Experts lists gains of CBN’s Forex restriction measure amid calls for review

With the continued calls on the CBN to relax the current forex restriction and Vice President Yemi Osinbajo’s assurance that the restriction will be relaxed in the long run, Olaseni Durojaiye  presents analysts’ views

Even with the increased clamour for a review of the current Foreign Exchange Policy of the Central Bank of Nigeria from various quarters including the Manufacturers’ Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) as well as market watchers and economists of various hues, those advocating for a quick review may have to tarry a while, THISDAY findings has indicated.

It will be recalled that the current forex regime was introduced in June as part of a long term  plan of the  administration of President Muhammadu Buhari to cushion the effect of the slump in oil prices as well as a way to encourage local manufacturing and diversify the economy. But since the introduction of the control measures in June, business executives have complained that they have had to deal with foreign suppliers’ worries that they won’t get paid as well as struggled to convince banks to approve dollar payments.

An executive of a large furniture company who preferred not to be named disclosed that “it takes a minimum 10 days now to get dollars, before, it was 24-28 hours, adding that “sometimes when you request like $100,000 you only get $80,000 and it’s getting worse.”

According to Director General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, “Many companies have defaulted by not fulfilling foreign obligations, even blue chip companies, for the first time.”

Among the advocates of a quick review of the forex policy, MAN has been one of the most articulate. MAN had aligned with the argument that the current forex regime was capable of pushing the economy closer to recession after growth dropped by half in the second quarter compared to same period last year.

Besides consistently sounding the alarm bell on the hurt the forex regime was doing to the country’s manufacturing sector, the umbrella body of manufacturers in the country has also called for a review of the list of items banned from assessing foreign exchange through the CBN. In that light, MAN had advised the apex bank to remove 105 items from the list while the bank declined to do so and agreed to remove only 44 items on the list. The body also suggested 93 finished items not on the list that it felt should be included on the banned items’ list because Nigeria produces enough of them.

However, even as the calls grow louder as signposted by a Reuters report that claimed manufacturing companies in the country making anything from soaps to tomato paste may run out of raw materials and forced to shut down due to the CBN forex restrictions, the country’s financial authorities do not appear to be willing to relax the restrictions anytime soon and this, THISDAY enquiries revealed may be due to some verifiable gains of the measure.

Economy watchers who responded to THISDAY enquiries stated that though the restriction will be reviewed in future, it stays for now. The contention followed reports ascribed to Vice President Yemi Osinbajo indicating that Nigeria will keep the currency restrictions for now to preserve the country’s currency reserve amid dwindling oil earnings.

“Restrictions are definitely short term. There is no question about that,” Reuters quoted Osinbajo as telling reporters recently.  “So long term, we expect that the CBN will ease restriction as we go along,” he added.

Gains of the forex regime

According to Head, Investment Research at Meristem Securities Limited, Saheed Bashir, “Rates have been stable at the interbank segment of the market by closing below NGN200/USD irrespective of the volatility during the day. Speculative activities have been narrowed down at the parallel market. Demand has been curtailed by the exclusion of some activities from procuring FYC in the FX markets and at the given supply level, rates in the parallel market appreciated to the NGN220-225 band,” he stated.

On his part, a Chartered Financial Analyst and Head, Research and Intelligence, BGL Securities, Femi Ademola, agreed with Bashir  and told THISDAY that “the gains of the current forex policy of the CBN are the stability of the exchange rate, the prevention of further haemorrhaging of the foreign reserves, and the accretion to the reserves at some points, all of which support macroeconomic stability. Continued volatilities in exchange rate due to currency speculations and indiscriminate importation at a time when foreign exchange earnings was at a low level could lead to catastrophic consequences for the economy,” he argued.

When asked to suggest a possible timeline within which the restriction is expected to be relaxed, Bashir stated that “The Vice President already said the policies are for the short-term but that the CBN will ease the rules in the long-term.

By implication, they should hold sway in the short to medium term perhaps when the structural shift has run its course, and the production capacity of the country is robust enough to make up for the excluded items,” he stated.

However, in his response, Ademola explained thus: “Perception plays a very significant role in the valuation of an asset, entity or economy. A very important index for valuation is the country’s exchange rate; hence how a country is perceived globally in terms of current economic performance and future growth and development plays a role in valuing the country’s currency. At the moment, Nigeria is seen as a mono-product economy and with very poor governance structure; hence the low oil price and the huge revenue leakages agree with the general belief that the naira is overvalued. However, once a transparent governance framework is implemented and a practicable economic blueprint that will run on the globally acceptable governance structure is developed, the country would be seen in a different light and market-induced currency volatilities would subside.

“Therefore in my opinion, a review of the current forex policy should be due once the cabinet is in place and the budget for 2016 supported by the medium term framework of the government is released to the public. This means that a review is possible in November or December 2015,” he contended.

Meanwhile, the forex regime may have slowed down the influx of Foreign Direct Investments into the country, it has not altogether deterred would be investors from showing interest in investing in the country. This is evident in the growing investment portfolios of French and German companies in the country.

The latest being the Movement for the Enterprises of France (MEDEF) which has expressed interest to invest in the country. During a MEDEF trade delegation to the country during which it met with President Muhammadu Buhari and Governor of Lagos State, Akinwunmi Ambode, and other business leaders, leader of the delegation, Mr. Pierre Gattaz, disclosed the readiness of the MEDEF members to invest in various sectors of the country’s economy including agriculture, mining, automobiles, energy, skills development, light manufacturing and transportation among others.
Analyst insisted that the coming of MEDEF may be part of the fruits of President Buhari’s diplomatic shuttle to France adding that being an umbrella organisation of about 800,000 French companies, Nigeria stands to benefit from its coming irrespective of the downsides of the current forex regime.

[ThisDay]