Naira will be as weak as the weakening people when they see the circle of power sporting $40,000 watches and $100,000 bags. This government must be serious about change, or/and must immediately partition the country into pieces that will have the chance to as serious as is demanded, and to compete which each other in this.

Contrary to what capitalist economists say, the strength of the economy and currency is determined by the strength of the people and not the other way around. We must study economics for the poor and not always the predominant hegemonists’ brand of economics. Economics of the wealthy has not worked anywhere. Europe is in a perpetual recession even after deriving and the continued derivation of billions from the exploitation of Africa. America today is trillions of dollars in debt in spite of the slave trade and colonisation largesse and continued military economic escapades around the world. The late Thomas Sankara believed in and built the capacity his people. The results were shocking and immediate. We have already wasted the first year and a half of this administration building only the corrupt cabal, it is time to build the people. The Naira will follow.

8. Never Again Use a Banker As CBN Governor

Remove Godwin Emefiele and never again use a banker as CBN governor. Each of the times Nigeria appointed bankers as CBN governors, they built the banks and cabal and extinguished the masses. It is a clear conflict of interest to put a banker with vested interests and friends in the banks, as head of the Apex bank. That is like putting a wolf to protect your chickens.

With the two famous recent banker governors, crippling bank charges and fees were added upon each other to fund the banks and drain the masses in a continuous and progressing ponzi scheme. Some policies were more directly exploiting than others, but all gave the banks many free passes to make earnings off of the poor masses with no value added to the Nigerian economy. And these were done while the cabal were given humongous loans on hand shakes and billions of dollars gifts in subsidized forex. As I wrote July this year, “Recession: Nigeria’s Economy Cannot Improve So Long As Godwin Emefiele Remains In Charge.”

9. Strengthen And Decentralize The Police

Insecurity has cost Nigeria billions in economic loses from the northeast, now a humanitarian catastrophe and a drain to the economy, and continues to do so in the Niger Delta. The fastest and best solution to the continuous breakdown of law and order is stronger and local police. The Nigerian army has no role in domestic maintenance of law and order and as it continues to unconstitutionally police the state, it gets involved in more violations and provokes more deadly crises as it has done in the past. The army is not trained in investigating and arresting. It has no training in disbursing riots and protests and presenting cases to the court. The Nigerian constitution reserves its use as a back up to the police and ONLY when  and if approved by the national assembly.

There is no economy without security and there is no security without a police command that has capacity and understanding of the region. Nigeria will not be serious about economic recovery till it returns the army to the barracks and builds police capacity.

10. Find A Vision For Nigeria

I do not know the vision of Nigeria so far and if the current government has one. What does Nigeria want to be? We know the vision of Dubai and Dubai took itself there. Does Nigeria want to become a tourist center? Does Nigeria want to become the West and Central Africa central manufacturing capital? Does Nigeria wish to become the food basket of Africa? Does Nigeria wish to become the information technology capital in the world? Or does Nigeria wish to become a combination of these or some of them and others?

It is important a central vision or visions for Nigeria is developed and Nigerians are made cognisant of this vision for the future of the nation. Let’s know where we are going so every one can pick an oar and row in consonance. Today we just hear that the new administration wants to build a country, but what country will that be? It is OK to just build a country, but it is better to build a country with a particular primary vision. The world is moving away from careers as we know them. Soon all jobs will be taken over by machines, even medical jobs are at risk. Nigeria can choose a vision that places it at an advantage in the future that has already begun.

Nigeria will survive by God’s grace.

Dr. Peregrino Brimah; @EveryNigerian Via Newsrescue

BREAKING: Under Pressure CBN Cancels Bank Rates On Foreign Exchange As Naira Falls The More

ThisDay News - Following the pressure mounted by the financial markets and analysts on the Central Bank of Nigeria (CBN) to allow the naira to be truly market determined so as to attract offshore investors who have continued to remain on the sidelines, the CBN has finally freed the nation’s currency so that its rate on the Nigeria Interbank Foreign Exchange (NIFEX) will be determined by the interplay of demand and supply.

The central bank will equally fund the one-month forward contracts of $697 million this week, meaning that authorised dealers that bid on behalf of their customers for the contracts last month would be making a kill of almost N10 to the dollar, given that the naira fell to N292.25 on the interbank market last Friday.

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On the first day of trading under the revised rules for the NIFEX on June 20, the CBN had intervened in the market through the Special Secondary Market Intervention Sales (SMIS) to clear the backlog of  $4.02 billion pent-up demand for FX.

