Forex scarcity threatens investor confidence

By Tunde Shorunke

Experts want CBN to unify exchange rates

Nigeria already in deep recession, says analyst

The prevailing difficulties in accessing the major global currencies (forex) especially at the Investors and Exporters Foreign Exchange (I&E FX) window is expected to further create a contraction on investment in Nigeria.

Domestic and foreign portfolio investors have been unable to exit the market recently due to the illiquidity in the I&E window.

Also, some shareholders who were unable to repatriate their dividends had to reinvest them due to the illiquidity. Competency to invest, especially by portfolio investors, given the recent trend, will drastically diminish due to the current insecurity in the market, as repatriation of their funds can no longer be assured.

Commenting on this development, a Financial Engineer and Chief Executive Officer of Wyoming Capital & Partners, Tajudeen Olayinka, exclusively told The Daily Times that the absence of orderly inflow of foreign exchange into the market is the reason for current scarcity and dislocation in the economy, advising the Central Bank of Nigeria (CBN) to begin unifying the exchange rates in all segments of the market.

He explained that the I&EFX window is a segment of the Nigerian foreign exchange market that is meant to cater to the interests of exporters, foreign investors, especially foreign portfolio investors, and other such users of foreign exchange, who so much believe in the dynamics of the free-market system as a means of allocating scarce resources.

According to him, it is erroneous to think that CBN should be the only player that must supply foreign exchange to that segment of the market.

“I blame CBN for the way they have allowed that market to fail, because they failed to allow the dynamics of the free market to prevail in the I&E Window and similar other segments of the market, among other pertinent issues.

That is the reason CBN is now being compelled by some users of that window, to supply forex to it, as a way of bailing them (users) out of the trap. Ordinarily, this shouldn’t have happened.

“CBN must begin to unify the exchange rates in all segments of the market by simply creating just one market for all users of foreign exchange.

CBN does not have the capacity to meet forex demands by all users but could create an environment where much-needed inflows from other users regularly create a balance in the market.

Absence of orderly inflow of foreign exchange into the market is the reason for current scarcity and dislocation in the economy.

“So, the Nigerian economy will need to go through a new round of adjustment and confidence building, while resetting all parameters to much better levels.

Foreign investors, especially foreign portfolio investors, have lost confidence in the capacity of the Nigerian economy to support free entry and free exit, as it has become difficult to repatriate their money, even with huge loss of value.

So, it might take some time to bring that confidence back. “Nigerian economy is already going through a self-inflicted crisis of distorted and delayed adjustment and everyone would have to pay for it, one way or the other.

Most of the bad policies of the government in the past made it difficult for the Nigerian economy to prepare for the unexpected pandemic and global lockdown.

“We must, however, recognise the fact that fiscal and monetary authorities have started doing something in the right direction, even though their efforts might not be sufficient to avert a looming recession.

I still hope they can coordinate their activities much better and faster than they started in this month of September, to possibly avert a recession, or make us go through a V-shape recession.

A U-shape recession must be avoided at all costs. “Usually, there are pains associated with going through a process of structural adjustment, we, however, have to bear with the government at this difficult time, as the other choice we have is to allow the economy to finally collapse, with such dire consequences.”

Also, in an enquiry by our correspondent on the recent intervention by the apex bank in the FX market, a top bank official who doesn’t want his name on print, said, “There’s a backlog of unmet demand rumoured to be about $2.5billion at the I&E that the CBN has to clear.

“The beneficiaries of that unmet demand are mostly Foreign Portfolio Investors who brought in their dollar investments earlier in the year but have not been able to take back their investments since COVID-19 started in March 2020.

So, $50million is just a tip of the iceberg. “The $50 million most probably will be to start remittances of the rumoured $2.5billion outstanding and unmet demand.”

Also, Chief Executive Officer (CEO) of Mascot Consult Limited, Marcel Okeke revealed that the Nigeria economy is already in a deep recession, adding that investment security to foreign investors is at its lowest level which in turn will affect the economy negatively.

