The flexible exchange rate policy by the Central Bank of Nigeria (CBN) that will allow the forces of demand and supply to determine the rate of naira will commence today.
With the new regime, the naira is expected to trade between 250 and 300 a dollar at the interbank market, while the CBN will ensure availability of the hard currencies through the FX Primary Dealers for customers.
The regime, which was introduced last week, ends the fixed exchange rate regime of 197/$1 that lasted for several years.
Already commercial banks have called for eligible customers to bid for the forex ahead of the commencement of the new system today.
Analysts said the new regime will open more opportunities for foreign portfolio investors, aviation’s and telecoms operators among others that were constrained by lack of forex for their transactions in the past.
Since March 2015, the CBN pegged the local currency at 197-199 per dollar even as the rate more than doubled at the parallel market within the period.
“But with the floating of the naira, investors, both foreign and local, will continue with the positive reaction that has already been started by the locals,” Chucks Anyanwu, Head of Research at GTI Security Limited told Daily Trust.
Many local investors greeted the policy positively last week, when the NSE gained about N760 billion within the last three sessions.
Tajudeen Ibrahim, Head of Equity Research at Chapel Hill Denham Securities Ltd, in an interview, said, “local investors are positive about the central bank’s move, believing it will boost dollar liquidity.”
He added that the locals had the confidence that at some point, foreign investors would come back to Nigeria. “It’s unlikely to happen very soon. It may take a couple of weeks before they’re comfortable with the new system,” he said.
Airline operators welcome new FX regime
The Airline Operators of Nigeria (AON) says the policy will positively affect the industry if the government makes foreign exchange more available and accessible.
Airlines have cried out over the foreign exchange challenges which they claimed have inhibited their operations as airline business is said to be dollar-based.
President of AON, Capt. Noggie Megisson, noted that the removal of the restriction would make the forex easily accessible by the operators.
He said: “Foreign exchange is 70 per cent of our direct operating costs through areas like buying spare parts, insurance, training of pilots and other expenses.
“So if the government can make it more available and accessible, it is going to affect us positively and we are very glad about it. It is a step in the right direction.”
When contacted, president of the National Association of Nigeria Travel Agency (NANTA), Mr. Bankole Bernard, said the association would come out with a position (today) Monday.
It was learnt that some foreign airlines have resorted to selling their tickets in dollar following the country’s forex policy which had prevented most of them from repatriating their ticket sale proceeds with almost $600 million airline funds trapped in the country.
Experts say the new policy would force the foreign airlines to restore cheaper fares which had hitherto been cancelled following the uncertainty in the foreign exchange market in Nigeria.
Telecoms sector may pick up after a lull
Activities may pick up soon in the telecoms sector after a short lull due to foreign exchange crisis experienced in the country in the last one year, some operators in the sector told Daily Trust.
The Association of Telecommunications Companies of Nigeria (ATCON) welcomed the decision of the Central Bank of Nigeria (CBN) to abandon its currency peg and adopt a flexible exchange rate, saying that it was very encouraging to reduce pressure of foreign exchange on its members.
The telecoms companies had recently told the minister of Communications, Mr Adebayo Shittu, during a visit to him that lack of access to foreign exchange was killing telecommunications business in Nigeria and may soon put the sector in serious jeopardy if the federal government failed to address the issue.
Engr Gbenga Adebayo, the chairman of the Association of Licensed Telecommunications Operators in Nigeria (ALTON) said the forex scarcity was having adverse effect on network service and also reducing their subscribers’ base.
A new report by the industry regulator, the Nigerian Communications Commission (NCC) showed that the subscriber base in the country had declined.
BDCs want FX primary dealership
Meanwhile, the Association of Bureau De Change Operators of Nigeria (ABCON) is calling on the Central Bank of Nigeria (CBN) to grant it one out of the Forex Primary Dealership (FXPD) licences to be issued by the regulator.
ABCON also faulted the stringent conditions for qualification as an FXPD saying it would establish a new cartel in the banking industry and place only a few banks in advantaged positions.
ABCON president, Alhaji Aminu Gwadabe, who disclosed the group’s position yesterday, said as a major and critical stakeholder in the forex business, it would be against standard business practice to exclude bureaux de change (BDC) operators from the workings of the new CBN forex policy.
The CBN guideline for the FXPD stipulates that to qualify as an FXPD, a bank was required to have a minimum of N400 billion in total foreign currency assets; minimum shareholders fund unimpaired by losses of at least N200 billion and minimum liquidity ratio of 40 per cent.
He said there were about 3,000 BDCs under the ABCON umbrella, and that granting one of the FXPD licences to the group would be in the interest of the financial system and economy.
About $5b trade backlog not resolved
The director, Research and Advocacy, Lagos Chamber of Commerce and Industry, Dr Vincent Nwani, said the backlog of the matured trade transactions were in the region of $5 billion which will now be transferred to the new regime.
Dr Nwani who spoke to Channels TV over the weekend said there was no clarity on how the manufacturers who have already locked themselves in such transactions would sources the balance of FX in the new regime.
He also faulted the CBN stand of removing the importers of the 41 items from the new regime even as the apex bank claimed to have a free market FX regime.