According to the CBN, it sold $532 million on the spot market and $3.487 billion in the forwards market.

A breakdown of the $3.487 billion forward sales by the central bank showed that $697 million was for one month (1M), $1.22 billion for two months (2M) and $1.57 billion for three months (3M).

On the full liberalisation of the interbank FX market, THISDAY learnt that pressure was brought to bear on the CBN when it was discovered that since the launch of the revised rules for the NIFEX market last month, the CBN through its interventions had pegged the naira within the range of N281-N284/$.

A banking industry source informed THISDAY that the central bank retained the peg despite announcing that it had floated the naira because of the continuing opposition by President Muhammadu Buhari to the devaluation of the Nigerian currency.

He said: “President Buhari only sanctioned the introduction of the flexible exchange rate regime when he saw the damning data released by the NBS showing that the Nigerian economy had contracted in the first quarter of this year and had effectively slumped into a recession.

“He was a very reluctant convert, so when he expressed his opposition again after the market had been partially liberalised, the CBN slammed the breaks on the naira and started pegging it again.

“But pressure was mounted on the central bank to allow the naira find its true level because offshore investors had taken note and refused to bring their money, thus exacerbating the FX scarcity in the market which the flexible exchange rate regime was meant to resolve.”

Signalling the move towards a proper free float of the naira, THISDAY learnt from treasurers of some of the commercial banks that the central bank held a conference call on Friday with authorised dealers in the FX market, during which the information was communicated to them.

Also, just as the conference call was taking place, the CBN Governor, Mr. Godwin Emefiele, was at a lunchtime meeting with investors in London, where he was said to have told foreign investors that the flexible exchange rate would now operate fully.

A source, who was at the London meeting, said what they gathered from the meeting with Emefiele was that banks were now free to set pricing at a level where supply would match demand for forex.

The central bank anticipates that this new policy would encourage those that have forex to bring it and sell, now that they can get more naira.

As a result of the development, banks made higher bids for forex on Friday, thereby leading to a depreciation of the naira.

Indeed, the naira depreciated against the United States dollar across all FX market segments on Friday. On the interbank market, it fell to an all-time low of N292.25 to a dollar and depreciated at the Bureau De Change and parallel market segments by 2.9 per cent and 3.13 per cent to N355/$1 and N365/$1 respectively, as demand at the interbank market spilled over to the alternative market segments.

Speaking in a phone interview with THISDAY, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, welcomed the decision to finally allow market forces to determine the value of the naira, saying: “It is about time they did the real thing.”

“Every other thing they were doing was to a large extent a rigged system under the flexible exchange rate system. That did not allow the naira to find its true equilibrium.

“You intervene in the market and naira finds its price. Then you intervene to influence that price. You don’t set a price by starting an intervention before the price emerges. By doing that, you will not know whether you are supporting the currency at an unsustainable rate.

“To me, I am relieved that finally we have gotten to this point. I understand it was done out of pressure from the international community. I learnt international investors said they were not going to do anything with us until we show some seriousness.

“So I think it is the most welcome development since this forex regime started. Now, you are going to see the parallel market depreciate initially, and then appreciate significantly and the difference between the parallel and interbank market would narrow.

“This will also solve the problem of dollar liquidity in the market because a lot of people would bring dollars in officially. Before, people were taking it to the parallel market. So there would be much more supply.”

A currency analyst at Ecobank Nigeria, Mr. Kunle Ezun also predicted that the naira might depreciate to about N350 to a dollar on the interbank market this week, just as he aligned with Rewane, saying: “That is what they should have done when they introduced the flexible exchange rate policy.”

“The central bank ought to have allowed the naira to find its level, and then it would appreciate gradually to about N280 to a dollar. Foreign investors were not comfortable with the N280 to a dollar, considering what the value of the naira is on the parallel market.

“With this now, the CBN would still be intervening as a player in the market, but not as frequently as we have seen since the new guidelines for NIFEX were introduced,” he added.

According to Ezun, if the naira is allowed to trade freely and reflect its true value, foreign investors would come in droves.

He added: “If we say we are operating a flexible exchange rate regime, we should allow the market to trade to reflect the level of liquidity in the market, which is between N300/$1 and $350/$1, then over time, with inflows from foreign investors, the naira may appreciate to about $250 to a dollar. But it shouldn’t be a controlled rate.

“A lot of people believed that the CBN was controlling the market at an interbank rate of around N280 to a dollar. So with what the CBN has done, there is no restriction on the 50 kobo spread between the bid and offer again. This means banks can trade based on what they have.”

