Anayo Nwosu: Insights from a Seasoned Banker on Forex Strategy

Anayo Nwosu: Insights from a Seasoned Banker on Forex Strategy

 

With the recent shifts in Nigeria’s foreign exchange landscape, Anayo Nwosu, a seasoned banker, has shared valuable insights on the evolving forex market, advising businesses and individuals on strategic financial positioning.

“The commencement of local petroleum product supply by the Dangote Refinery will significantly reduce the pressure on the demand for dollars in Nigeria. For a long time, Nigeria has spent heavily on importing petroleum products, which fueled the demand for foreign currency. Now, with local production, that demand will drop,” Nwosu noted.

Nwosu also highlighted the broader impact of Dangote’s operations on Nigeria’s foreign exchange inflows. “Dangote will not only meet local demand but also generate foreign exchange through exports to sub-Saharan Africa. This is a game-changer. The refinery’s reach covers West, Central, and Southern Africa, and it will control the sale of aviation fuel across the continent. It’s no surprise that 16 European refineries are considering shutting down due to this competitive threat.”

Despite these benefits, Nwosu cautioned about potential challenges. “If the Federal Government prioritizes selling crude oil to meet Dangote’s needs, Nigeria’s FX earnings from crude oil will decline, which may reduce the FX available to the Central Bank of Nigeria for official sales to banks. This could impact importers and businesses that rely on FX for Letters of Credit and other transactions.”

However, Nwosu pointed out a crucial trend that savvy business owners should note. “The naira has already appreciated between N150 and N200 in just a week. This indicates that the exchange rate for the dollar to naira has started falling. Smart businesses should take advantage of this and hold their funds in naira, not dollars, as the market adjusts.”

His overall advice is strategic but simple: “Importers and distributors of foreign products must read the economic weather well. The forex landscape is changing rapidly, and those who act now will be better positioned for future gains.”

Anthony Emeka Nwosu

SELL YOUR HOARDED DOLLARS AND COUNT YOUR LOSSES BEFORE IT IS TOO LATE

SELL YOUR HOARDED DOLLARS AND COUNT YOUR LOSSES BEFORE IT IS TOO LATE

 

The USD is on the downward trend, and it may reach unexpectedly low before June as petroleum marketers started lifting AGO (Diesel) from Dangote refinery earlier this week. PMS lifting to commence in May. This will further crash the USD.

The reason being that large percentage of the importers sourcing the USD are petroleum products importers, now that they pay in Naira for lifting from Dangote refinery, there will be a less pressure on the USD and dollar will be more available to other importers who do not need as much dollars as petroleum products importers.

The CBN has also tightened the noose on the banks. Nobody can get the USD without actually needing it. You submit your three years tax certificates, international passport, visa, oversea’s vendor’s account number (in which the bank will help you pay as you will not be given any physical dollar), proforma and any other document as may be required by your bank.

Similarly, your bank will have to apply to the CBN portal on your behalf, and upon qualifying for the application, your bank will pay the said amount into your overseas vendor’s account. There is no room for hoarding of the USD, which will, in turn, cause unnecessary artificial scarcity in the market.

As an importer sourcing dollars from the bank, you are only entitled to 20 percent of the total sum needed, and note that this will not be given to you in cash either. It will be paid into your dollar card which you can only spend outside the country when you travel abroad for your importation activities. You don’t have any business spending dollars in Nigeria.

The same thing goes for those who patronise the bereaux de change. Before you can get the USD from the aboki, you must definitely need it outside the shore of Nigeria. There are no longer undocumented transactions. You have to submit your NIN and BVN. If you are going to study abroad and you want to pay your school fees, you must submit a copy of your admission letter, school invoice, and account number. Then the aboki will help you pay.

No longer undocumented transactions, and you can not collect it from the aboki, let alone hoarding it. Just like an importer, you as a student are also entitled to 20 percent of the total amount. You may need some money outside the school fees, like accommodation, transportation and some other miscellanies. Don’t forget that aboki will not give you this 20 percent in cash. It will be paid into a designated facility designed by the CBN.

You may think you can buy your way and play the game, but I doubt it because no aboki will want to toy with his business. As a matter of fact, they all now register with 250k for one state operation and 500 million Naira deposit. For an aboki that wants to operate nationwide, they have to register with 500k and deposit 2 billion Naira. You heard me right, 2 billion Naira. And any infraction may make them lose their deposit.

No, aboki will even favor you at the expense of his business because the CBN is now giving them 20,000 dollars per week to trade with, and they will pay the Naira equivalent to the CBN Though they have not reached the target, they can only get 10k USD for now, and as more dollars are available, they can get the 20k USD as promised.

