Experts claim the lingering FX crisis is stifling stock market growth

Kings Nwachukwu

Kings Nwachukwu

Experts have reiterated their calls for the Federal Government (FG) to implement a strategy to address the country’s long-term volatility in the foreign currency (forex) market in order to stimulate stock market investment, maintain the current uptick, and enhance listed companies’ profits.

Investor apathy, exacerbated by a chronic currency shortage, was one of the key causes for the stock market’s extraordinary slowdown in recent years, according to the stakeholders, who said that this has continued to hinder investment development and profitability.

They claimed that a lack of forex limits productive diversification and discourages investment inflows into the country, whereas stable and liquid forex markets would attract foreign investors who had been on the fence or had already left the country.

According to them, addressing the current forex deficit in the country will improve the profitability of publicly traded companies and increase dividend payout to shareholders.

They went on to say that it would also attract investment and boost activity in the exchange’s primary market segment.

Experts pointed out that the Importers and Exporters’ window, which was introduced in mid-April 2017, helped to stabilize volatility and liquidity in the forex market as well as attract foreign investors, with average Foreign Portfolio Investment (FPI) per month rising to N85 billion, up from N43 billion in 2016.

As a result, they proposed that the government construct an unique finance arrangement, such as the creation of an intervention fund, which would provide manufacturers with fast access to forex.

Remember that the value of Foreign Portfolio participation in NSE equity trading reached N851 billion in October 2017, up 60.8 percent from the N517.55 billion reported for the full year ended December 2016.

Foreign currency shortage, according to Tajudeen Olayinka, CEO of Valmon Securities Limited, is an external sector imbalance and an indication of insufficient supply of a major international currency in an economy relative to demand for imports in that economy.

He noted that the extended dollar scarcity, which is currently wreaking havoc on manufacturing, has forced operators to seek foreign exchange from different sources, exacerbating the cost-push inflation that is devouring the 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 function in a way that aids in the restoration of external equilibrium.

International Breweries Plc lost almost N11 billion in the second quarter of 2021, three times the N3.7 billion loss it had in the same quarter of 2020, according to an analysis of the negative impact of prolonged forex shortages on listed firms’ performance.

The company’s foreign exchange loss of N7.8 billion accounted for the majority of the deficit in the second quarter. In 2020, the half-year loss was higher than the full-year loss of N12 billion.

The company’s cost-income imbalance has been exacerbated by the accumulation of foreign currency losses in the second quarter. During the second quarter of 2021, the company additionally incurred another charge of nearly N11 billion, which was caused by a forex loss.

Despite all measures put in place by regulators to stabilize the market, the non-availability of forex has remained one of the biggest challenges businesses face in 2021, especially on transactions with overseas partners and suppliers for imported raw and packaging materials, according to the company’s chairman, Kolawole Jamodu.

“To address the persisting forex problem, the CBN implemented a number 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 hurt investor confidence because international investors couldn’t readily repatriate their dividends.” The challenge faced by businesses in maintaining a consistent supply of completed products to the market was mostly due to the lack of input materials.”

The foreign exchange scarcity, according to Eric Akinduro, president of the Ibadanzone Shareholders Association, has harmed the operations of listed firms in Nigeria and lowered their stock values on the exchange.

“The losses incurred on foreign exchange shortages are frightening when you look at recent annual reports of firms. The CBN takes longer than expected to supply these enterprises’ foreign exchange deposits. Although the apex bank’s official rate is lower, the dollar is not available at the moment these enterprises need it to import their goods, and such importation is always time inbound.

“As a result, some businesses are forced to seek alternatives through the alternative market at an alarmingly high rate.” Nigerian firms do not benefit from the CBN’s foreign exchange policies.

“The apex bank should revisit these regulations and create an enabling climate for Nigerian enterprises,” he said. The greatest method to deal with Nigeria’s foreign exchange problem is for businesses to create indigenous materials. Too much reliance on foreign supplies would always result in high prices.”

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 forex.

According to him, 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 went on to say that these funds should be used to finance these enterprises’ import-related activities and to boost local raw material manufacturing to alleviate the burden of using FX for importation.

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