Mixed reactions trail banks’ rejection of foreign currency deposits

Some manufacturers and financial market analysts have expressed divergent opinions on the Central Bank of Nigeria's (CBN) foreign exchange policy as well as the decision by commercial banks to reject foreign currency deposits.

While manufacturers hold the view that the policy has stifled business and discouraged entrepreneurship in the country, market analysts stressed that the measure aimed at strengthening the naira was in order.

Meanwhile, the naira continued its rebound on the parallel market day where it closed at N210 to a dollar, higher than the N220 to a dollar at the weekend.

The gain recorded by the nation's currency was largely driven by excess dollar supply in the market as banks continued to reject dollar deposits Monday.

Consequently, several bureau de change (BDC) operators and foreign currency account holders have found it difficult to pay in foreign currency into their bank accounts.

Prior to this, CBN had restricted importers of 41 items from accessing forex at the official forex market. The policy, according to the central bank, was designed to facilitate the resuscitation of domestic industries and improve employment generation.

The CBN Governor, Mr. Godwin Emefiele, while speaking in an interview said the number of items on the list might be increased.

But reacting to the measures in the forex market, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, stated that as a result of the restriction of some items from the official forex market, “a lot of manufacturers are stuck”.

“Many of them that ordered goods had to stop the goods from coming in and most of them cannot get raw materials. Generally, the whole forex policy is killing businesses,” Yusuf added in a chat with ThisDay.

Also commenting on the suspension of foreign currency deposits, the LCCI boss said it was a “manifestation of the bigger problem of the way the market is managed”.

“These are just fire-fighting measures,” he said.

However, Chief Executive Officer of Financial Derivatives Company (FDC), Mr. Bismarck Rewane, expressed support for the CBN’s forex policy, saying the measures taken by the central bank were in order.

“Monetary policies always go after fiscal policies and what the CBN is doing is right. Right now, the monetary policy has to continue what it is doing until fiscal policy becomes clear,” Rewane explained.

Also commenting on the suspension of foreign currency deposits by the banks, he saw it as a temporary measure, saying, however, that it would not address the fundamental problem of the actual pricing of the naira.

LCCI President, Mr. Remi Bello, added that the economy at this time needed to be stimulated, not constricted further.

“The stock market has been bearish for the past couple of months; output growth in the economy decelerated to 3.9 per cent in the first quarter from 5.9 per cent in the previous quarter; profit margins are on the decline across sectors; and purchasing power remains weak as unemployment continues to rise. So this is not the time to keep the economy in a tightening mode,” he said.

Emefiele explained in the interview that the decision by the banks to stop accepting foreign currency in their vaults was not taken by the CBN, but that the central bank was in support of the idea.

Yet, the central bank's foreign exchange policy is having unintended consequences on the economy and has unravelled the CBN’s policy on price control.

For instance, a report by Bloomberg monday focused on Mojeed Jamiu, an entrepreneur, who has been forced to cut jobs and raise prices to prevent his furniture and clothing store in Lagos from closing after Emefiele restricted foreign currency supply for some imports.

Due to a dearth of local manufacturing, companies like Jamiu’s FM Best Bargain Limited have no choice but to import goods.

“One must survive,” the 47-year-old father of three said in low tone in one of his show rooms in a four-story building on a busy road in the Lagos district of Ogba.

“Businesses will close shop if you don’t know where to get the next dollars and at what cost. Jobs that were done by two people, we now engage one person,” he added.

Emefiele’s push to cut imports is clashing with his mandate to keep prices in check as the economy struggles to cope with a 50 per cent fall in Brent crude prices over the past year.

Inflation accelerated 9.2 per cent in June, quickening for the seventh straight month to take the rate beyond the central bank’s target band of 6 per cent to 9 per cent.

With 21 per cent of all Nigeria’s imports affected by the restrictions, the pace of price increases will probably remain above the policy maker’s goal for the rest of the year, according to Standard Bank Group Ltd., Africa’s biggest lender.

Companies being hurt by the policy can start producing the goods they are selling, Ibrahim Mu’azu, a central bank spokesman, said by phone from the capital, Abuja. “I don’t think the restriction will cause inflation or unemployment.”

Domestic businesses don’t yet have the capacity to produce those goods and the central bank’s decision will cause unemployment, said Yusuf of LCCI.

Nigeria’s unemployment rate rose to 8.2 per cent in the second quarter from 7.5 per cent in the first quarter, the nation’s statistics bureau said in statement on its Twitter account. The chamber is planning to carry out a study of the impact on its members, Yusuf said.

Nigeria’s manufacturing industry contracted by 0.7 per cent in the first quarter of 2015, after expanding 15.4 per cent in the same quarter a year earlier. While the Lagos chamber has met with central bank officials, who promised to review the policy, there hasn’t been any change.

The regulator said it is waiting for President Muhammadu Buhari to detail his economic plans. But that is on hold until September, when Buhari said he would appoint his cabinet.

An official devaluation of the naira is inevitable and it’s best for Nigeria to take the hit now, Yusuf said.

“It’s better to allow the naira to find its level so that all of us can have peace,” he said.

Credit: ThisDay