The Emir of Kano and former CBN Governor, Alhaji Muhammad Sanusi II, last week said the flexible exchange rate regime was not being fully implemented, just as he warned that targeting a pegged rate would not resolve the current FX problem.

He urged the central bank to allow the forces of demand and supply to determine the true value of the nation’s currency, in line with the flexible exchange rate policy.

“There is a fantastic document by the central bank on the flexible exchange rate. We need to implement that document properly. So long as the implementation is not total and faithful to the document itself, you would have residual market risks.

“You have to let the market decide where the naira is going to be to start with, before inflows come in and then when the inflows are in, you have an appreciation of the naira.

“So you have to live with a devaluation to N300/$1 plus and then it will firm up to N270/$ or N280/$1 or whatever. But so long as you target a rate of N280/$1, you are just moving the peg,” he had argued.

He, however, pointed out that with the new forex policy, the central bank was able to reduce the arbitrary opportunities in the market as well as improving its liquidity.

Emefiele flew to Britain and the United States on a road show last Friday to try to lure investors. Investors had welcomed the move but many said they were steering clear until the economy shows signs of concrete recovery.

FG's New Exchange Rate Policy: Naira Begins To Benefit, Appreciates Sharply Against The Dollar

Following the Central Bank of Nigeria's new flexible Foreign Exchange rate policy, the Nigerian currency, the naira has begun to reap the benefit significantly against the United States Dollars.

Just yesterday, a day after the Central Bank of Nigeria released the much-awaited foreign exchange market framework., the local currency gained N12, rising from 367 to 355 against the United States dollar at the parallel market.

Forex dealers and analysts said the naira-dollar exchange rate, which closed flat at 367 on Wednesday, started reacting to the new policy following a rise in the supply of the greenback at the parallel market on Thursday, Punch Newspaper reports

The International Monetary Fund on Thursday said it welcomed the decision by the CBN to abandon its currency peg and adopt a flexible exchange rate policy, saying this was important to reduce fiscal and external imbalances.

The CBN had said on Wednesday that a market-driven foreign exchange market would commence on Monday, in the process abandoning the peg of N197 to the dollar that it had supported for 16 months.

Experts, who spoke to our correspondent on Wednesday, lauded the CBN for its courage to implement the market-determined exchange rate policy, saying it would bring down prices and eliminate market distortions.

Traders said on Thursday that the naira would likely fall next week as the country switches to a flexible and market-driven exchange rate policy.

Analysts also said that the naira might slide to a record low when the new open-market foreign currency trading commenced on Monday.

“We are expecting an initial wide depreciation of the naira at the official window, but the rate could stabilise at around the present black market rate of 370, depending on how much dollars the central bank will be willing to push into the market,” a senior trader told Reuters.

However, the CBN has said it is “reasonably optimistic” the naira will settle at around 250 to the US dollar, according to Reuters.

While forecasting that that naira will initially weaken against the greenback following a flotation on Monday, the CBN Governor, Godwin Emefiele, said the local currency would gain significantly over time.

Quoting a letter to President Muhammadu Buhari by the CBN governor was said to have noted that the naira would settle around 250 against the greenback.

“I must assure Your Excellency that we are indeed reasonably optimistic that at some point, the rate will settle around 250 naira,” Emefiele was quoted to have written by News Agency of Nigeria.

The letter, which briefs Buhari on the foreign exchange plan, says it could take three to four weeks to clear a $4bn backlog of foreign exchange demand.

Credit: Punch Newspaper

The New Foreign Exchange Regime: The New Value of Naira, All You Need To Know - The CBN Explains

ThisDayLive - In what has been hailed as a bold move by market analysts in Lagos, London and Johannesburg, the Central Bank of Nigeria (CBN) wednesday unveiled the new guidelines for the Nigeria Interbank Foreign Exchange (NIFEX) Market, allowing the exchange rate of the naira to be determined by the market forces of demand and supply, although the central bank would step in whenever appropriate.

Paring the losses it made since Friday last week, the Nigerian Stock Exchange All-Share Index (NSE-ASI) rose by 3.17 per cent yesterday to close at 27,891.96, up from 27,034.05 the previous day, while market capitalisation added N279 billion to close higher at N9.579 trillion.

The new guidelines came after weeks of consultations with stakeholders including the banks on the need for a more flexible forex market, to among other things, reduce pressure on the local currency and attract foreign investors.