“A recent report shows that our balance of trade recorded a deficit of close to N2trillion in the First Half of the year (H12020), which means we’re importing much more than we export.

With the situation of FOREX scarcity, the world is a global village and every investor is looking for the best Operations of Arik Air were on Monday shut down by aviation unions over alleged non-payment of staff salaries since April after placing 90 per cent of the workforce on compulsory leave.

They included the National Union of Air Transport Employees (NUATE) and Air Transport Senior Staff Services Association of Nigeria (ATSSSAN).

All Arik Air operations in Lagos were shut down, just as passengers expressed reservations. Mr Innocent Atasie, chairman, ATSSSAN, Arik Air Branch, said the workers resolved to shut down Arik operations nationwide when all efforts made to resolve the problem failed.

Atasie said that the unions were miffed that there had been no payment of staff salaries since April after placing 90 per cent of the workforce on compulsory leave. The unions said the strike would continue indefinitely until their demands were met by the management of Arik Air.

Their demands included payment of outstanding salaries arrears, signing of Conditions of Service, remittance of Pension, Tax, and statutory deductions to the appropriate authorities and resolution of other antilabour issues.

Others were payment of salary arrears of seven months, with a commitment to pay salaries as at when due, henceforth.

Atasie said that the unions also wanted the immediate review of all employee remunerations which had remained stagnant since the inception of Arik Air, over ten years ago.

He said that the unions decided to shut down all operations nationwide when all efforts by the unions were aborted. On Sept. 13, the management of Arik Air had asked for the intervention of the Minister of Aviation, Mr Hadi Sirika, over the planned industrial action by unions scheduled to commence on Sept 14.

The Chief Executive Officer of Arik, Capt. Roy Ilegbodu, made the appeal in a letter to the minister entitled, “Re-Unions in Arik Air threaten to down tools.

A passenger, Mr Julius Anifowoshe, said: “I was shocked when I came to the airport at about 6.30a.m., to board and found out that the airline workers are on strike without due notification.

“I am forced to buy another ticket from another airline to meet up with my appointment in Abuja. Government should sanction Arik Air for not reaching out through text messages or e-mail to customers on the planned strike.

I am going to seek a refund of my money whenever I am back to Lagos. Arik Air took customers for granted.” Another passenger, Mrs Beatrice Ikechukwu expressed disappointment over the sudden shut down of operations without due notice to passengers.

Ikechukwu said: “I have to source money to buy another ticket for what I did not plan for. Arik Air operational system is porous, nobody came to address passengers on what was happening. This is really pathetic and disheartening.”

However, Mr Adebanji Ola, the Communications Manager of Arik Air said that the management has scheduled a meeting with the unions on Sept. 15 to resolve all matters. environment, not just where to get the highest returns but when they want to repatriate the money and they cannot, it does not create a convenient business environment.

“Even on Foreign Direct Investment (FDI), the insecurity in the country is a great threat to FDI because an investor won’t bring in his money to set up an investment with no actual guarantee that they will be alive to set up a factory.

READ ALSO: ‘How FOREX illiquidity on I&E window disrupts petrol importation’

It is as bad as that, looking at our monetary policy and others that have contributed to the insecurity in investment.

“The economy will still continue to get heated by all corners of the sector; we’re going to lose to other countries because each economy is in a competition with the rest of the world.

We can see how worst we’re for the African Continental Free Trade Area (AfCFTA) that’s about to take off in Ghana. Why is it not in Nigeria?

“We’re going to continue to lose investment to other parts of the world and other parts of Africa, where investors consider to be better than Nigeria.

Also, the Capital Importation which signifies our capital inflow into the country, if we compare Q1 2020 versus Q2 2020, we’ll see a significant drop which means investors are withdrawing.

“Many of these foreign investors that are already trapped in terms of repatriation, who invested in multinational companies in the country at extreme frustration, have decided to reinvest the dividends they couldn’t repatriate – companies like Nestle, Unilever, Nigerian Breweries among others.”