Forex of pains …… NATION

As an entrepreneur, Mrs. Queen Okosisi, buys jewelries from Dubai and sells in Lagos, Port Harcourt and Abuja. She is currently running out of ideas on how to sustain a business she has ran for a decade. Reason: Exchange rate volatility.

For her, the N226 to a dollar in the parallel market on October 22 and N196.8 to a dollar in the official market are not only unsustainable, but bad for business. As the naira struggles against the dollar in both markets, the cost price of jewelries, especially gold and silver-coated wristwatches and precious stones rose by over 40 per cent.

She said the price hike has not only triggered a drop in her import volume and profit margin, she now struggles to spread the new price regime on customers.

“Everyday, I think of how to remain in this business which is my only source of livelihood. Demand for our goods has dropped significantly. And it is becoming clearer that if nothing is done to stabilise the naira against the dollar, I will have no other option than to quit,” Queen said at her shop in Balogun Market, Lagos Central Business District (CBD) on Lagos Island.

The naira has fallen by 25 per cent in the last one year. It was devalued in November 2014 and February this year. It has fallen by 35 per cent in the last 13 years despite the billions of dollars spent by the Central Bank of Nigeria (CBN) to defend it.

Inflation also rose to 9.4 per cent last month, the highest annual rate since February 2013, and above the CBN’s target range. The external reserves fell by 0.99 per cent ($300 million) to $30.04 billion as at October 21. In 10 months, the reserves level has declined by 12.9 per cent ($4.45 billion). The level of import and payments cover is down to 4.86 months from 4.92 months at the end of September.

With these developments, the naira has come under threat against the dollar. And the collateral casualties are the businesses that rely on forex to thrive.

Queen has foreclosed business trip for the local currency to appreciate against the dollar. But that may not happen in  a short while until because crude oil price, which contributes between 80 to 85 per cent of the nations export earnings has not shown any sign of an early recovery.

Nigeria’s crude oil – bonny light, which traded at $110.2 per barrel in January 2014, reaching $114.6 per barrel by June of the same year, now trades below $52 per barrel on October 20.

Boxed to a corner with the continued slide in reserves and crude oil prices, the CBN is thinking of ways out of the quagmire. One of the steps taken by the apex bank was tinker with its forex policies to conserve the reserves.

In June, it banned importers of 41 items including toothpicks, private jets and rice and other items classified as finished products from accessing the official forex markets to fund their imports. Before then, it banned the sale of forex by banks to importers without the requisite shipping documents and directed that only imports, which are backed with evidence of shipment and other relevant documents, will qualify for purchase of forex at official rate.

The Managing Director of Coleman Industries, George Onafowokan, said he lost over N800 million due to forex restrictions on the 41 items.

He asked: “If we cannot buy our raw materials that we believe have been wrongly tagged in the CBN list, the question is how the CBN will cushion the effect of this devastating policy?

Many people believe that the CBN forex restriction affects the import of raw materials used in production by real sector operators like Onafowokan, hence, stalling industrial sector operations.

Beyond the real sector, there are fears that the CBN directive that commercial banks pay for their dollar purchases at the official forex window 48 hours ahead of the bid date may have triggered  a major setback in the medical sector.

Under the policy, banks and other forex dealers are required to deposit the naira equivalent of the total forex bids at the apex bank 48 hours in advance. The lenders responded by transmitting same message to their customers, who must now fund their accounts 48 hours before the forex bid date.  Besides, dollar deposits are being rejected.

The policy, which made no exceptions for medical service providers, is adversely affecting importers of radiopharmaceuticals, used in treatment of cancer patients and others with serious ailments,The Nation learnt.

To the Centre for Nuclear Medicine – an International Atomic Energy Agency (IAEA) Project – at the University College Hospital (UCH), Ibadan, which banks with Guaranty Trust Bank (GTB) Plc., the policy shift means more pains for its cancer patients.

As a non-governmental organisation, the Centre does not have huge cash at its disposal and remitting funds 48 hours before the bid date will strain its already drained resources, a source said.

This will lead to a drop in number of patients, who will have access to the cancer drugs, hence, aggravating an already difficult situation.

The Nation learnt that since the CBN began the enforcement of the policy, the importation of drugs for the patients has been put on hold. The drugs for the centre’s patients are shipped into the county between three to four days ahead of the days they would be administered on patients.

The centre “operates more or less like a charity”, being a United Nations (UN) agency, but it is lumped together with big businesses by bankers, a source told The Nation.

CBN’s Director of Corporate Communications Ibrahim Mu’azu said the apex bank could not give exemptions to UCH because it will not know where to draw the line.

In his view, the centre can overcome the funding challenge by planning ahead.

But, an expert, who pleaded for anonymity because he has no mandate to talk to the media, believes both the CBN and the commercial banks do not understand the damage the policy could cause in the health sector, especially to patients undergoing treatment at the centre.

He urged the CBN to grant waiver to providers of medical services, because of the sensitivity of their services.

Speaking on the 48 hours advance payment policy during the Bankers’ Committee meeting held in Lagos, GTB’s Chief Executive Officer (CEO) Segun Agbaje said: “I think the policy will help the CBN a lot to determine what the real demand for forex is from what a spurious demand is. It’s going to ensure that what we operate is effective demand backed by cash. So, that way, it is easy for the apex bank to actually determine what the demand is and ensure it is a proper demand.”

Currency speculators on the prowl

The rejection of dollar deposits by banks is also creating businesses for forex speculators.

Edu Abdulkareem is taking advantage of the policies to make a kill. He is one of several currency speculators benefiting from the directive forcing banks to reject cash deposits in dollars because of claim by the lenders that they are unable to transfer excess liquidity to their corresponding banks overseas which are restricting importers from using domiciliary accounts.

The policy, which made it impossible for importers to fund their domiciliary accounts directly from Nigeria, created a billion dollar business for currency speculators like Abdulkareem.

“Dollar deposits and transfers to supplier accounts are only possible if the money came in from a foreign account as inflow. What we do is collect the equivalent in naira while our agents in Benin Republic make dollar equivalent deposits into the importer’s domiciliary account from where he transfers the fund to foreign suppliers,” he explained.

That way, he said, the importer will be able to beat the regulatory caveat that ‘only foreign inflows’ can be transferred to suppliers. Abdulkareem explained that although it is a tedious process, but it has enabled importers to skip regulatory sanctions while he takes commission on every successful transfer.

But importers, who cannot go through these hasles, are diverting their dollar payments to neighbouring Ghana and Benin Republic. According to investigations by The Nation, the importers prefer the neighbouring countries where the import procedures and forex policy are less tasking.

Gwadabe, confirmed the development. He said the rejection across-the-counter foreign currency cash deposit by banks is causing problems for importers, adding that the after-effect is already manifesting.

He said: “The implications of the banks protest have started manifesting. The surplus dollars in the street market is unavailable to the local importers as they cannot transact with it through their bankers.

“The neighbouring countries are having a field day mopping up the excess dollar cash liquidity at a very cheap rate for the use of their imports to the detriment of importers.

“Importers are diverting the payment for their imports to neighbouring countries. They are also diverting their consignments to ports in neighbouring countries. The ports of Tema and Tokoradi in Ghana as well as the Port Autonome de Cotonou, in Benin Republic are their preferred choices.

“The policy change is helping businesses in neighbouring countries at the expense of Nigerian lenders. I believe that operators should expect further market disequilibrium.”

  • To be continued tomorrow