Scarcity of dollars hits foreign exchange market

Most firms in Nigeria seeking to utilise and remit US dollars overseas are finding it extremely difficult to purchase foreign exchange due to the shortage of supply of the greenback in the economy.

According to findings, some firms now resort to the black market for dollar purchases.

It was also learnt that a lot of foreign airlines operating in the country are finding it a herculean task to convert revenue from their naira ticket sales to dollars, hence making it impossible for them to remit their earnings overseas.

The development has been attributed to the significant drop in foreign exchange inflow as apprehension over the elections continues to swell.

In addition, oil companies which supply dollars to the interbank market have seen their earnings fall on the back of crashing oil prices, and the little they have, they are unwilling to offload as concerns mount over the elections.

Owing to the development, individuals and firms have been holding on tightly to their dollar holdings in anticipation that the naira will depreciate.

However, CBN officials said companies that have been shorting the naira, because they expect it to sink further against the greenback, “are in for a surprise”.

“We know what is happening and we intend to flood the market with dollars. So those thinking that they can take advantage of the spread will be in for a shock,” said one central banker who did not want to be named.

Although the Central Bank of Nigeria (CBN) has been able to hold the naira at N197 to a dollar in the interbank market, a lot of firms and individuals holding dollars are not willing to sell, in anticipation that the naira value would depreciate after the elections. The naira sells for about N219 to a dollar in the black market.

Financial market analysts also confirmed the development.

The central bank exactly a month ago stopped the bi-weekly sale of foreign exchange through the Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS), effectively stopping the sale to manufacturers and oil marketing companies at the hugely subsidised official rate.

Following the scrapping of the auctions, the central bank had asked authorised dealers and members of the public to channel all demands for foreign exchange to the interbank market.

The naira has been trading between N197 and N198 at the interbank since the policy was announced.

A currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, who confirmed the shortage of dollars in the forex market, said: “As we speak, the dollar is king. You don’t see dollars anyhow!”

Ezun explained that “a lot of people are actually going long on the dollar. That is, a lot of people are buying to keep, so they are shorting their naira. That is why the dollar is so scarce.”

He however pointed out that there has been a significant reduction in the volume of dollar supply in the country, especially with the drop in crude oil prices.

“The major source of inflow of forex into Nigeria has always been through crude oil sales, which has dropped in the last couple of months.

“Also, the inflow of foreign investment into the fixed income market has dropped because of the volatility in the market. Add to that autonomous sources, which are the oil companies that are always on the sidelines to support the central bank also, but are hoarding dollars,” he added.

Ezun however felt the central bank was doing the right thing by intervening in the market.

“The best the central bank can do is what it is doing presently. The CBN is always in the market. Today, there is transparency in pricing. For you to buy forex, there must be the underlying documentation. Those you see going to the black market, are those who do not have the necessary documentation to support legitimate purchases of dollars at the interbank market,” he said.

Credit: Obinna Chima/ThisDay