Forex demand overshoots foreign reserves

LAGOS — Reports from the banking system have indicated that over $30 billion worth of unmet demand for foreign exchange have been piled up at the official window of the foreign exchange market maintained by the Central Bank of Nigeria, CBN, in the last six months.

This came as the Manufacturers Association of Nigeria, MAN, challenged Federal Government to implement policies that would ensure a drastic reduction in the use of foreign raw materials, if the nation must achieve its manufacturing needs. This $30 billion represents bids submitted by importers through their various banks to CBN for foreign exchange allocation for which naira equivalent has been provided and Letters of Credit, LCs, opened but the apex bank has not been able to meet the demand due to scarcity of the foreign exchange resources over the last one year.

The total demand, if met by the apex bank, would have wiped out Nigeria’s foreign reserves which stood at $27.1 billion as at last weekend. At 2016 Manufacturers Outlook held last week in Lagos, bankers and manufacturers, who confirmed the development, told Vanguard that almost every bank in the country has a minimum of $1.0 billion demand for foreign exchange from their customers but lamented that the apex bank could not meet the demands consistently for over one year now, adding that in the last six months alone the total demand would be in the region of $30 billion.

The convener of the meeting, Dr. Biodun Adedipe, had scarcely told the audience made up of mainly bankers that the foreign reserves had gone down dangeriuosly to a low level which could only fund 6.9 months import. But the bankers quickly informed that his figures and calculations represented only the official allocation by CBN which leaves the balance of $27billion, adding that when the total demand representing total matured obligations including Letters of Credit (LCs) and cash backed demands for sundry uses are put in consideration there will be no money in reserves for any import at all not to talk of covering some months.

Constraints in LCs obligations Most of the bankers lamented that the situation was becoming a major threat to the reputation of the banks and Nigerian importers before their international partners, suppliers and lenders as they could not meet up with matured obligations to them. In a chat with Vanguard, weekend, Managing Director of Honeywell Flour Mills Plc, Mr Lanre Jaiyeola, said due to inability of the apex bank to meet its foreign exchange demands, companies in the sector had to scale down their production volume while still struggling to meet outstanding LC obligations. Bankers now fears that the huge backlogs of unmet foreign exchange may lead to major defaults by Nigerian banks to their international financial communities. Banks disagree over CBN allocation strategy An official of the CBN had told Vanguard that the apex bank was equally worried about the huge unmet demand for foreign exchange but explained that there was little the apex bank could do in the circumstance.

He said the bulk of the demand was speculative and it was difficult to isolate the speculative demands from the real demands, hence the several controls being imposed including selective allocation of the scarce resources. The banks were divided over CBN’s response to the situation with some of them expecting the apex bank to liberalize the supply while devaluing the currency to starve off demand pressure. Others said any attempt to do so will push Nigeria into bankruptcy in a matter of weeks. But almost all agreed that some of the demands were speculative as both the banks and the end users were doing what they call front-loading of demand, meaning that the end users would bid for forex they would need in the future rather than presently since they are not sure of availability when they would be needed.

Manufacturers want reduction in imports Meanwhile, Manufacturers Association of Nigeria, MAN, has challenged the Federal Government to implement policies that would ensure a drastic reduction in the use of foreign raw materials, if the nation must achieve its manufacturing needs. MAN president, Mr. Frank Jacobs, threw the challenge when he led a high powered delegation of the association on a courtesy visit to the Minister of Science and Technology, Dr. Ogbonnaya Onu, in Abuja, weekend.

He regretted that Nigerian manufacturing sector utilized an average of 54 per cent of foreign raw materials in their production processes, a development he said must be stopped to save the local manufacturers and the economy from the negative impact. For the country’s manufacturing sector to take deep root into the economy, the MAN President said: “There is need for purposeful collaboration between the ministry and the various research institutions under its purview and MAN.”

modath:


This I'm sure is minus the 41 banned items.

Bush meat yaff catch the hunter then.

NavierStokes:


"All die na die", maybe the cbn should just open the vaults and meet the demand once and for all, in the process dollars will be driven down to 199NGN.

We yaff finish in this country

modath:


Are you sure 70% of the demand isn't geared towards round tripping purposes?

NavierStokes:


I honestly feel it's more than 70%. By the way who would not want to make an instant 100ngn on each dollar. The gains greatly exceeds that from doing legitimate business.