Speaking to journalists at a press briefing in Abuja, CBN Governor, Mr. Godwin Emefiele, said the central bank had resolved to henceforth deal with FX Primary Dealers (FXPDs) under the new arrangement.

He also said the existing ban of 41 items from accessing forex from the official window would remain in place.

He said part of the objectives of the new framework, which included the introduction of the naira-settled Over-the-Counter (OTC) FX Futures trading, was to discourage people from front-loading or hoarding forex due to uncertainty.

He also assured the markets that the backlog of matured letters of credit would be cleared.

Confirming THISDAY’s exclusive report yesterday that the CBN would not create a “special” window for critical transactions, Emefiele said the new forex framework would allow the market to operate as a single market structure through the interbank/autonomous window, while the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.

He said the CBN would however participate in the market through periodic interventions to either buy or sell forex as the need arises.

He said to improve the dynamics of the market, the central bank would further introduce FX Primary Dealers (FXPD), who would be registered by the CBN, to deal directly with the Bank for large trade sizes on a two-way quote basis.

The governor said the primary dealers would operate with other dealers in the interbank market, among other obligations that would be stipulated in the Foreign Exchange Primary Dealers (FXPD) guidelines.

However, he said selected FX Primary Dealers would be notified by Friday, June 17, 2016 on the new guidelines while all other non-primary dealers would remain valid and eligible to participate in the market.

He said interbank trading under the new guidelines would begin on Monday, June 20, 2016, while tenors and rates for the naira-settled OTC FX Futures would be announced on June 27, 2016.

According to Emefiele, “The big point here is that we’ve decided that the CBN will deal primarily with what we call the foreign exchange primary dealers. We will have non-primary dealers and primary dealers.

“The guidelines for the qualification for being a foreign exchange primary dealer would be on our website.

“There are a number of qualifications, either the size of the bank, or the size of forex transactions it had done before, the level of liquidity, the extent to which those banks have complied with CBN guidelines, regulations in the past and their level of preparedness in terms of being able to provide all the soft and hardware that is needed to operate in a very transparent manner that can handshake with the Thompson Reuters and FMDQ software – these will be the basis.”

He said: “But from what we see, we do not think there’ll be more than a maximum of eight or 10 primary dealers. What that means is that you have what we can call Grade A dealers and you have the Grade B dealers.

“But being a Grade A dealer doesn’t confer on you any special preference other than the fact that the size of trade that the CBN is willing to deal with you would be larger than the trade for those who are going to be dealing as non-primary dealers.

“And forex dealers themselves right now and even the banks understand what we mean by the size of trade, talking about an open transparent, two-way quote system, where I can close or they can close on themselves, or me on them, and their capacity to deliver anytime within the trading period is very important here.

“So that’s why we are trying to segment them in two parts.”

Emefiele said based on what the central bank had published, the level of trades as a primary dealer would be set at a minimum of $10 million.

“So what that means is not about talking about the standard trades of those days when a dealer said it’s about $100,000 and you say, I close on you for $100,000.

“Now, we are talking about a minimum of $10 million and to do that, you have to have strong capacity, you must have prepared yourselves, you have to be ready to play with the highest level of professionalism and transparency and nobody is going to take any nonsense from you if you decide to breach the regulations or guidelines.

“And that’s the reason I said we will expect those who are going to deal here to be people who can deliver on their words. They must be people who understand the implications for whatever decisions they take regarding the size, talking of the volume and the exchange rate they decide to quote.

“It’s intended to ensure that we don’t have speculators, we don’t have rent seekers who just want to come into the market, particularly the primary market to just come and start auctioning and staking on prices against each other for what I can call private benefits,” he clarified.

On steps being taken by the CBN to narrow the gap between the official and parallel market rates, the central bank governor said: “As long as there’s one window, whatever comes out at the end of the day as the marginal rate, that rate will be the rate that will be recognised officially by the world as the rate of the naira.

“I do not expect that any other rate will be recognised in the market. But I think it’s important for me to provide a little clarification on a few issues burning in the hearts of people. And the first is what we call the OTC FX futures.

“The FX futures market is an innovation which we have introduced to moderate volatility in the foreign exchange market. It’s a situation where it makes it easy for you as a businessman to plan your business and the rate at which you want to do your business.”

He said the new flexible forex regime would also discourage speculative attacks on the naira.

According to him, “You do not have to fear that because of what is happening to crude oil prices today, that you are afraid that you may not be able to source your dollars in the next two, three, seven or nine months, and for that reason you begin to take precautionary decisions by front-loading on your foreign exchange.

