Economy
CBN Forex Policy Making Nigeria Unattractive—Foreign Investor
By Dipo Olowookere
The foreign exchange (forex) policy of the Central Bank of Nigeria (CBN) has again come under criticism and this time, from a foreign investor.
Recall that recently, the CBN was hit hard by the Nigerian Economic Summit Group (NESG), saying the current FX policy of the banking sector regulator was making things difficult for the country rather than make them better. And for this, the CBN did not pity the group as it lambasted its leadership, casting aspersions on its credibility.
The NESG was not the first to slam the multiple exchange rates system of the local central bank as the International Monetary Fund (IMF) and the World Bank and others have also criticised the policy.
Even a former Governor of the CBN, Mr Charles Soludo, has advised the central bank under the leadership of Mr Godwin Emefiele, to scrap the multiple exchange rates system though the CBN has explained why it is maintaining the policy despite the criticisms.
At a virtual conference recently, a portfolio manager at Emerging Markets Investment Management Ltd, known as Duet Group/UK, Mr Erik Renander, said the apex bank’s stance on forex was making Nigeria unattractive to foreign investors.
The London-based fund manager, according to Bloomberg, invested in Nigeria in 2017 by purchasing treasury bills after the devaluation of the Naira, when rates jumped to more than 20 per cent.
However, in February 2020, he sold all his holdings of bills and equities and has vowed not to re-enter the local market until the currency situation gets better.
Twice this year, the CBN has devalued the local currency; from N306 per Dollar to N360 per Dollar and again from N360/$1 to N380/$1.
The Naira has not had it good this year because of a shortfall in the crude oil earnings as a result of coronavirus disease, which crashed prices at the global market to below $20 per barrel at a point in the year. Now, the price has been hovering around $40 per barrel.
But with the way things are going, Mr Renander believes the Nigerian currency will remain under pressure and have suggested that to attract foreign investors, local investors must take control of the market, especially the equities segment.
“You could be sitting in front of a great opportunity,” he said, noting that, “Generally, when the currency devalues, the local stock market goes up a lot.
“Maybe the Naira is going to go to N550 per Dollar, and the Nigerian stock market [All-Share Index] could go to 50,000 points; you could easily have a double.”
But for him and other offshore investors, he may not consider returning to the local market because “it’s hard for me to come into Nigeria when I just don’t have an idea when I am going to get my money out again and yields aren’t high enough to compensate for that risk.
“The forex policy of the Central Bank of Nigeria is really hurting the attractiveness of Nigeria in general, both in equity and fixed income,” Mr Renander declared.
In April 2020, Business Post reported that some foreign investors who could not take their funds back in Dollars were forced to re-invest in the local market, which caused more liquidity in the system, making rates and yields to drop to single-digit lows.
At the last treasury bills sale last week, the CBN sold the three-month bill at 1.10 per cent, while the one-year instrument was cut to 3.05 per cent from 3.34 per cent.
Business Post reports that apart from the official exchange rate window known as the interbank, where the Dollar sells for N380, there is the Investors and Exporters (I&E) segment, the Bureaux De Change (BDC) window and the black market.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.16 per cent decline on Tuesday, January 21, extending its loss this week to two.
This further depleted the market capitalisation of the alternative stock exchange by N1.65 billion at the close of transactions to N1.071 trillion from the N1.073 trillion it closed in the preceding session.
In the same vein, the NASD Unlisted Security Index (NSI) slid by 4.79 points to wrap the session at 3,100.33 points compared with 3,105.12 points recorded in the previous session.
The bourse ended with two price losers yesterday led by Geo Fluids Plc, which gave up 32 Kobo to trade at N4.38 per share versus Monday’s closing price of N4.70 per share and FrieslandCampina Wamco Nigeria Plc, which depreciated by 15 Kobo to close at N39.50 per unit compared with the previous day’s N39.65 per unit.
On the second trading day of the week, the number of deal carried out slightly went up by 8.3 per cent to 13 deals from the 12 deals executed at the previous trading session.
Also, the value of transactions increased by 97.2 per cent to N4.5 million from the N2.5 million recorded a day earlier, while the volume of securities traded in the session declined by 71.6 per cent to 183,780 units from the 767,610 units recorded on Monday.
FrieslandCampina Wamco Nigeria Plc remained the most traded equity by value (year-to-date) with 4.1 million units worth N162.9 million, followed by Geo-Fluids Plc with 9.1 million units valued at N44.0 million, and 11 Plc with 55,358 sold for N14.5 million.
