CSL Stockbrokers raises concerns as FG mulls special FX window for manufacturers
By Olivia Nnorom
CSL Stockbrokers, a subsidiary of FCMB Group Plc, has raised objections to the idea of the federal government creating an additional foreign exchange window, arguing that the existing multiple forex windows already posed a big challenge to forex stability.
The firm, which is the new stockbroker to the federal government of Nigeria, was reacting to a news report that the government would consider a separate and special forex window for exporting manufacturers.
According to the report, Adeniyi Adebayo, minister of industry, trade and investment, had, in response to a plea by manufacturers for the federal government to support the sector by allowing operators to access forex through a special window to be created by the Central Bank of Nigeria (CBN), said his ministry would initiate steps towards helping exporting manufacturers cushion the impact of the current forex crisis.
”I like the idea that you came up with, having a different window for manufacturers. The president just set up an economic team, and we have been meeting. Write to me, and we will see what we can do,” Adebayo said during the Manufacturers Association of Nigeria Export Promotion Group’s Annual General Conference in Lagos on Thursday.
But reacting to the news report, CSL Stockbrokers noted that even though the minister’s comment was not a guarantee, nor was the proposal made by the CBN, an additional forex window would worsen the forex instability in the country.
“Currently, the CBN maintains the official window, the MSME window, Secondary Market Intervention Sales (SMIS) window and the I&E window. These multiple windows have created huge arbitrage opportunity as the I&E window closed at N441.83/US$ as at October 14, 2022 while the parallel market closed at N744/US$ implying c.N300/US$ in arbitrage opportunity,” CSL Stockbrokers said in a recent article.
CSL Stockbrokers said forex illiquidity continues to mount downward pressure on the naira against the greenback as demand significantly outweighs supply, noting that the CBN has stopped the twice-weekly sale to foreign portfolio investments (FPI) for about three months while it also owes banks a large amount of dollars sold to banks and yet to be supplied.
“Based on our rough estimate of CBN FX supply to the multiple windows, the apex bank supplies about 6.0x more dollars than what is currently being remitted by the NNPC to CBN,” the stockbroking firm said.
The FCMB subsidiary said that forex illiquidity will persist as a result of the continuous downward trend of crude oil production, which constitutes 80 percent of Nigeria’s forex earnings.
In addition to the persistent illiquidity, the 118 percent debt service to revenue is a disincentive to foreign capital inflows. Also, the almost non-existent FPI inflows, which was a major source of dollars for the economy, makes the situation dire, it said.
The CBN is facing a real shortage of dollars, CSL Stockbrokers said, as demand simply exceeds supply by a wide margin. It said the current forex demand is more than what the CBN can handle, especially with the parallel market above N700/US$; many individuals and businesses who earn dollars are keeping their dollars for future use and even those who earn in naira are converting a large quantum of their earnings to dollars.
“The high number of people relocating to the UK and Canada, taking advantage of current visa laws, has increased the demand for invisibles in the form of school fees and upkeep,” the firm said.
The only respite, the firm said, are remittances estimated at about US$20 billion annually.
CSL Stockbrokers, rated as one of the top five stockbroking firms in Nigeria, provides institutional and corporate brokerage services to investors and select issuers. The company now has the mandate to execute all transactions of the Federal Government on the Nigeria Exchange (NGX).