“Under the new regime, you can decide that I have pegged the price of foreign exchange or I have pegged the price of my product based on an exchange rate of X and you lock yourself on to a future rate with our primary dealers or even with the non-primary dealers.

“When you lock yourself to a rate of let’s say N200 or you decide to lock yourself to a rate of say N230 or N280, as the case maybe, all you need to do is go back and do your business once you’ve locked yourself to a futures transaction through futures deal.

“So if in the next three months, if the rate you agreed at locking up your futures deal was say N260, and the market is doing say, N270 at that time, that N10 gap, the Central Bank of Nigeria will bridge the naira equivalent of that N10 gap such that you are not seen to be losing money by waiting for the next two to three months to procure your foreign exchange.”

Emefiele added that what the OTC FX futures market would do for Nigeria is that it would shift forex demand from the spot market to the time when forex is really needed, adding that demand for forex on the spot market had led to the demand pressure in the market and speculative attacks against the naira.

“Indeed, we would be engaging more and more both with the banks and primary and non-primary forex dealers about how this would work because we are determined to ensure that this works and I am very optimistic that it would work,” he said.

On the matured letters of credit, he said the current level of Nigeria’s foreign reserves should offer hope to investors.

“I know a couple of people, particularly those who have matured letters of credit, who would want to buy their foreign exchange and would demand to know what would happen to the matured transactions? The important thing is that the backlog of transactions will be taken to the market for the clearance.

“And let me say this, the CBN has foreign reserve of close to about $26.5 billion-$26.7 billion; this is certainly substantially higher than the level of any demand that is in the market.

“We are making efforts with respect to the supply of forex in the market and we are also optimistic that the steps that we have taken today will help to further deepen the market and also get foreign exchange into the market.

“We are very hopeful that this will work and we are saying independently, the CBN is working to even ensure that we improve the level of supply into the market, so the demand would be met.

“There’s no need for everybody to rush at the same time into the market: indeed, you may find yourself losing money when you rush into the market and take some emergency decisions that will hurt you, hurt your profits, hurt your balance sheet and ultimately, if you are taking a bank loan, hurt your interest charges on your bank loans. So we need to be very careful.

“And that’s the reason we’ve starting the OTC FX futures market, so that you can take it easy. If you are not too sure, go to the futures, commit yourself to a rate and you’ll find a deal – all the banks will provide you with a FX futures rate whether from one to nine months and with that, you are able to go about your business without losing sleep.

“We’ve committed ourselves to the level of guarantees to say, it’s like a bet if the rate that you get eventually at the time of your futures maturing is higher than the deal date, as we will pay you the difference.

“But if the rate on that day is lower than the deal date rate, you’ll pay us the naira equivalent,” the governor explained.

Revised Guidelines for NIFEX Market

Following Emefiele’s briefing, the CBN yesterday posted the revised guidelines for the operation of the NIFEX market on its website, stating that the CBN shall operate a single market structure through the autonomous/interbank market, i.e. the interbank forex market with the CBN participating in the market through interventions directly in the interbank market or through dynamic “Secondary Market Intervention Mechanisms”.

Furthermore, it stated that in order to promote the global competitiveness of the market, the interbank FX market would be supported by the introduction of additional risk management products offered by the CBN and authorised dealers to further deepen the market, boost liquidity and promote financial security in the market.

“Additionally, to further improve the dynamics of the market, the CBN shall introduce FX Primary Dealers (FXPDs). These shall be registered authorised dealers designated to deal with the CBN on large trade sizes on a two-way quote basis, amongst other obligations as stated in the FXPD Guidelines.

“Participants in the inter-bank FX market shall include authorised dealers, authorised buyers, oil companies, oil service companies, exporters, end-users and any other entity the CBN may designate from time to time.

“Authorised dealers shall buy and sell FX among themselves on a two-way quote basis via the FMDQ Thomson Reuters FX Trading Systems (TRFXT- Conversational Dealing), or any other system approved by the CBN.

“Authorised dealers may offer one-way quotes (bid or offer) on all products and on request to other authorised participants via the FMDQ Thomson Reuters FX Trading System (FMDQ TRFXT – Order Book System), or any other system approved by the CBN.

“The maximum spread between the bid and offer rates in the interbank market shall be determined by FMDQ OTC Securities Exchange (FMDQ) via its market organisation activities with the Financial Market Dealers Association (FMDA).

