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• Speculators panic as FG vows to sustain recovery
From Uche Usim, Abuja
For some weeks now, the naira has tumbled against the US dollar, slumping to an all-time low at N1,316/$1 at the black market.
But the crash did not come as a shock to economic experts. They foresaw it in August when the Central Bank of Nigeria (CBN), in the midst of a presidential probe, released its seven-year consolidated financial statements (2016-2022); where it revealed a depleted foreign exchange (FX) reserves and huge debt.
The report showed that it owed JP Morgan N3.2 trillion or $7 billion and Goldman Sachs N0.23 trillion or $500 million; N3.1 trillion or $6.3 billion was owed as foreign currency forwards and the debt catalogue was capped by a laundry list of unhonoured FX obligations.
With that revelation, confidence in the naira waned considerably, pushing Nigeria’s legal tender off the cliff and creating an unrivalled appetite for FX.
Currency traffickers and speculators, like undertakers, set the naira up for a final burial by mopping up the foreign exchange in the market and continually predicting its rapid deterioration.
Added to this was an earlier move by the CBN to float the naira on June 14 and allow market forces determine its true value under a willing buyer, willing seller design; rather than defend and give it an exaggerated value.
Hawks literally hijacked the market and the naira shed a record 36 per cent of its value against the US dollar. Since then, it has traded closer to the parallel market rate.
Another challenge was that before the Tinubu administration came onboard, the CBN had sold forward contracts to several Nigerian businesses with an arrangement to buoy them with FX at an agreed price in future.
Relying on that, the banks opened Letters of Credit (LCs) to honour the contracts, which importers used to buy goods from foreign suppliers.
Sources, however, explained that the apex bank, since February, has been unable to settle the obligations estimated at $3 billion due to a deeply-expended foreign reserve. A broader backlog, which includes unsettled foreign investors’ contracts, is estimated to be about $10 billion.
Nonetheless, the naira got a breather last month when President Bola Tinubu and his Minister of Finance, Mr Wale Edun, told the nation at the 2023 National Economic Summit that plans were afoot to pool up to $10 billion that will help pull the country out of the pit of despair.
Sunday Sun learnt that the money, whose source remains unknown, appears to have been injected into the system mainly to clear the FX backlog, reset the finance ecosystem and attract fleeing investors back to the country.
There is also the $3billion crude-for-cash funding deal between the Nigerian National Petroleum Company Limited (NNPCL) and the African Export-Import Bank (Afreximbank) meant to stabilize the naira.
So, as the FX backlog gets settled, confidence in the economy is gradually returning and the naira is on a slow, but steady rebound.
Experts say the momentum should be sustained by ensuring that sufficient FX is available in the system at a market determined rate.
They also called for a thorough monitoring system to ensure that FX goes to where it is needed and not wasted.
However, naira’s recovery, Sunday Sun gathered, is causing currency speculators sleepless nights.
According to the Association of Bureau de Change Operators of Nigeria (ABCON), naira’s gradual recovery is causing panic selling of the US dollars.
The President of ABCON, Aminu Gwadabe, in a recent statement, warned currency speculators to prepare for bloody noses as the CBN unleashes several strategies to strengthen the naira.
Gwadabe said: “What is happening in the market and the continuous naira rebound are the manifestations of the CBN double-edged sword measures of dollar liquidity injection and naira mopping through the instrumentality of interest rates hikes.
“It is a good development as it is (now) a great risk to speculate, hoard and substitute naira for other currencies.”
Naira strengthened against the US dollar penultimate Friday by 15.18 per cent to N950 per dollar in the black market from 1,120 per dollar it traded on the Thursday.
Also at the official window, the dollar was sold for 783.67 compared to 807.27 per dollar on Thursday.
Commenting on the development, the Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, applauded the apex bank for clearing the FX backlog, outstanding letters of credit and other maturing obligations.
“This move brought back confidence in the system. Expectations around FX are positive and it’ll be sustained. Speculative factor is diminishing.
“Those storing it are dumping it so it doesn’t depreciate in future and they lose big. Restoration of confidence is the driver of this. The President and Finance Minister spoke about raising $10 billion at the Economic Summit and that the money will come in weeks. It’s like the money is here to clear the backlog. They can regularly intervene in the market itself. By intervention, the CBN will make the FX available at the prevailing market rate and not peg the price.
“When you look at the outlook, you can see the trajectory of recovery will be sustained. It’s a question of confidence restoration and expectation of the right things being done”, Yusuf told Sunday Sun.
To ensure the efforts to revive the naira are not eroded, the CPPE boss advised the CBN to strengthen its surveillance framework while commercial banks fortify their due diligence and Know-Your-Customer (KYC) systems.
“There should be checks and balances to determine how the FX is used. We don’t want to have a situation where those who need the FX don’t get them, but those who are not importers and manufacturers have FX to toy and round-trip with”, he added.
A US-based analyst who craved anonymity said it was regrettable that the stock of physical dollars in Nigeria was more than what was available in the US.
“If the government wants holders of this massive dollar stock to regurgitate it and bring the dollar/naira exchange rate down, let the government flood the financial system with dollars. The basic law of demand and supply will force the rate down considerably.
“However, we need to earn more FX and also minimise and rationalise our imports”, he added.
Former Deputy Governor of CBN, Dr Kingsley Moghalu, said that growing exports remains the greatest way to earn FX for Nigeria.
Just last Tuesday, the presidency said that a rude shock awaited currency speculators and economic vandals as it was not going back on the push to strengthen the local currency.
The Special Adviser to the President on Economic Matters, Dr Tope Fasua, at a lecture in Abuja, revealed that a cocktail of interventions and policy tweaks both from the monetary and fiscal wings were being administered to pull the economy out of doldrums.
“For those who are speculating and praying and wishing that the currency would become nonsense, I believe that the policies being rolled out by the Central Bank and the government that I serve, led by the president, will shock some of them.
“You need to listen to the agenda, the man himself (Tinubu) and you will see that the level at which he is thinking is far ahead of most of us.
“You know, he has some very great ideas coming up. Some of them are what you’ve seen reversing the fall in the value of the naira, but he has also challenged us to review forward, many of the targets, for example, the idea that Nigeria’s economy will get to a trillion dollars. He wants to achieve it by 2026.
“Some people thought that the naira would continue to lose value. Of course, we can already see what’s going on and who knows, maybe the Naira will strengthen even further to maybe something 500 or 600. I’m beginning to see some of those,” he said. The presidential aide added that some tectonic reorganization of the banking sector was in the offing, which aims to make the naira more stable and stronger.
“If you want to position your exports properly, you have to be strategic, even in terms of the value of your currency. So, you’re going to see all of these, including efforts from the fiscal side.
“We have patriots running the economy right now. And naysayers have to be very, very afraid,” Fasua added.