I don’t think any aboki will want to play any dirty game to lose this opportunity, because henceforth, they have to account for how the USD given to them the previous week was used with documents to back it up before they can qualify for another allocation. And you think with all these stringes attached, an aboki will want to favor you as a customer to lose his business? Not even a politician can make him play the ball. For your information, about 4173 abokis were deregistered, and licenses were withdrawn. We are only left with manageable 1500 plus. Any uncomplied aboki will be deregistered with the speed of light.

In a long while, this month of March was the only month the federal allocation would be shared without a dollar going up. Instead, it nosedived. I trust our super corrupt governors before these policies, they would have converted their state allocations to dollars, weakened our Naira, and strengthened the dollars. Very unpatriotic it sounds. Another shocker is that commercial banks can not hoard dollars again. They are given a threshold to maintain, and any excess should be sold to their customers.

This also includes the profits they make on the dollar transactions that used to be shared by the shareholders before now. Any profit from the dollar transactions should be reinjected into their dollar business, and when the threshold is reached, they should sell the spillovers. Is God not wonderful? Our almighty banks, abokis, and super governors are all caged with one stroke of policies. Nigeria is on the right tracks, and we are going to get it right.

 

Currency slump sees surge in demand for dollars assets in West Africa despite greenback’s ongoing strength (By Abiodun Adebimpe)

Currency slump sees surge in demand for dollars assets in West Africa despite greenback’s ongoing strength (By Abiodun Adebimpe)

The Russian-Ukraine war and the lingering impact of the COVID-19 pandemic have severely weakened West African economies and currencies – but businesses and investors are looking to dollar assets to mitigate the damage.

 

As most West African economies are commodity-driven, any development within the global economy that affects the supply and/or demand of commodities imports and exports portends significant currency weakening effects on the economies.

 

Recent and ongoing global events have created massive demand destruction in crude oil, agricultural products and precious metals such as gold. Supply chains are also still to recover.

 

As a result, most West African currencies such as the Nigerian Naira (NGN) and the Ghanaian Cedis (GHC) have significantly weakened.

 

It is a major source of concern – and an ongoing challenge- for most Nigerian businesses and those in other West African countries.

 

Fiscal and monetary imbalances compound the problem.

 

The import-dependent nature of most West African markets implies huge demand for foreign exchange to pay import bills. Due to declining external reserves, the Central Banks are not able to promptly and adequately meet these demands.

There is also massive fiscal debt overhang in most West African markets. One of the effects is the need to borrow from bilateral and multilateral global lenders who demand deliberate local currency weakening by the local authorities by adjusting their official exchange rates accordingly to fight the demand for foreign currencies. Weaker local currencies makes it more expensive, and less attractive to convert to hard currencies.

 

These factors together have conspired to weaken West African currencies, and the outlook remains negative in the short to medium term. The loss of confidence in the local currencies means that they are no longer considered a stable store of value.

The import-dependent nature of most West African markets implies huge demand for foreign exchange to pay import bills

 

But businesses and investors have responded to hedge themselves and protect the value of their earnings and holdings in fast depreciating local currencies.

 

Investments in dollar denominated securities such as Eurobonds, dollar and other hard currency equities, debt instruments in the form of government and corporate bonds, as well as interest bearing US treasury instruments have become the preferred holdings for investors. And demand is expected to grow.

 

But not holding local currencies has implications for the local economies.

 

It further increases the demand for foreign currencies and continues to create the arbitrage gap between official and unofficial forex markets which create further arbitrage pressure on the local currencies. This places further exchange rate pressure until the governments implement the right monetary and fiscal policies which enable the local currencies to better reflect economic fundamentals.

 

Most West African governments have started taking the right steps in this direction by adjusting their official exchange rates and in some cases borrowing in United States Dollars to shore up their external reserves though it may take some time to materialise.

 

The Nigerian naira in particular has remained under intense pressure since the closely watched election last month.

 

There is a risk the naira will continue to depreciate in the next few months because of the major difficulties in turning around through economic reforms in an economy of its size. The expectation of weaker crude oil and natural gas prices will likely continue to pressure the currency.

 

There is also the challenge of remittances flow to Nigeria: many companies are no longer supporting these transactions. Most importantly, tech investments which represented a significant increase in foreign direct investments (FDI) have all but reduced drastically.

 

As a result of turbulent economic conditions, businesses are increasingly turning to advisors with extensive global know-how for expert advice.

Since the launch of RMB’s direct custody services in Nigeria and Ghana in 2019 and 2021 respectively, we have been advising local and foreign fund managers, pension funds, broker-dealers and banks.

 

RMB is the leading provider for West African investors seeking to invest in foreign markets through our insightful global custody solutions. We also support inbound investors seeking selective portfolio investment opportunities in emerging and frontier markets across the continent of Africa.