“Proceeds of foreign investment inflows and international money transfers shall be purchased by authorised dealers at the interbank rate,” it added.

However, to further deepen the FX market, in addition to the already approved hedging products referenced in the CBN “Guidelines for FX Derivatives and Modalities for CBN FX Forwards”, the new circular stated that authorised dealers are now permitted to offer naira-settled non-deliverable over-the-counter (OTC) FX Futures.

It explained that OTC FX Futures’ transactions shall be non-standardised with fixed tenors and bespoke maturity dates, adding that the OTC FX Futures sold by authorised dealers to end-users must be backed by trade transactions (visible and invisible) or evidenced investments.

“FMDQ will provide the appropriate benchmarks for the valuation and settlement of the OTC FX Futures and other FX derivatives. FX OTC Futures and Forwards will count as part of the FX positions of authorised dealers.

“To promote market liquidity, authorised dealers may apply FX spot transactions to hedge Outright Forwards, OTC FX Futures and FX Options, etc.

“Settlement amounts on OTC FX Futures may be externalised for Foreign Portfolio Investors (FPIs) with Certificates of Capital Importation. Such settlement amounts shall be evidenced by an FMDQ OTC FX Futures Settlement Advice,” the guidelines stipulated.

CBN further referenced its earlier Circular Ref: TED/FEM/FPC/GEN/01/001 dated 12th January 2015, authorised dealers, (FXPDs and non-FXPDs), a review in the daily foreign currency trading positions of banks has been made with a new limit of +0.5%/-10% of their shareholders’ funds unimpaired by losses as Foreign Currency Trading Position Limits to support their obligations as liquidity providers at the close of each business day.

“Where an authorised dealer requires a higher position limit to accommodate a customer trade, the authorised dealer shall contact the Director, Financial Markets Department.

“Where the request is assessed as valid, the director shall communicate immediate approval by text or email to the authorised dealer. Thereafter, the authorised dealer must, with 24 hours, write to the Director, Financial Markets Department who will thereafter communicate an approval in writing.

“The Director, FMD shall exercise discretion on the duration of the temporary position limit depending on the estimated defeasance period of the transaction size.

“Returns on the purchases and sales of FX shall be rendered daily to the CBN by authorised dealers. Interbank funds shall NOT be sold to Bureaux-de-Change,” it stated.

According to the CBN, participation in the FX market by the CBN shall be via: the Interbank FX Market or Secondary Market Intervention Sales (SMIS).

Guidelines for Primary Dealership in Forex Products

In a separate circular on the guidelines for primary dealership in foreign exchange products, the central bank explained that the FXPDs system is one whereby interested authorised dealers are accorded access to transact FX products directly with the CBN.

The main objectives for the establishment of primary dealership in FX products, the CBN explained are: to achieve exchange rate management policy objectives; to improve the effectiveness of CBN FX market intervention activities; and to enhance market liquidity.

In addition, it stated that the FXPDs shall be evaluated on the following qualitative criteria: strong FX trading capacity (qualified and experienced; FX dealers, strong sales teams, and wide distribution networks); deployment of all FMDQ1 Thomson Reuters FX Trading Systems or any other systems approved by the CBN; dealing room standards and a dealing room supported by independent market risk management, back-offices and effective disaster recovery plan, among others.

The FXPDs are expected to have a minimum shareholders fund unimpaired by losses of at least N200 billion; minimum of N400 billion in total foreign currency assets; and minimum liquidity ratio of 40 per cent.

“FXPDs shall have a maximum limit of +0.5%/- 10% of their shareholders’ funds unimpaired by losses as Foreign Currency Trading Position Limits. Where an FXPD requires a higher position limit to accommodate a customer trade, the FXPD shall contact the Director, Financial Markets Department.

“Where the request is assessed as valid, the director shall communicate immediate approval by text or email to the FXPD. Thereafter, the FXPD must, with 24 hours, write to the Director, Financial Markets Department who will thereafter communicate an approval in writing.

“The Director, FMD shall exercise discretion on the duration of the temporary position limit depending.

“FXPDs must have a robust business continuity plan and be able to interface with the CBN from an alternate location (Contingency Dealing Room) in the case of a disaster.

“FXPDs’ disaster recovery capabilities, as reflected in their business continuity plans and are routinely tested, should ensure continuous participation in CBN’s FX trading operations (including trading, clearing and settling) in the event of a wide-scale disruption in the FXPD’s primary place of business.

