Dr. Bunmi Bajomo, Head of Group Corporate Banking at Ecobank Transnational, has revealed three sectors in Nigeria that are “principally” benefiting from the foreign exchange reforms program of the Central Bank of Nigeria (CBN), among others.
Bajomo shared these insights about the FX market on Saturday during Nairametrics’ 2024 Q4 Economic Outlook webinar, titled “Nigeria’s Economic Outlook 2025.”
The event focused on “Exchange Rates, Interest Rates, Economic Growth, and Geopolitics.”
According to Bajomo, while most Nigerians have somehow benefitted from the FX reforms, three sectors, including exporters, have leveraged the market reforms to derive benefits.
FX reforms
- Bajomo explained that, in terms of exchange rate movements, the reforms carried out by CBN as of April 2024 had narrowed the gap between the official and parallel markets to less than 1%.
- She described this development as a positive one for the economy and a significant benefit for Nigeria’s FX market.
“You recall what happened last year—the gap between the official and parallel markets was like night and day. The official market was at about 475, while the parallel market was trending around 1,000. With the reform earlier this year, as of April 2024, the gap had narrowed to less than 1%. Even though we’ve now seen the gap widen to around 5%.That is one positive”
“In terms of FX liquidity, the level of liquidity has improved significantly. As of last year, before this administration took over, FX supply practically dried up, and even manufacturers could not buy,” she said.
- Regarding sectors benefiting from the FX reforms, Bajomo highlighted three sectors, starting with Nigerian exporters.
Exporters
- She pointed out that when looking at Nigeria’s trade position, aside from petroleum (which makes up a significant portion of Nigeria’s exports), products like cashews, cocoa beans, and rubber are also making an appreciable impact.
- According to her, as long as players in this sector can produce, the devaluation of the Naira has enhanced the competitiveness of typical Nigerian exporters.
“Principally, I would say the exporters,agro-allied exporters, people who export agricultural products.
“So, if they can export, there are buyers, because it costs less—or almost nothing—in dollar terms for people to purchase these products,” she added.
Financial Industry
- The second sector Bajomo believes has benefited from the FX reforms is the financial industry, particularly banks.
- She mentioned that in February this year, the CBN transitioned from daily arbitrary debits in terms of the Cash Reserve Ratio (CRR) to an updated CRR regime.
- CRR is the percentage of customer deposits that commercial banks are required to keep in reserve with the CBN or as cash.
- She explained that the updated CRR adjustments allow banks to effectively monitor, plan, and align their positions with the CBN, thereby freeing up liquidity.
“So, the ability to effectively calculate what your CRR is a major relief for the financial sector,” she said.
Manufacturing
- Another sector that Bajomo believes has benefited from the ongoing FX reforms is the manufacturing sector.
- She explained that previously, manufacturing entities faced the issue of trapped cash, where Naira was deposited over an extended period (sometimes years) for FX that never materialized.
“Significantly, those trapped funds have now been freed. FX has been purchased, and people can now use the idle cash to their advantage,” she added.
More Insights
Bajomo further discussed the issue regarding the FX regime, noting that the main concern is not availability, but rather the price at which FX is available, and whether the manufacturer-trader-exporter structure allows them to buy at that price and trade effectively.
She acknowledged that there has been significant improvement in FX availability, but it is only accessible to those who can afford it.
“The question is: How many people can afford it? How many companies can buy at this level and sell effectively? Who are they selling to? Yes, I know there have been wage increases, but how many companies and governments have implemented them, and how many workers have benefited?” she asked.
- According to her, this development highlights that there are still limiting constraints, particularly in terms of capacity and the ability to absorb what is available.
- She added that there are about 2 billion unreconciled FX positions, even though the CBN has been engaging operators, airline manufacturers, and traders to reconcile their positions.
“The only issue is that some Naira is still trapped under that arrangement. But in fairness to the CBN, they are engaging with stakeholders. It might not be a competitive level of interest rates being offered to these people, but as compared to zero interest, they are getting something,” she added.
She suggested that more forward guidance should be provided by the CBN to offer clarity on FX policies and reforms, enabling stakeholders to price effectively.
She emphasized that the CBN’s exchange rate regime is on a free flow but is guided, requiring constant clarity so that stakeholders can plan and comply with the dictated FX regime.
