There may be relief soon for Nigerian businesses and manufacturers as the Central Bank of Nigeria (CBN) moves to reform and restore liquidity and two-way quotes to the autonomous foreign exchange (FX) markets which have been gummed up for more than a year.



Investigations reveals that the need to activate provisions of Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 2004 or FEA Act is playing a big role in the CBN’s move to reform the FX market, which even the apex regulator realises is not functioning optimally.

In a post on the facebook account of Vice President Yemi Osinbajo, the attainment of “an appropriate foreign exchange regime” was listed as one of key short to medium term policy objectives of President Muhammadu Buhari’s administration.

CBN Governor, Godwin Emefiele, said in a statement at the end of the most recent policy committee meeting held last month, “the MPC took note of the level of activity in the autonomous foreign exchange market, as well as the rising demand in the interbank market…the committee charged the bank to speed up reforms of the foreign exchange market to improve certainty and eliminate noise and opportunities for arbitrage.”

Nigeria has pegged the official rate of the naira at N197- N199 per dollar, since March 2015 to stem the currency’s slide, amid a rout in oil prices.

The policy is widely seen to have worsened the shortage of foreign-exchange and lack of dollar inflows and has been criticised by investors and businesses.



The FEA 2004 Act by virtue of the provision of its section 9 specifically states that: “the rate at which each transaction in the market is to be executed shall be at the rate MUTUALLY AGREED between the APPLICANT PURCHASER and the AUTHORISED DEALER or AUTHORISED BUYER concerned.”

Sources however, say although the apex bank has never issued any circular abolishing the willing seller, willing buyer principle enshrined in the FEA of 2004, the foreign exchange quoted by banks today to Authorised buyers such as International Oil Companies (IOCs), importers, and hotels, has remained consistent at the N199/$ regardless of the transaction amount because dealers fear they could be sanctioned heavily by the regulator.

This is seen to have discouraged liquidity and trading in the autonomous FX market.

As a result, only about $10 million is currently sold daily in the official FX markets in Nigeria, according to data from Standard Chartered Bank.

This is too low to meet legitimate business demand for FX in Africa’s largest economy and compares to South Africa’s daily spot FX market trading of between $2bn and $4bn.

“It is not the traditional role of the CBN to determine exchange rates in the market. Its role is simply to guide and control monetary policies. This is the traditional role of the CBN anywhere in the world,” Olisa Agbakoba, a Senior Advocate of Nigeria (SAN) said.

“It is not its place to interfere with the market. But let us even assume that it is (as we are not known as a country that thrives on the Rule of law), and the CBN is aware that it has no legal powers to do what it is doing. Commercially, should it even be doing this? No, because it makes no sense. The foreign exchange market is now determined narrowly by the CBN to mean the Foreign exchange reserves that Nigeria has.

“This is totally wrong. The foreign exchange market includes everybody: you, me and everyone else.”

Nigeria’s FX reserves dropped 33 percent to $27.6 billion between January 2014 and April 2016

The apex regulator’s monthly dollar inflows from oil, taxes and royalties, fell to less than $1 billion dollars in January, falling from a peak of about $3.2 billion in data from the CBN show.

The naira has hit a record low of N320 to the dollar on the parallel market, as importers desperate to meet their obligations scramble for dollars.

“Exporters and investors are holding on to foreign currency, as no one would sell at the rate the government is setting, while the government does not have the reserves to keep the exchange rate at its official level in the market”, Lamido Sanusi CBN governor from 2009 to 2014, said in a recent interview.

Sources say one direction the CBN could take to return liquidity and improve the functioning of the FX market, would be to authorise a second-tier FX market to ease the current dollar crunch.

A second-tier FX market has been tried in Nigeria in the past in the 1980’s.

The second-tier foreign exchange market (SFEM) had three key components: CBN organised tender sessions, interbank dealings and OTC dealings between banks and their customers.

The SFEM system was relatively managed and required import documentation, but it ensured more market-determined exchange rate adjustment and a USD-NGN divergence from the Tier I exchange rate.

“A second-tier FX market may smooth the depletion of FX reserves, but it will most likely not prevent naira depreciation if oil prices remain so low,” Samir Gadio Head of Africa Strategy and FICC Research at Standard Chartered Bank, told reporters.

“From an offshore investor standpoint, the key question is whether the non deliverable forwards (NDF) fixing will change.”

Though the FEA 2004 act empowers the CBN to issue from time to time guidelines to regulate the procedures for transactions, monitor and supervise the market, the FEA 2004 clearly stipulated that the willing buyer and willing seller principle will rule the market.