“The CBN expects FXPDs to maintain a robust compliance programme, including procedures to identify and mitigate legal, regulatory, financial, and reputational risks. Such programme should include compliance officers dedicated to the business lines relevant to the FXPD functions.

“The CBN will not designate as FXPD, any authorised dealer that is, or recently (within the last year) has been subject to financial market- related litigation or regulatory action or investigation that the CBN determines material or otherwise relevant to the potential FXPD.

“In making such determination, the CBN will consider, among other things, whether and how any such matters have been resolved or addressed and the authorised dealer’s history of such matters.

“In addition, with regard to registered FXPDs, the CBN may limit access to any or all operations, and may suspend or terminate the FXPD status of an authorised dealer, at anytime deems necessary, if it becomes the subject of, or is involved with, regulatory or legal proceedings that, in the judgment of the CBN, unfavourably impacts the FXPD relationship.

“FXPDs shall maintain such accounting and other records of their respective activities in the interbank FX markets as set forth by the CBN and other relevant regulatory authorities from time to time and render returns of trades executed with the CBN to the Bank.

“All FXPDs shall submit a weekly report of FX transactions undertaken by them in the format advised by the CBN. FXPDs shall advise CBN the authorised dealers for which they do not have PSR lines for and state the reasons why.

“FXPDs shall treat all non-public information received from the CBN and, in particular, information relating to transactions and outstanding positions with the highest degree of confidentiality. FXPDs shall not share this confidential information with any third party unless required to do so by applicable law or a court order,” the guidelines for FXPDs stipulated.

How CBN Naira-Settled OTC FX Futures Will Work

In addition, providing clarification on how the CBN Naira-settled OTC FX Futures would work, the central bank explained that the proposal of the OTC FX Futures are Non-Deliverable Forwards (i.e. a contract where parties agree to an exchange rate for a predetermined date in the future, without the obligation to deliver the underlying US dollar (notional amount) on the maturity date, i.e. the settlement date).

On maturity date, it will be assumed that both parties would have transacted at the spot FX market rate. The party that would have suffered a loss with the spot FX rate will be paid a settlement amount in naira, according to a document on the central bank’s website.

The CBN stated that it would kick off the market by acting as the seller of OTC FX Futures contracts for defined tenors, i.e. 1-month, 2-month, 3-month, 6-month, 9-month, 12-month, 18-month and 24-month.

The dollar/naira OTC FX Futures contracts will provide the CBN the opportunity to kick-start the liquidity of risk management products available to end-users in the FMDQ OTC markets.

According to the central bank, the contracts would assist the CBN to manage the volatility in the spot FX market thereby promoting stability and entrenching confidence in the FX market.

Furthermore, it explained that all OTC FX Futures contracts would be trade-backed, adding that visible, invisible and investments qualify for OTC FX Futures.

FMDQ will act as the ‘OTC FX Futures Exchange’ and its appointed agent, the Nigeria Inter-Bank Settlement System PLC (NIBSS) will clear the interbank OTC FX Futures, i.e. collect initial and variation margins and settle the party to compensate on the maturity date.

“The introduction of the OTC FX Futures market will encourage end-users to spread out their demand for spot FX deals as they are now able to lock down the exchange rates for future FX requirements. This has the potential to eradicate the constant frontloading of FX requirements and minimise the disequilibrium in the spot FX market.

“End-users will make better judgements as to the timing of accessing the spot FX market. The availability of the OTC FX Futures will improve the business planning practice of end-users and FX sellers, as the future exchange rate is guaranteed through the OTC FX Futures.

“An end-user (buyer of USD) may consider it wiser to delay the purchase of its USD requirement in the spot FX market if the spot FX rate is higher than the OTC FX Futures rate of a particular tenor. The end-user will borrow USD or obtain trade finance and simultaneously hedge its exchange rate exposure with an attractive OTC FX Futures sold by the CBN.

“At maturity of the OTC FX Futures contract, the end-user will access the spot FX market. The OTC FX Futures will be used to attract significant capital flows to the Nigerian fixed income and equity markets as returns can now be enhanced as FX exposures are hedged. Foreign Portfolio Investors (FPIs) will be able to use the OTC FX Futures for capital protection.

“The envisaged increase of supply of US Dollars due to the OTC FX Futures offered by the CBN in the spot FX market will cause the spot FX rate to moderate.

“OTC FX Futures which are non-deliverable are ideal for FPIs and even Foreign Direct Investors (FDIs). OTC FX Futures can be used when the investor wants to hedge the exchange rate risk without interest in buying outright forwards which will necessitate liquidation of its investment to pay for outright forwards.

