Forex: Can CBN sustain the black market onslaught? – Omoniyi Akinsiju

The federal government’s decision to clapdown on the black market foreign exchange operators has been a trending topic in Nigeria’s economic circles.

President Muhammadu Buhari

While there have been some arguments for and against the government’s decision, the government has carried on with its action, saying it is best way out for Nigerians.

The government has also at different occassions, said the move is a painful, but worthy one because of its benefits.

With the dramatic appreciation of the naira against the dollar and other major international currencies starting Monday, February 20, there had been shifty discomforts as expressed by many Nigerians despite the unrestrained excitement that greeted the impact of the Central Bank of Nigeria (CBN) recently introduced foreign exchange policy reforms.

Omoniyi Akinsuju gives 13 reasons why the government is no track with its reforms

1. Four days after the take-off of the policy, the naira, at the black market, appreciated exponentially by more than 4% from N525 to a dollar to N480 to a dollar. As at Tuesday, February 31, a dollar was exchanging for N445, with even greater prospect of appreciating further against the greenback.

2. Of course, the market response is a testimony to the multiple layers of measures rolled out by the CBN to salvage a hitherto savaged foreign exchange market where the local currency had been on a free fall, especially at the black market.

3. Expectedly, the naira had been severely pummelled in the forex segment of the economy in direct consequence of an acute shortage of organically sourced dollars and a slowed down flow of the greenback from foreign investors.

4. However, the CBN, had through an insistence on managing the float of the naira against other currencies sustained the naira/dollar rate at N305 to a dollar at the interbank forex market. This had drawn different hues of flaks from some commentators who insisted on a free float of the naira even as some other commentators rallied to the support of the CBN, defending the apex bank managed float of the country’s forex regime on basis of the lean foreign exchange earnings as a result of the combination of vastly reduced crude oil production and internationally compelled low price of crude oil.

5. Things started taking a perceptible turn for the good in November 2016 when militant activities in the oil producing Niger Delta area started petering out while the collaborative position of the OPEC and non OPEC member countries led by Russia, fired crude oil price over the $50 per barrel mark.

6. This was the needed elixir the Nigerian economy desperately needed, especially at a time inflation rate was looking runaway and productive activities were grounding to excruciatingly painful halt. Thankfully, the crude oil price spike and increased price provided the juice to the country’s dwindling foreign reserve which had been decimated to as low as $23billion. The reverse of fortune soon commenced the consistent accretion to the foreign reserve. Within a twelve week period, starting November, 2016 to February, 2017, the foreign reserve added more than $8billion and hugged the $30billion psychological mark.

7. Apparently, this provided the impetus to the CBN to stream the ‘meet all demand’ measure. So now, the personal and business travel allowance that had hitherto had peripheral access to the foreign reserve, and payment of school fees plus medical treatment abroad were all brought in to banking circle thus vastly reducing the pressure points that led to the flourishing of the black market.

8. This is even as the CBN pumped more dollars into the interbank forex market at $6million daily intervention in the spot segment of the market. This compares with the miserly $1.5million daily intervention it used to undertake. This, combined with the clearing out of more than four billion dollar backlog of demand through its shorter 60 days maturing future market segment, were enough reasons for the naira to start a sharp climb up against the dollar.

9. But now, a new concern seems to have emerged; can this new naira virility be sustained? The first response to this is predicated on keeping the peace in the Niger Delta. It would seem the federal government has been able to persuade the Niger Delta of its seriousness to dialogue and impact a developmental agenda in the area.

10. In the matter of sustaining this marginal oil price increase, there’s a growing international confidence that price of oil per barrel may hit the $60 mark. This is because critical stakeholders in the collaboration to cut down on oil between OPEC and non OPEC countries have started demanding for a push back of the six month due date for the expiration of the collaboration.

11. Iraq has been particularly loud in the call to extend the time period for scaling down national supplies for another six months with eyes set on $60 per barrel. Iraq is being joined by oil producing giant, Total, in this call. The prospect of this call being endorsed is said to be potent and so guarantees sustained high price.

12. As it were, it would seem this new forex regime is sustainable. CBN decision to heavily fund the supply side of the forex market is truly a welcome policy, however, substantial credit should be ascribed to the emerging culture of transparency and integrity that is defining government responsibility and service delivery.

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