Experts have repeated demands for the Federal Government (FG) to implement a strategy to address the country's extended volatility in the foreign currency (forex) market in order to stimulate stock market, present uptrend, listed enterprises' profit.
The stakeholders said that one of the key reasons the stock market had an unparalleled slump in recent years was due to investor indifference, which was exacerbated by a chronic currency shortage, and that this has continued to impede investment development and profitability.
It was made to know that a lack of forex limits productive diversification and discourages investment inflows into a country, liquid forex markets will entice foreign investors who have been on the sidelines or have fled the country. According to them, addressing the country's present currency deficit will improve the profitability of listed firms and increase dividend distribution to shareholders.
According to the experts, when the Importers and Exporters' window was introduced in mid-April 2017, it helped to stabilize volatility and liquidity in the forex, also bringing foreign investors into the market, as average Foreign Portfolio Investment (FPI) for every month went up to N85 billion, up from N43 billion in 2016.
As a result, they proposed that the government develop a specific funding structure, like formation of an intervention fund, which allow firms to easily receive currency.
Remember that the value of Foreign Portfolio participation in NSE equities trading reached N851 billion in October 2017, which is 60.8 percent more than the N517.55 billion recorded for the whole year ending December 2016.
Tajudeen Olayinka, Chief Executive Officer of Valmon Securities Limited, defined foreign currency scarcity as an external sector imbalance and a sign of insufficient supply of a major international currency in an economy relative to import demand in that economy.
Olayinka emphasized the need of the Central Bank of Nigeria (CBN) ensuring that the foreign exchange market operates efficiently so that the economy may run in a way that aids in the restoration of external equilibrium.
An study of the detrimental impact of prolonged FX shortages on listed enterprises' which showed that International Breweries Plc lost more than N11 billion in the second quarter of 2021, more than double the N3.7 billion loss reported in the same period in 2020.
The company's foreign currency loss of N7.8 billion accounted for a its deficit in the second quarter. The half-year loss was more than the full-year loss in 2020 of N12 billion.
Foreign currency losses accumulated in the second quarter have continued operating constraints, contributing to the company's cost-income imbalance. Another charge of nearly N11 billion was spent by the corporation due to a currency loss in the second quarter of 2021.
Kolawole Jamodu, chairman of the company, stated that despite all measures put in place by regulators to stabilize the market, the non-availability of forex will be a major problems business will face in 2021, particularly in transactions with overseas partners and suppliers for imported raw materials.
“To address the continuing currency crisis, the CBN implemented a variety of initiatives, including the adoption of NAFEX as the official rate, the suspension of forex sales to Bureau de change operators, and forex rationing.”
“It also harmed investor confidence since overseas investors couldn't readily repatriate their dividends.” The inability of businesses to maintain an unbroken supply of completed products to the market was exacerbated in large part by the inaccessibility of input materials.
According to Eric Akinduro, President of Ibadanzone Shareholders Association, non-availability of FX has significantly impacted the operations of companies in Nigeria and lowered their stock values on the market.
The apex bank must revisit these rules and create an enabling climate for Nigerian entrepreneurs. The greatest method to address Nigeria's foreign exchange crisis is for industries to create indigenous materials. Too much reliance on foreign commodities will usually result in excessive product costs.
Patrick Ajudua, President of the New Dimension Shareholders Association, emphasized the importance of establishing an intervention fund, which would provide manufacturers with quick access to currency.
According to him, such a fund, in the form of a loan, will attract low-cost interest rates in the single digits, allowing manufacturers to break even in the face of significant inflation.
He stated that such money should be used to finance these enterprises' import-related operations and to boost local raw material manufacturing in order to decrease the burden on the use of currency for importation.
