CBN New Forex Policy Fails To Excite Foreign Investors

While the nation ’ s forex market has seen increased liquidity in recent days on the back of the Central Bank of Nigeria ’ s new policy action, foreign investors are not keen on bringing back capital into the country.

Industry experts, including the Chief Executive Officer , Financial Derivatives Company Limited , Bismarck Rewane , say the issue of investor confidence remains unaddressed

The CBN had on February 20 said it would provide direct funding to banks to meet the needs of Nigerians for personal and business travels , medical needs and school fees, effective immediately.


Although the weekly sale of forex to banks has helped to narrow the spread between the official and parallel exchange rates, pressure remains on the naira.

The naira, which posted some gains days after the CBN action , plunged to 475 per dollar at the parallel market on Friday from 450 on Thursday. It hit an all -time low of 520 to the dollar on February 20.

The Global Chief Economist , Renaissance Capital , Charles Robertson, described the increase in liquidity in the forex market as helpful, saying , “ Foreign investors want to know they can take profits on their investments when they bring money in.

“ But investors are deterred by multiple currency rates; so , the interbank rate too needs to align with the parallel rate , and this has not happened yet, ” he said in an emailed response to questions from our correspondent.

The interbank rate stood at N 305. 25 per dollar as of Friday, according to the CBN.

Robertson said investors might be slow to return , noting that in mid - 2016, some foreign investors put money into Nigeria when the currency was floated, but then found out that they were stuck again .

“ They will be more wary this time. This new policy has been a positive move , but does not yet compare to the greater reforms in Egypt that have reportedly attracted $13bn back into the Egyptian banking system , ” he said .

According to Rewane , the policy framework , the implementation and the process have to be consistent.

“ Until you actually free up the market and do all the things that are required , you will have exchange rate movement that is not predictable, ” he said.

He also described the CBN action as a move in the right direction “ but there is a lot of more work to be done . ”

“ The parallel market has actually started depreciating again . The more forward transactions they do , the less spot transactions they do , the weaker the naira is going to become . And that is what is happening already, ” he explained.

According to Rewane , there is a question of liquidity and a question of confidence , and liquidity does not address the question of confidence .

He said , “ You have to win the confidence of investors . Investors’ confidence is not won because you put some liquidity into the market for one week.

“ We have more work to do. We need to make the market transparent , allow the oil companies to sell into the market, allow the market move and don’ t control the price . ”

The President , Association of Bureau De Change of Nigeria , Mr . Aminu Gwadabe , said the fall of the naira to 475 per dollar was largely due to the increasing pressure on the transfer segment of the market.

“ Also , the slow take off of banks is an impediment to the exercise. Some banks give a 30-day waiting period to consummate school fees transfer. The market is also witnessing a stronger demand from our neighbouring countries, ” he added.

According to Gwadabe , the different applicable exchange rates and volumes by operators for the same product is also enhancing restriction to a single rate in the market.

“ If the CBN reviews the distribution channel and ensure that the BDCs serve the critical retail segment of the market and maintain intervention , the strength of the naira will continue in the days ahead , ” he said .

The Chief Executive Officer /Partner, National Finance, a US-based firm , Tor Langoy , stressed the need for proactive measures to entice capital into Nigeria.

“ There is serious lack of liquidity across sectors . Everybody requires capital . But we can only help a few . Capital is only going to start flowing again when you let go of the interference with the currency, ” he explained.

Citing the United Arab Emirates as one the countries that have successfully attracted capital , Langoy said , “ By introducing business- friendly policies, the entire world is now aware of the benefits of doing business in Dubai. There is no problem of repatriating your capital , and you don’ t have any forex issue; no capital controls.

“ These are major things for foreign investors. If a country is not able to fix those basic things, the capital goes somewhere else . The capital moves around the world , and Nigeria is just one out of 193 nations or investment destinations that are competing for the capital. ”

He said , why should anyone invest a dollar in Nigeria when they could happily invest in Dubai or in any other nations in Africa without currency issues and fiscal and monetary policies unconducive for investments?
“ The global capital markets are just waiting for a free float of the naira. The naira may depreciate .

But take the pain and get over it. If it’ s 1, 000/dollar; it doesn ’ t matter . Look at what happened to the Egyptian pound. It dropped 50 per cent but now money is coming back into the country . It is just like a few months of pain with decades of happiness, ” Langoy stated .

According to JPMorgan Chase & Co, until Nigeria devalues or makes a clear switch to a free -floating currency, the country will struggle to lure back foreign investors.

The Acting Head of Economic Research, Ecobank, Gaimin Nonyane, said the nation ’ s foreign reserves , which had been rising since November , remained inadequate to meet forex demand .

He said in a note, “ The CBN’ s ban on importers of 41 specified goods will prevent the naira from effectively clearing in the forex market.

“ We believe that the successful Eurobond issuance is a positive development for Nigeria , as the country seeks to source for forex to relieve pressure on the naira. ”

The Ecobank analyst said the forex injection should help to boost Nigeria ’ s forex reserves , and potentially allow the CBN to loosen its hold on the naira.

He added , “ However , the amount raised will not meet Nigeria ’ s estimated $5bn forex gap; this suggests that the operating environment will remain painful in the short term.

“As such, the naira will remain under pressure, exerting pressure on the CBN to devalue the currency further . We expect an official interbank market rate of close to N 360 - N 380 to a dollar in the coming months .”



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