Also, Industrial and General Insurance (IGI) Plc closed the day as the most active stock by volume (year-to-date) with 25.3 million units worth N5.9 million, trailed by Geo-Fluids Plc with 9.1 million units sold for N44.0 million, and FrieslandCampina Wamco Nigeria Plc with 4.1 million units valued at N162.9 million.
By Adedapo Adesanya
Pressure further mounted on the Nigerian Naira in the different segments of the foreign exchange market on Tuesday, making its value to shrink against the United States Dollar at the close of business.
In the Nigerian Autonomous Foreign Exchange Market (NAFEM), the domestic currency crashed against its American counterpart during the session by 0.18 per cent or N2.73 to settle at N1,552.78/$1, in contrast to Monday’s closing price of N1,550.05/1.
But against the Pound Sterling and the Euro, the local currency traded flat in the official market yesterday at N1,906.98/£1 and N1,613.48/€1, respectively.
As for the black market segment, the Naira weakened against the Dollar on Tuesday by N5 to sell for N1,670/$1 compared with the preceding day’s value of N1,665/$1.
Meanwhile, the cryptocurrency market heaved a sigh of relief during the session as President Donald Trump created a crypto task force dedicated to “developing a comprehensive and clear regulatory framework for crypto assets.”
The task force will be led by Commissioner Hester Peirce, a long-time advocate for the crypto industry, and will work closely with the crypto industry to develop regulations. This is after Mr Gary Gensler, an opponent of crypto, officially stepped down as chairman of the US Securities and Exchange Commission (SEC) after Mr Trump’s term started.
The task force will also work with Congress, providing “technical assistance” as it crafts crypto regulations.
Solana (SOL) recorded a 9.2 per cent growth to sell at $257.09, Dogecoin (DOGE) rose by 7.6 per cent to $0.36789, Ripple (XRP) added 4.0 per cent to finish at $3.18, and Bitcoin (BTC) increased by 3.7 per cent to $105,515.03.
Further, Binance Coin (BNB) appreciated by 2.8 per cent to close at $699.01, Cardano jumped by 2.1 per cent to trade at $0.9972, Ethereum (ETH) soared by 2.0 per cent to settle at $3,308.21, and Litecoin (LTC) went up by 1.5 per cent to end at $116.72, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 each.
By Adedapo Adesanya
The price of the Brent crude oil grade went below the $80 mark on Tuesday after it shed 86 cents or 1.1 per cent to trade at $79.29 per barrel after the US President, Mr Donald Trump, signaled the possibility of his country boosting its oil production.
This move raised concerns of higher US output in a market widely expected to be oversupplied this year, with the US West Texas Intermediate (WTI) crude futures falling by $1.99 or 2.6 per cent during the session to $75.89 per barrel.
On his first day in office, the US President signed an executive order to unleash America’s energy by easing the barriers to oil and gas extraction and production and revoking a series of climate orders by former President Joe Biden.
As pledged in the campaign, the executive order follows the declaration of a national energy emergency.
The declaration includes measures to expedite energy infrastructure delivery, and emergency approvals by agencies “to facilitate the identification, leasing, siting, production, transportation, refining, and generation of domestic energy resources, including, but not limited to, on Federal lands.”
This will likely confirm expectations that the oil market will be oversupplied this year after weak economic activity and energy transition efforts weighed heavily on demand in top-consuming nations the US and China.
President Trump also said he was considering imposing 25 per cent tariffs on imports from Canada and Mexico from February 1, rather than on his first day in office as promised.
The delay helped ease concerns of an immediate tightening of the market among US refiners, many of which are geared to process the type of crude oil supplied by these countries.
The US Energy Information Administration (EIA) reiterated on Tuesday its expectations for oil prices to decline both this year and next.
On its part, the Organisation of the Petroleum Exporting Countries (OPEC) projects robust demand growth in the world both this year and next.
In 2025, OPEC says demand is set to grow by 1.4 million barrels per day leaving its projection unchanged from the December report.
However, losses were also limited after the US president said his administration would “probably” stop buying oil from Venezuela. The U.S. is the second-biggest buyer of Venezuelan oil after China.
Also weighing on prices on Tuesday was the potential end to the shipping disruption in the Red Sea.
Yemen’s Houthis said on Monday they will limit their attacks on commercial vessels to Israel-linked ships provided the Gaza ceasefire is fully implemented.
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