The Central Bank of Nigeria (CBN) has declared that Nigeria currency (Naira) exchange rate is now floated, which implies that the Naira exchange rate will now be fully determined by market forces of demand and supply.
Exchange rate float: According to the information obtained on the CBN website, the exchange rate data on the CBN macroeconomic indicator’s section has been removed and replaced with “The Naira exchange rate is market-determined“. A market-determined exchange rate is often referred to as one that is floating or a floating exchange rate.
The website has reflected this change since May, leading some analysts to opine that the CBN may have surreptitiously decided to float the naira.
But a further click into the link shows the exchange rate remained between N305 and N307, which is the Central Bank’s official rates. This has also been the same rate it has sold dollars for over two years since the last depreciation. So why then is the CBN informing the market that “the Naira exchange rate is market-determined”?
Was it an error or is it sending a subtle signal to the market that it has finally agreed to adopt a market-driven exchange rate?
More details: There are multiple exchange rates in Nigeria. The Central Bank’s official rate is (was) N305/$1 which is also published on its website and has been that way for years before the latest change depicted above.
Meanwhile, the parallel market (bureau de change) is the most patronized for individuals, travellers and even businesses. In the parallel market, price is specifically determined by market forces of demand and supply.
Note that in 2017, CBN officially introduced a multiple exchange rates system, which added the establishment of the Investors’ & Exporters’ FX (I&E) window to the existing official bank rate. According to CBN, the move was a continued effort to deepen the foreign exchange (FX) market and accommodate all obligations.
“The purpose of establishing the I&E FX market is to boost liquidity in the FX market and ensure timely execution settlement for eligible transactions.”
In the I&E window, the supply of foreign currency to the window is done through portfolio investors, exporters, Authorised Dealers and other parties with foreign currency to exchange naira. Also, CBN is a participant to promote liquidity and ensure professional market conduct. The I&E window is market determined and is viewed as a major reason for the stable exchange rate currently seen in Nigeria.
The Bottom Line: While the CBN is yet to issue an official statement to the change in the Nigeria exchange rates system, what this suggests is that the CBN has finally accepted that the exchange rate will henceforth be determined by the forces of currency demand and supply. Perhaps, the CBN is bracing itself for a possible exchange rate convergence in the no distant future.
Nevertheless, CBN has continuously intervened by injecting billions of dollars to defend the naira due to excess demand for the dollar. Whether this means CBN will stop intervening in the FX market remains yet unknown.
Note: This article was updated on June 12 to reflect new information
Covid-19: Pfizer, BioNTech’s vaccine ready before end of the year
BioNTech is in partnership with Pfizer to develop a coronavirus vaccine.
The Chief Executive Officer (CEO) of German biotech firm, BioNTech, has announced that the company and New York-based pharmaceutical giant, Pfizer’s Inc’s COVID-19 vaccine candidate is expected to be ready to obtain regulatory approval by the end of 2020.
The German biotech firm which is in partnership with Pfizer to develop this coronavirus vaccine is confident that it will be ready for regulatory approval by the end of the year.
The co-Founder and CEO of BioNTech, Dr Ugur Sahin, said that several hundred million doses could be produced even before approval and over 1 billion by the end of 2021, according to a wall street journal report.
The experimental vaccine which has shown a lot of progress against the fast-spreading respiratory illness in early-stage human testing is expected to move into a large trial stage that will involve 30,000 healthy participants later this month while waiting for regulatory approval.
According to an earlier report from Reuters, Pfizer and BioNTech are getting set to produce up to 100 million doses of the vaccine by the end of the 2020 and another 1.2 billion doses by the end of 2021 at sites in Germany and the United States.
It can be recalled that earlier this week, U.S. vaccine specialist, Novavax said in its statement that it will receive $1.6 billion from the federal government to support the development of its Covid-19 vaccine candidate as a new member of the government’s Operation Warp Speed (OWS) program, which aims to accelerate the development of a vaccine.
Guinea Insurance Plc gives optimistic Q3 earnings forecast in spite of COVID-19
Note that some companies have had to revise their earnings estimates due to pandemic.
Guinea Insurance Plc is being very optimistic, having projected a 78.6% rise in gross premium written to N1.8 in Q3 2020, up from N1 billion during the comparable period in 2019. The insurer also forecasted a profit after tax of N185.8 million for the period, indicating an expected better performance compared to N735 million loss recorded in Q3 2019.
The earnings forecast, which was sent to the Nigerian Stock Exchange earlier today, also estimated that reinsurance expense for Q3 will be at N337.5 million. Claims expenses, underwriting expenses, and other operating experiences were equally put at N331.3 million, N292.6 million, and N692.2 million, respectively.
Note that this forecast is coming amid the negative economic impacts wrought by the Coronavirus pandemic. But while a growing list of companies (including Guinness Nigeria Plc) has downgraded their 2020 earnings and profitability forecasts, Guinea Insurance is expecting growth and that is good.
In Q1 2020, Guinea Insurance Plc reported gross premium written OF N207 million and a profit after tax of N12.6 million. The company’s consolidated half-year 2020 financial has not been released and is expected sometime between this month and next month.
The company’s share price ended today’s trading on the Nigerian Stock Exchange at N0.20. Year to date, this stock has not recorded any price movement.
Manufacturers declare support for unification of exchange rate
Ahmed urged the CBN to tackle activities that made speculators manipulate the multiple exchange rates.
The President of the Manufacturers Association of Nigeria (MAN), Mr Mansur Ahmed, announced on Friday that the recent CBN unification of Nigeria’s exchange rate is a welcome development that will boost investor confidence in Nigeria.
He said the exchange rate unification will enable stable planned production for manufacturers in Nigeria leading to economic growth, adding that the Manufacturers Association had urged for an exchange rate unification to enable a market-friendly business environment in Nigeria.
“Clearly, this is a welcome development and a laudable initiative that has come at the right time. This is more so, particularly, now that the economic outlook is gloomy in light of the impact of the ravaging COVID-19 pandemic that has culminated in uninspiring macroeconomic situations,” he said.
He revealed that the World Bank had attributed Nigeria’s falling Foreign Direct Investment (FDI) to the multiple exchange rates as investors felt a “manipulation of the foreign exchange market.”
“The unification will also boost investors’ confidence, control rising inflation, and promote transparency, entrench better exchange rate management and eradicate distortions to the barest minimum,” he added.
He urged the CBN to tackle activities that made speculators manipulate the multiple exchange rates like “round-tripping” which he says expand the inflows of foreign investment into the economy.
He called on the Central Bank to implement 2 strategies to ensure a smooth transition into a unified exchange rate system.
“The first is to limit the short-term pains until efficiency gains materialize by responding swiftly with an inward-oriented rescue guideline while the second should seek to boost the pace at which such efficiency gains materialize,” he said.
He advised, it’s necessary the CBN “submit all the instruments of exchange rate determination” towards a free-market approach.