Business
Emefiele’s big forex vision raises survival bar for banks
By UCHE CHRIS
Rising from the Bankers’ Committee meeting last week, Mr. Godwin Emefiele, Governor Central Bank of Nigeria, CBN, announced one of the boldest and far-reaching policies of his regime in the management of foreign exchange supply to end users, which may have important implications for the future of the economy and operations of banks in the country.
According to him, the CBN, which is the sole supplier of forex to the public through the banks and bureaux de change, will cease to perform such function before the end of the year as banks, now the only channel of forex sales to people, after banning bureaux the change from accessing forex from it, will then source their own forex from independent sources to meet their customers’ demand.
This may be the biggest forex policy since oil became a major forex earner for the country in 1973 forcing government to assume the task of sole supplier and only comparable to the consolidation of its supply on the CBN by stripling banks of such role. The Bankers’ Committee is a highest policy forum, which acts as a clearing house between the CBN and deposit money banks represented by their CEOs. Major policies affecting banks, such as consolidation, liquidations, forex mandates etc are usually cleared first at this forum before announcement.
Mr. Emefiele had promised major policy changes while unveiling his vision in July 2019 for second term and this may yet be the most critical in the forex sector, which has become his greatest intractable headache, as the naira continues its macabre crash against major currencies, an excuse used to ban bureaux de change from the market for speculation.
Speaking at the special press briefing at the end of 364th Bankers Committee meeting on the launch of the Bank’s new forex repatriation scheme ‘RT200 FX Programme’ on Thursday February 10, 2022, at its headquarters in Abuja, Emefie said that the banks must begin to source their forex from export proceeds, hence the need to support the non-oil sector of the economy.
The RT200 FX Programme which stands for the “Race to $200 billion in FX Repatriation”, is a set of policies, plans and programmes for non-oil exports that will enable Nigeria attain a lofty yet attainable goal of $200 billion in FX repatriation, exclusively from non-oil exports, over the next 3-5 years.
Emefiele pointed out that the decision was in line with the apex bank’s new commitment to boost the country’s foreign reserves through proceeds from non-oil export.
“The era is coming to an end when, because your customers need 100million dollars in foreign exchange or 200 million dollars, you now want to pack all the dollars and pass it to CBN to give you dollars.
“It is coming to an end before or by the end of this year. We will tell them don’t come to the Central Bank for foreign exchange again, go and generate your export proceeds.
“When those export proceeds come, we will fund them at 5% for you and they will earn rebait. Then you can sell those proceeds to your customers that want 100 million dollars.
But to say you will continue to come to the Central Bank to give you dollars, we will stop it.
“Nigeria cannot continue to depend on FX earnings to fund its import obligations from revenue coming from earnings from products where we cannot determine both price and quantity.’’
Under the RT200 FX programme, which is to take immediate effect, the CBN will provide concessionary and long-term loans for business people who are interested in expanding existing plants, or building new ones for the sole purpose of adding significant value to the non-oil commodities before exporting same.
These loans will have a tenure of 10 years, with a two-year moratorium and an interest rate of 5%.
The CBN boss during the briefing said that the newly introduced programme will have five key anchors which includes; Value-Adding Exports Facility, Non-Oil Commodities Expansion Facility, Non-Oil FX Rebate Scheme, Dedicated Non-Oil Export Terminal and Biannual Non-Oil Export Summit.
What you should know.
The CBN intends that the new RT200 FX Programme will be similar to the Naira4Dollar scheme for diaspora remittances, which offers recipients of diaspora remittances through CBN’s International Money Transfer Operators to be paid N5 for every $1 received as remittance inflow.
Emefiele during the briefing announced the introduction of the Non-Oil FX Rebate Scheme, a special local currency rebate scheme for non-oil exporters of semi-finished and finished produce who show verifiable evidence of exports proceeds repatriation sold directly into the I&E window to boost liquidity in the market.
Mr. Paul Alaje, Economist and Senior Partner, SPM Professionals, an Abuja based consultancy firm, said that the problems of the economy are not primarily foreign exchange derived, and an enhanced value of the naira is not enough to transform the economy.
Although he commended the CBN for the bold step to stop spoon-feeding the banks which produced all sorts of illegal behaviours in the market, however he believed that revamping and diversifying the economy and improving non-oil production begin basically with infrastructure, such as power, security, tax policy etc because they are factors that make Nigerian products expensive and uncompetitive for export.
“Infrastructure comes before loans, an economy can’t stand on one leg; monetary, fiscal and trade policies must go together, otherwise, we will be clapping with one hand. This is not to defend banks, because on face value the policy will sanitise the forex sector and curb all the bad behaviours present in current practice.
“However, banks also have their own risks which are regulatory induced, such as high Cash Reserve Ratio, CRR, Loan for Deposit Ratio, LDR, high loan default and infrastructure. You don’t give loans without loan assessment. Cost of production mainly come from infrastructure, which is responsible for high business mortality rate. Banks are not the cause of this.”
According to him, the positive impact on forex rate is doubtful and indeed may be negative because scarcity, which is likely to occur with the policy, at least in short and medium terms, will lead to high demand and consequently further collapse in the value of the naira against other currencies.
“The impact on forex rate will be a big issue; it could jump to N1000 per dollar within a year. The policy is good but it is jumping the gun. Governments – federal, state and local – must develop infrastructure and invest in education. No industry can succeed without tackling power; our exports are uncompetitive because of power and taxation. These must come first before forex and loans.”