“Banks will increase the liquidity in the OTC FX Futures market (by selling OTC FX Futures) if $/N Spot FX rate starts dropping. This may cause the Spot FX rate to drop further,” it added.

Equities Rise, Naira Remains Stable

Reacting to the adoption of a floating exchange rate regime yesterday, the Nigerian Stock Exchange All-Share Index (NSE-ASI) rose by 3.17 per cent to close at 27,891.96, up from 27,034.05 the previous day, while market capitalisation added N279 billion to close higher at N9.579 trillion.

Similarly, the volume of trading soared by 244 per cent from 170,686 million shares valued at N2.424 billion the previous day to 588.437 million shares worth N3.477 billion yesterday.

The market had recorded losses for three consecutive days starting from last Friday before the rebound yesterday. Some market analysts attributed yesterday’s rally to the central bank’s announcement on the details of the new forex guidelines.

In the parallel market, on the other hand, the rate of the naira remained stable selling at N370 to a dollar yesterday, same value at which it sold on Tuesday.

Analysts Welcome New Forex Policy

Speaking on the new NIFEX policy, the Managing Director/Chief Executive, Cowry Asset Management Limited, Mr. Johnson Chukwu, expressed satisfaction with it, saying that a flexible exchange rate would provide opportunity for inflows from other sources other than crude oil sales.

According to him, the decision to allow foreign remittances to be converted at the interbank rate as well as inflows from foreign investment would help to address the disincentive that operators and other players in those areas had witnessed in the last couple of months, forcing inflows from those sources to dry up.

“So I expect that in the medium-to-long term, but not immediately, we should begin to see improvement in inflows from other sources. I want to believe the federal government would back this up with other fiscal policies, particularly as it relates to investments and in an area like infrastructure by making the infrastructure sector attractive for private sector investments.

“That would now help drive inflows. But what the central bank has done was most expected. I think clearly, in the medium term, it would help open up the economy and help stabilise the exchange rate,” Chukwu said.

The Head of Research at SCM Capital Limited (formerly Sterling Capital), Mr. Sewa Wusu, described the decision by the central bank as a positive and good move for the economy, adding: “Although it was delayed, it is better now than never.”

“We have seen the impact of that delay on the market and by extension the economy. All the same, the adoption of flexibility around the interbank market is a policy that would help bridge the gap that had existed in the forex market in the past, particularly the gap between the official and parallel markets. We expect that gap to fizzle out.

“Now, what has been adopted is more or less a floating exchange rate, which entails that we would see the interplay of demand and supply. That would by extension determine the true value of exchange rate in the country.

“What that means is that businesses would be able to plan with respect to their forex requirements and that is very critical. It would also help reduce the volatility we have seen in the market over a long period of time.

“Also, the introduction of the futures market is a positive one. It would allow for demand to be met and apart from that, you can also hedge in your transactions. So that would help for proper business planning,” he said.

However, Wusu expressed concern over forex supply in the market considering the weak value of the country’s external reserves.

In a note to THISDAY, London-based Economist at Exotix Partners LLP, Alan Cameron, said judging from the statement, the CBN would keep the bulk of its intervention for the NDF market (forward market) while futures would also be introduced, with FMDQ acting as the platform.

“Overall, this looks like quite a bold step towards liberalisation – and certainly better than many investors’ expectations (and our own), who have seen many false dawns before.

“The key feature here is that the multiple tiers/layers have been removed – the sub-text of this decision that the president (Muhammadu Buhari) has finally recognised that multiple tiers lead to arbitrage, and arbitrage creates opportunity for fraud.

“Reading a bit deeper into things, we are also tempted to conclude that this is a sign of Buhari handing the reins of the economy (back) over to his ministers,” he added.

NEW FOREX POLICY AT A GLANCE

· Exchange rate to be determined by market forces

· Market to operate a single window through the interbank market

· CBN will intervene when appropriate

· Ban on 41 items to remain

· CBN to appoint primary forex dealers by Friday to deal on large transactions

· Primary forex dealers to have a minimum shareholding of N200bn

· CBN to offer long-tenured forex forwards

· Backlog of matured letters of credit to be cleared

· Naira-settled Over-the-Counter (OTC) Forex futures market to be introduced

· Tenors and rates for OTC FX Futures market to be announced on June 27

· Non-oil exports allowed unfettered access to export proceeds through interbank market

· Banks’ foreign currency trading positions to be reviewed