The FEA 2004 Act, vests in the APPLICANT PURCHASER (the person seeking to buy foreign currency at the Autonomous Market) and the AUTHORISED DEALER OR BUYER the power to agree on a mutual rate at which their transaction is to be executed.

Authorised Dealer is defined as any bank licensed under the Banks and Other Financial Institutions Act and such other specialised banks issued with license to deal in foreign exchange while Authorised Buyer is defined as a Bureau de Change, hotel or other corporate body appointed as such by the CBN under the provisions of the FEA Act.

The FEA 2004 Act also overrides the CBN’s Act 2007 as section 37 (2) of the Act specifically states that if provisions of any other law including the provisions of the enactments specified in Section 37 (1) of the FEA 2004 (the CBN Act is one of the enactments specified in subsection 1) are inconsistent with the provisions of the FEA 2004, the provisions of the FEA 2004 shall prevail and the provisions of that other law shall, to the extent of its inconsistency be void.

“There’s no doubt about the legal issues and implications, but we have to approach it commercially,” said Agbakoba, the Senior Advocate of Nigeria (SAN).

“The only way to go is for the CBN to make the buying and selling of FOREX flexible. Bottom-line, the CBN has defined the market too narrowly.”

http://www.financialwatchngr.com/2016/04/11/cbn-relax-fx-policy-act-2004-opens-windows-opportunity/

The policies of the government in the last few weeks are nothing but knee- jerk reactions. Today we tighten our FX policy, tomorrow we relax it, next we ban sales of forex to BDCs then we remember an FEA Act of 2004 that if implemented will make banks become no different from BDCs. An Act that if implemented will just be stating the obvious- we are a step away from devaluing the naira. All these are reactive policies. If the government is serious, they need to come up with something more proactive- a sound economic plan.

First, we need to understand how we got here. Falling oil prices, corruption in high places, and an import based economy have contributed majorly to the depletion of our foreign reserve. Oversupply of oil (caused by the Saudis trying to kick out American producers and Iran coming into production) might just ensure oil prices never see the $100 dollar high in the coming years except maybe if there is a war which nobody prays for.

We need to tell ourselves the truth. Our economy is at the point of recession and may not be able to absorb further shocks. Devaluing the naira is a no-no and this FEA 2004 Act will only provide us with a false sense of relief in the short term. We need to come up with something more solid. We need a concrete plan that will guide us out of this seregenti we have found ourselves.

Here's what I believe might work for us:

1. We need the best minds to start with. The President should stop looking for FDIs but concentrate on bringing in technocrats to run key sectors of the economy. Let me give an example, if we bring in top Nigerian researchers and give them a mandate to produce say wheat within the country, Nigeria would become self reliant in wheat production saving us scarce forex. We might even export to some African countries. Now consider replicating this in areas such as pharmaceuticals, food, textiles, industrial machineries etc etc. we will be doing ourselves a lot of good.

2. We need to invest more on infrastructure. It is not a sin to have good road networks, stable electricity, security and so on. This will create an enabling environment for FDIs. I mean these are the things investors look out for before bringing in their investments to your country.

3. We need to develop our solid mineral industry. Tin and Columbite, Iron, Uranium etc can still fetch us some forex you know.

4. We also need to build more refineries and stop the importation of petroleum products. I mean if we have small but highly efficient refineries spread across the country, and break up the monopoly of NNPC, we will stop this madness called fuel importation. This will really save us a lot in forex.

5. Finally our imam and pastors need to pray more. They need to pray that the spirit of Chrometophobia (fear of money) and Kleptohobia (fear of stealing) come upon all those politicians that steal from our national wealth and hide it in all those bad bad places eg Panama. Just Negodu. Arrant Nonsense

Nigeria = $10m a day for FX trading
SA = between $2bn and $4bn a day for FX trading,

So who has got more money and who is the richest? paper economy will kill nigeria.

14:
Nigeria = $10m a day for FX trading
SA = between $2bn and $4bn a day for FX trading,

So who has got more money and who is the richest? paper economy will kill nigeria.

how will FX come in when we import everything including our breath and we have nothing to export.

FX out
No FX in

Q

All these Everyday "Buhari said", "Osibanjo went to" "Kaichukwu did not say say" stories sef It has become boring

In a sane society, nothing should concern an average citizen with what the exchange rate to another currency is.
Nothing should concern an average citizen with how much Power the country generates (its the Engineers job!) What the citizens see is light!
Nothing should concern an average citizen with how much a barrel of crude oil is! What the citizens see is fuel!
Nothing should concern an average citizen with what the budget looks like, what they see is development!

