‘What Nigeria stands to gain from a floated currency regime?’
Mr. Tolu Osinibi is the Executive Director of First City Monument Bank (Capital Markets). In this interview, he speaks on the nation’s financial sector and his bank’s strategic growth. Excerpts:
Mohammed Shosanya & Sunday Michael Ogbu, Lagos
The nation’s currency was recently floated by the Central Bank of Nigeria. What is the implication of this on the economy?
What implies essentially is an acknowledgement that the fixed foreign exchange rate model we ran prior to floating the Naira was unsustainable. This unsustainability had been clear for a while to pragmatic and objective observers, but presumably other socio-political considerations of the government had the upper hand. Unfortunately, the currency peg coupled with the economic realities put the country in a situation where nearly all the only economic discussions being had for about a year was naira devaluation with much less attention being paid to other equally important matters such as fiscal, monetary and economic policy issues.
By floating the currency and also introducing a forward and futures market, a large part of the market uncertainty regarding exchange rate has been removed and I expect that it should become easier for foreign currency demands to be met as the interbank market settles and the supply side.
It’s safe to assume that the CBN will be the significant seller, maybe only seller, of foreign currency for the first few weeks but, hopefully, with a transparent market and clear rules, with consistent application of the rules, the exchange rate will become largely demand and supply driven and bring more sellers to the market.
We shouldn’t see this major step forward on exchange rate as a magic bullet though. That alone will not begin to turn around Nigeria’s economy. There are plenty of big issues that have a huge impact on the ease of doing business and I’m not sure the government, both at federal and state level, have begun to address these. it
On the ease of doing business, what should be done to improve it?
In some areas, it’s about just making things more efficient. In others, there may be need to revisit the enabling laws. Other matters will require a modification of the law.
The recent minideregulation of the oil industry with importers sourcing for forex themselves, what are your concerns over it?
The float of the naira has now superseded that action and importers of petroleum products will also have to source for foreign currency in the interbank market. However, there is still some lack of clarity on the current petroleum products pricing regime. For example, the price cap of N145 per litre on petrol assumes a maximum cost of buying US dollars at around N285. What isn’t clear is what happens if importers of petrol buy US dollars at an average cost of say N300. Is the government going to subsidize them, are they expected to sell at a loss, or is there a tacit understanding that the price cap will be ignored or adjusted periodically by the government?
The government has taken a big step towards deregulating entirely the downstream sector; it should be bold to go further and finish the job.
The diesel segment of the downstream sector was deregulated years back and we seem to have coped with it.
The idea of a subsidy is a noble one but the fact of Nigeria’s reality is that, for example, in the past decade petrol was sold at well above the subsidized price in most towns and cities of the country. Also, we now clearly know that the entire subsidy regime was riddled with fraud of a monumental scale. Finally, the country cannot afford the subsidy.
Are you worried about the delay in implementing the 2016 budget?
My view is that we should be talking about 2017 now. Hopefully, the government will try to do a thorough job in planning for 2017. We are already in July, by October, the spending/planning for 2017 should be clear. As I said earlier, my concern remains that, as we speak, I am not aware of the comprehensive socio-economic policies that will drive the 2017 spending plan and the fiscal regime that will drive the revenue side.
Clearly set out policies must always drive the spending plans; not doing that results in ineffective spending and waste. Regarding 2016, the best I think can happen is rapid tactical actions to drive activity.
How would you evaluate the performance of FCMB in 2015 and the period so far?
We had a fair, profitable year in 2015. We advised on and completed some significant deals in the year and we won a few awards for some of those deals, for example, the Azura-Edo IPP and Accugas financing deals. We also got recognition from EMEA Finance magazine, a UK-based financial journal, as the best local investment bank in Nigeria. These awards are great for our team as it is satisfying to also get independent recognition beyond our clients.
Though a slow start to the year, fortunately the first quarter of 2016 was positive for us and we hope that trend extends into the second quarter. We are beginning to see an increase in enquiries from our clients and they are also responding to and considering ideas we’re presenting to them; these suggest some level of confidence in the market however slim. We expect that the economic environment remains challenging and uncertain for the rest of 2016.