Party congress, foreign investors’ repatriation put pressure on naira

Nigeria’s currency is seeing sell pressure gradually building against it as a result of political activities and foreign portfolio investors repatriating their investment proceeds.
The Naira was trading at between N367 and N368 per U.S dollar on Friday “on the street trading market” known as parallel market at the Lagos International Airport, BusinessDay investigation revealed.
At Apapa area of Lagos, naira was quoted at N366 to the dollar at the black market. “Dollar is scarce because demand is high,” traders said.
On the website of Bureau De Change operators (BDC), the local currency was seen trading at N367/$. At the investors and exporters window, the foreign exchange market on Wednesday May 9, 2018 witnessed 0.14 percent depreciation in naira/dollar exchange, after five months of trading around N360 per dollar. It closed at N361.57k per dollar on Friday, data from FMDQ revealed.
Johnson Chukwu, managing director/CEO, Cowry Asset Management limited, explained that Foreign Portfolio Investors (FPIs) are not rolling over their investments.
“What we have seen is that they are beginning to repatriate their capital because yield in fixed income moderated,” Chukwu said.
Chukwu told BusinessDay on phone that investors are being lured by interest rate rises in the United States.
Foreign investors have repatriated N233.72 billion worth of equities between January and April 2018, up 49 percent from the N156.62 billion of outflows recorded between January and April 2017, according to data from the Nigerian stock Exchange (NSE).
BusinessDay gathered that some politicians are now patronising the informal market for foreign exchange transactions for fear of having their formal financial transactions tracked by the government.
The Central Bank of Nigeria (CBN) in 2017, released a framework for the operations of the Watch-List in the Financial System. The Watch-list is a database of bank customers identified by their Bank Verification Numbers (BVNs),who have been involved in confirmed fraudulent activities. “The watch-list shall be effective from the inception of the BVN,” CBN stated in the framework.
The ruling party – All Progressives’ Congress and the opposition People’s Democratic Party (PDP) spent a total of N7.7 billion during the general elections in 2015, Official audit reports submitted to the Independent National Electoral Commission (INEC) indicated.
While the APC said it spent only N2.9 billion, the PDP — which was the ruling party at the time — said it spent N4.8 billion for the polls.
The APC report, audited by Mai-Alheri and Co., said the party generated only N604.5 million in 2015, but spent N2.9 billion, leaving a deficit of N2.3 billion.
The then ruling PDP, according to its audit report done by Paul Akinade Adebimpe and Co, earned only N799 million in 2015, but spent N9.53 billion leaving a deficit of N8.7 billion.
Analysts said the election spending this year would be higher considering the value of naira then and now. Most politicians like spending in dollar as it is easier to carry around. Electoral activities therefore always lead to a spike in demand for dollars. The APC has been having party congresses in the last three weeks and is preparing for its national congress fixed for June 23.
The CBN last week kept its monetary policy stance at 14 percent for a 9th consecutive period, amid slowing inflation rate, for fear of liquidity risks expected from election spending, expanded budget and Federation Account Allocation Committee (FAAC) outlays.
“I understand some foreign investors in the fixed income market whose investment matured are not rolling over their investment because of low yields in the domestic market. So they are repatriating their funds. You must also note that yields in the fixed income securities in the advanced economy are going up,” Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited, said.
The 10-year U.S. Treasury yield last week rose above 3 percent for the first time since January 2014.
Nigeria’s one year Treasury bill yields (where foreign investors are more active) have declined to 12.4 percent from as high as 20 percent a year ago after the government repaid maturing bills rather than roll them over as it has done in the past.
In his emailed response, Akinwunmi, added, “If the trend continues and the country needs the funds of the foreign investors, the economic manager may have to decide to influence the yields to make it attractive for the foreign investors.”
If the naira continues to sell-off, the implication according to Chukwu is that the external reserves would be pressured.
External reserves which have been growing since last year recorded the first marginal decline in May 11, 2018 to $47.84 billion from the peak of $47.865 billion as of May 10, 2018.
It stood at $47.75 as of last week May 21, data from the CBN show.
Chukwu also said it would have adverse effect on inflation and fixed income yields would reverse upward.
Inflation rate has moderated for 15 consecutive months – from a high of 18.72 percent in January 2017 to a two -year low of 12.48 percent in April 2018, according to data from the National Bureau of Statistics (NBS).
However, the Central Bank has been intervening at the foreign exchange market to boost liquidity.
The Apex bank Wednesday injected the sum of $210 million, to meet customers’ requests in various segments of the foreign exchange market. This was after it intervened to the tune of $293 million to cater for requests in the retail segment of the forex market on Friday, May 18, 2018.
In a move that would hopefully create more foreign exchange liquidity in the market and uplift the Naira, the Central Bank of Nigeria has mandated all Bureau De Change operators to access forex from its windows at lest three times a week.
Any BDC that fails this directive would face sanctions, and risks losing its operating licence, according to the new order which also targets to clampdown on fx hoarding.
“All BDCs shall henceforth access forex from the CBN on Mondays, Wednesdays and Fridays. It is compulsory that all BDCs access forex at least three times weekly,” the CBN said in a mailed statement at the weekend, insisting that Compliance is Compulsory.
“Any BDC that fails to access the forex window at least three times weekly shall have its licence reviewed by the CBN,” it added.
In the new directive, the CBN also mandated commercial lenders to henceforth, sell forex to travelers across the counter as long as they present valid documents that prove their eligibility.
The directive comes four days after CBN warned banks against refusing to sell the Business Travel Allowance (BTA) and Personal Travel Allowance (PTA) to customers, and also for pilgrimage.
The CBN said its actions were based on reliable information, and had asked intending pilgrims and other customers that faced difficulties from their banks to secure BTA/PTA to report to it with immediate effect.
“All Deposit Money Banks (DMBs) are mandated to buy and sell foreign exchange to travelers (both customers and non-customers) upon presentation of relevant, valid travel documents such as visa and ticket OVER THE COUNTER,” the CBN further noted in the new statement signed by Isaac Okoroafor, its acting Director, Corporate Communications.
“All travelers shall be attended to immediately at the banks’ counters. Any contravention shall be sanctioned by the CBN.”

HOPE MOSES-ASHIKE, Lagos & ONYINYE NWACHUKWU, Abuja

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