The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, has warned businesses and individuals against patronizing the parallel market, popularly called the black market.

He warned them to stop using black markets for foreign currency exchange, following the liquidity crisis triggered by low oil prices and a shortage of dollars.

This was disclosed in a video message, which was monitored by Nairametrics.

According to the CBN governor, patronizing the parallel market is helping to overheat the foreign exchange market. He further pointed out that the exchange rate at parallel market is unrealistic and that businesses and speculators that keep on patronizing them will lose money.

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In his statement, Godwin Emefiele said,

“I know some of you are involved, stop now. By going to the parallel market, you are helping to overheat that market. Not only that, you will lose money because you would have bought it at a price that is not realistic.

“I can tell you that you are going to lose money. But we have seen your account already. We are appealing to you, please stop and let’s do what is right, what is legal, so that Nigeria can continue to be a good place for you and to live in.”

Going further, he said, “We are taking note of some of you and I can tell you, go ahead and do your business, nothing will stop your forward, your forward will be at a committed price, we are going to provide more liquidity in the market so that people can stop going to the parallel market. Don’t go there because it is not good for you. But be patient, it’s going to be orderly’’.

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Forgot to post the video yesterday. Best part – listen to the voice where it was recorded pic.twitter.com/33SEHsCicO

— tyro (@DoubleEph) May 20, 2020

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The demand for dollars has been on the increase without adequate supply, thereby putting a lot of pressure on the naira. Importers with outstanding obligations have scrambled for foreign exchange while the providers of foreign exchange, such as foreign investors, have exited.

Nigerian banks are texting their customers about the availability of forex for personal travels. A series of text messages monitored by Nairametrics show commercial banks informing their customers that they can now purchase forex.

A text from a commercial bank read’ “Dear Client, purchase USD for eligible invisibles (Tuition fees, Upkeep, Medical Payments, Travel Allowances, etc) and SME transactions at our branches.”

Another commercial bank sent the following message to its customers; “Back in Business? Getting Ready for Back to School? No Need To Worry About FX.” Most users on social media platform, Twitter, also confirm receiving these messages.

The messages follow recent pronouncement by the CBN that it is ready to provide forex for investors who wish to repatriate funds from the country despite the drop in oil prices and its effect on forex supply.

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Thread:
Investors interested in repatriating their funds from the country are guaranteed to get their money, notwithstanding the drop in the revenue from crude oil. #Emefiele #CBN

— Central Bank of Nigeria (@cenbank) May 10, 2020

The CBN also insisted that “Foreign Exchange available would be devoted to strategic importation or service obligations that are priority” as Nigerians worried about their ability to secure forex for essential items once the global lockdown eases.

How can you buy it?

Findings from Nairametrics indicate banks are willing to sell forex but currently sell to students, parents, and guardians looking to pay school fees. We understand forex is not being sold for PTA since air travel is still suspended in most countries following the global lockdowns. However, to purchase the forex, all you need to do is approach your bank with evidence of use.

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Assurance moves

As part of its move to assure the market that forex supply will be available, the CBN agreed to a depreciation of the exchange rate at the forwards market. Last week, Nigeria’s 5 years onshore Non-Deliverable forward contract posted its biggest drop by plunging 27% from N413.36 to close at N569.69 a price differential of N156. The 1-year Non-Deliverable forward contract was down 5% from N394.29 to close at N421.22 a price differential of N26.93.

One month NDF is now N395/$1 suggesting an imminent devaluation in the I&E window which could also impact the current official exchange rate of N360/$1 as well as the BDC rate which was devalued to N370/$1 some weeks back.

The move triggered worries that the exchange rate might be devalued in line with the depreciation at the forwards market. Reports reaching Nairametrics indicate the apex bank is desperate to assure investors that it has enough forex to defend the naira for now and does not see any immediate need for a devaluation.

What changed?

Oil prices staged a rebound in the last two weeks with Nigeria’s Bonny Light crude hitting $27 as at Thursday morning. Nigeria also just recently banked the $3.4 billion IMF facility helping to boost external reserves. The data from CBN shows that the external reserves increased sharply by $1.36 billion in just 13 days, rising from $33.42 billion as of April 29, 2020, to about $34.78 billion on May 12, 2020. The Nigerian external reserve had been on a downward slide since last year, after hitting a high of $45.17 billion on June 11, 2019. It should be noted that the reserve lost over $11 billion within a space of 10 months.

In a recent report released by Bloomberg, the Manufacturers Association of Nigeria (MAN) said that its members were finding it very difficult to access U.S dollars for their business transactions.

“It was pretty difficult to source forex from all the available windows. Members have had problems accessing foreign currencies for five weeks due to lack of Central Bank’s interventions,” the manufacturers’ group said. 

This was corroborated by investment banking firm, FBNQuest in a note on May 7, when it said, “There is an estimated $1 billion backlog of unmet dollar demand.”  

Nigeria depends on crude oil exports for most of its revenue and more than 90% of its foreign exchange earnings. Despite a recent rally in oil prices, Nigeria’s forex situation remains bleak as businesses find it difficult to access forex.

(READ MORE: CBN Governor guarantees investors over forex repatriation)

“The scarcity of foreign-dominated currencies is hampering the ability of local manufacturers to import raw materials, machines, and spares that are available in Nigeria,” MAN said.

According to the group, Nigeria’s central bank needs to prioritize improved access to foreign exchange for operators in the real sector to allow them to acquire the necessary tools in reactivating the economy.

Some businesses tracked by Nairametrics also buttress Bloomberg’s report. One factory owner who preferred to remain anonymous inform us that they have been looking to buy $4million for weeks but have only been able to source $1 million. “We consider ourself lucky despite only being able to get 25% of what we want” he remarked.

Forex at the black market range from N420 to N470 for wired transfers depending on who is selling and buying respectively. The black market is yet to settle for any price discovery due to the asymmetrical nature of the supply demand dynamics.

The Forex market recently depreciated the exchange rate between the naira and the dollar with the 5 year non-deliverable forwards falling to N570/$1 from N413/$1. The CBN maintains it has enough dollars to meet demand as it commenced sale of forex last week.

The exchange rate at the I&E window appreciated to N386.94 on Tuesday. This is against the N387.88 to a dollar it recorded on Monday morning as investors scrambled for forex supplies.

The dearth of funds persisted at the Investors’ & Exporters’ window during today’s trading session with most trades consummated c.$/N386 levels. Consequently, the Naira traded flat to close at $/N386.94.

Forex for SMEs remains $20k per quarter at N380/$1.