How To Save Naira From Forex Backlash, By Experts

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•Banks open dollar points •Four steps to obtain foreign currencies

Unless urgent steps are taken by the Central Bank of Nigeria (CBN) to address pressure points and engender enduring clarity in foreign exchange (forex) management, the naira risk continuous fall and depreciation, investment finance and economic research firms, warned yesterday.

The naira at weekend came down 2.5 per cent to close N517/$ at the parallel market after touching about N525/$, following the immediate discontinuation of forex sale to Bureau De Change (BDC) operators by the apex bank early last week.

The experts agreed that the naira faces a tough future and the apex bank may be walking itself into a repeat of the 2016 scenario when similar uncoordinated decision led to more than 40 per cent depreciation in the local currency.

This is as major banks yesterday confirmed that they had opened nationwide dollar sales points with also an industry-wide four-step seamless dollar purchase process.

Banks, such as Guaranty Trust, First Bank of Nigeria, United Bank for Africa and Access Bank, have launched aggressive marketing communication to create awareness on accessibility and process of obtaining dollar by retail users nationwide.

Market pundits at Afrinvest West Africa; Cordros Capital, GTI Capital and Cowry Asset Management among others said the naira could weaken further unless the apex bank undertake a comprehensive review and take a holistic approach to its forex management.

Afrinest listed five areas that must be addressed by the CBN to avoid a repeat of the negative consequences that followed similar suspension for six months in 2016.

In January 2016, the CBN suspended dollar sales to BDCs over similar allegation of racketeering. It directive commercial banks to take up the responsibility of facilitating forex sales to Nigerians for items not included on its list of 41 banned items.

The decision failed because of insufficient forex supply to banks from CBN and customers’ apathy to banks’ procedure kept demand pressure at the parallel market elevated.

It was also compounded by a sharp decline in foreign capital flows as foreign investors shunned Nigeria due to currency risk.

With these, the foreign reserves and the official exchange rate fell by 4.0 per cent and 43.7 per cent respectively to $26.5 billion and N283 per dollar over the six months that the suspension lasted.

These developments fuelled a steep rise in inflation to 16.6 per cent at the end of June 2016 from 9.6 per cent in January.

Analysts at Afrinvest said that in order to avoid a repeat of the 2016 episode, the CBN must provide better clarity on its exchange rate policy to gain the confidence of foreign portfolio investors.

Read Also: Naira falls to N522/$1 after CBN forex ban on BDCs

They urged the apex bank to increase forex allocation to banks to enable them to cater to all genuine demands.

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The analysts also advised the apex bank to scale back banks’ forex processing requirements to attract Nigerians into the official forex loop.

They called on the CBN tom intensify public awareness on the need to embrace the latest development, to prevent unfavourable reactions that could further promote speculative trading.

According to them, the CBN needs to provide more funding to local producers of the items on the restricted list to mitigate the likely pass-through effect of higher costs to consumers.

Cordros Capital analysts said: “In the short term, we expect the decision to amplify pressures on the exchange rate in the parallel market, given the knee jerk reaction from market participants induced by the urge to stockpile the greenback.

“Overall, we believe the effectiveness of the modalities in disbursing the greenback to the retail segment through the commercial banks would determine how much the current rates at the parallel market will diverge from the NAFEX rates over the medium term.”

They noted that the country was already in a difficult position as continuous decline in foreign capital inflows underscored foreign investors’ apathy to the Nigerian market due to weak macroeconomic position, relatively lower yields and lingering forex liquidity constraints.

The analysts said: “Over the medium term, we expect foreign investors to remain on the sidelines until there is improved flexibility in the forex framework and structural reforms are implemented to reduce the economy’s vulnerability to external shocks.” The analysts at GTI Capital described the ban of BDC as an unrequired antidote to reverse naira’s persistent.

They said: “A pragmatic change in our consumption pattern is required to reverse the trend. Unless we reduce our preference for importation, naira may not find its ways out of the current exchange malady.

“The government should make power available to manufacturers to ease cost of production and sustain the competitiveness of locally manufactured products against their foreign peers. Attention should be given to agriculture and its value chains to enhance adequate availability of raw materials for local productions. These are factors that will drive diversification and reduce the pressure on naira.”

The analysts called for restructuring of the BDC business to source forex from tourists who are suppliers of retail forex.

“The CBN decision to ban BDC is ill-timed and cannot weather the storm of time,” GTI Capital stated.

Analysts at Cowry Asset Management said they expected the stoppage of dollar sales to the BDCs to push more demand pressure to the parallel market, weakening naira further at the alternative forex market.

Cowry Asset Management noted that the decision to stop dollar sales to BDCs may, in the short term, lead to shortage of supply to the parallel market where unfilled genuine demand at the official window and speculative demand are sought from.

They said: “Thus, we expect wider disparity between the official market rate and the parallel market rate in the new week,” Cowry Asset stated.

The industry-wide template for dollar purchase made available yesterday indicated that retail users can get up to $4,000 as Personal Travel Allowance (PTA) and $5,000 as Business Travel Allowance (BTA) quarterly where four basic requirements are met.

These requirements include that applicant must be 18 years and above, must have a valid Bank Verification Number (BVN), must have a valid Nigerian passport, valid VISA and return ticket and travel date must not be more than 14 days from date of PTA/BTA purchase.

Commercial banks have assured that retail users can simply walk into any branch nationwide to also buy dollars for payment of international school fees, foreign medical bills, SME Form Q transactions and every other qualifying foreign exchange transaction.

“We will treat your foreign exchange requests instantly. This means that you will get your forex the same day in cash and in the case of school fees and medical bills payment, to the stipulated beneficiary offshore,” a bank stated.

The banks stated that for international school fees payment, students can apply themselves, or through their parents, and guardians with valid BVN.

The requirements from such applicants, include admission letter, payment invoice, first degree certificate in the case of post graduate students and a duly completed Form A

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