All I see here is writing up excuses for under performance or let me say - no performance, to make it feel as if something is happening whereas, nothing is
Every Nigerian has turned to politician (APC here, PDP there). Every Nigerian has become an Economist (following CBN policies to estimate when there is hope for the price of bag of rice coming down), checking up which bridge should be constructed before the other, which road contract has been awarded, which day light will reach our turn?!

Abeg this is not life!

All I see is Trial and Error Economy Policies.

They better do...

cuz seems Emeifele is just a clown

Doesn't look like a bad move

Too many policy implementation then reversals...guess it's a trial and error thing. smh

Whatever floats our boat

Trial and Error Regime, A Government on Experiment.

Someone should explain the long story abeg

Truly IMF warning is at work....

Cbn, pastor or bubu me wan go msc this summer. Epp me reduce the cost of pounds

Nice development

Good that you are beginning to climb down your high horse. Nigerians are so, so slow. So unwilling to learn. They waste time, cost themselves trillions and still do the needful at the end. See Bokoharam, fuel subsidy, niger-delta militancy and now foreign currency. Stubborn goats. Hmmm....at least coma is better than death.

The way I go laugh Wailers soonest ehn!!

Just licking my wounds right now.

Just leave talk for now n do ur best to salvage d situation n den cum back later to talk, den u will b more appreciated.

Yeah right.

After people have lost so much and foreign companies shut down.

Why are they playing ping pong with the lives of the people?

But if we try buy him is it a go but why do we move?

Incompetent Buffoons

I don't understand all these stories.
Before you understand a new policy, they will change it to another.

Allwility:
The policies of the government in the last few weeks are nothing but knee- jerk reactions. Today we tighten our FX policy, tomorrow we relax it, next we ban sales of forex to BDCs then we remember an FEA Act of 2004 that if implemented will make banks become no different from BDCs. An Act that if implemented will just be stating the obvious- we are a step away from devaluing the naira. All these are reactive policies. If the government is serious, they need to come up with something more proactive- a sound economic plan.

First, we need to understand how we got here. Falling oil prices, corruption in high places, and an import based economy have contributed majorly to the depletion of our foreign reserve. Oversupply of oil (caused by the Saudis trying to kick out American producers and Iran coming into production) might just ensure oil prices never see the $100 dollar high in the coming years except maybe if there is a war which nobody prays for.

We need to tell ourselves the truth. Our economy is at the point of recession and may not be able to absorb further shocks. Devaluing the naira is a no-no and this FEA 2004 Act will only provide us with a false sense of relief in the short term. We need to come up with something more solid. We need a concrete plan that will guide us out of this seregenti we have found ourselves.

Here's what I believe might work for us:

1. We need the best minds to start with. The President should stop looking for FDIs but concentrate on bringing in technocrats to run key sectors of the economy. Let me give an example, if we bring in top Nigerian researchers and give them a mandate to produce say wheat within the country, Nigeria would become self reliant in wheat production saving us scarce forex. We might even export to some African countries. Now consider replicating this in areas such as pharmaceuticals, food, textiles, industrial machineries etc etc. we will be doing ourselves a lot of good.

2. We need to invest more on infrastructure. It is not a sin to have good road networks, stable electricity, security and so on. This will create an enabling environment for FDIs. I mean these are the things investors look out for before bringing in their investments to your country.

3. We need to develop our solid mineral industry. Tin and Columbite, Iron, Uranium etc can still fetch us some forex you know.

4. We also need to build more refineries and stop the importation of petroleum products. I mean if we have small but highly efficient refineries spread across the country, and break up the monopoly of NNPC, we will stop this madness called fuel importation. This will really save us a lot in forex.

5. Finally our imam and pastors need to pray more. They need to pray that the spirit of Chrometophobia (fear of money) and Kleptohobia (fear of stealing) come upon all those politicians that steal from our national wealth and hide it in all those bad bad places eg Panama. Just Negodu. Arrant Nonsense

The official rate's 197 and the black market'ss 320 and you say no no to devaluation

The naira's already worse than devalued!

My country My country. It seems to me that this CBN governor is confused. Infact this govt is confused. Enough of going back and forth with policies. They should stop doing trial and error with the economy. Face the bitter truth,bring in intelligent Nigerians to profer a lasting solution to this menace

was here....wake me up when our politicians invest immersly in education.

agarawu23:
how will FX come in when we import everything including our breath and we have nothing to export.

FX out
No FX in

Not quite a bad analysis dou..buh that may not be a basis. Do u know that United Kingdom import almost everything? For instance their Tertiary institutions are dominated by foreigners, their football is the same. But their economy superceeds that of Nigeria. so bro, sometimes it is more cheaper to import than produce, it is called comparative cost advantage. Good morning

Nice suggestions. @ Allwility

We are waiting with optimism

Watching...