Investors and Exporters’ (I&E) Foreign Exchange (FX) window was established by the Central Bank of Nigeria (CBN) in April 2017 to boost liquidity in the FX market. It was also designed to ensure timely execution and settlement for eligible transactions. Industry watchers aver that the policy has lived up to its billing as it has helped the country boost liquidity in the foreign exchange market. They also commend it as one of the most important FX policies implemented by the CBN in the past two years. The FX Window, which has recorded a steady growth since April last year, hit a turnover of $50.73 billion in May 2018.
Coming after the nation experienced a challenging forex regime, the I&E FX Window has made positive impact on the FX market and the Nigerian stock market. The major attraction of the foreign exchange regime, in our opinion, is that it has reinvigorated the confidence of foreign investors in the nation’s economy. It also reaffirms the potential locked within the nation’s domestic economy.
As stipulated in the policy, eligible transactions to access the window are invisible in nature (excluding international airlines ticket sales remittances), bills for collection and any other trade-related payment obligations (at the instance of the customer). The invisible transactions include capital repatriation, loan repayments, loan interest payment, dividends/income remittances and consultancy fees. Others are software subscription fees, technology transfer agreements, personal home remittances and such other eligible invisible transactions.
In a circular dated April 25, 2017, the CBN said supply of foreign currency to the window will be through portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange naira. The apex bank also said it will be a market participant at this window to promote liquidity and professional market conduct.
Although the policy was pitched almost a year after the CBN originally reneged on the June 2016 announcement of a transition to a flexible foreign exchange framework, initial scepticism which greeted I&E fizzled out within weeks post-introduction after FX transactions in the window cumulated to US$1.9bn by May 2017.
The performance of the window is one which has brought great delight to the CBN. The apex bank said that the nation’s FX market has not remained the same ever since.
Experts have commended the initiative, describing it as proof that innovative financing ideas can generate energetic inflows into the financial system and economy towards spurring growth. Innovation, the core of entrepreneurship, is one of the four major factors necessary for economic growth and transformation. Others are infrastructure, education and technology.
According to them, the establishment of I&E Window has re-energised the FX Market and production and the PMI has since been looking up steadily. The impact of the I&E Window also resonated at the stock market.
The Lagos Chamber of Commerce (LCCI), in its Q3 review of the economy said that CBN has been consistent in its intervention in the FX market. The LCCI also said that this has helped to reduce exchange rate volatility over the last two quarters and that with the intervention, the nation has seen improved liquidity of forex and stability of naira against the dollar with confidence gradually returning to the market.
Analysts also stated that the upward trend in capital importation into the country, especially in Q3 2017, was mainly fuelled by the implementation of the IEFX window. Prior to the introduction of the IEFX, foreign portfolio investors, particularly those repatriating funds from Nigeria, were concerned about the multiple exchange rates in the country.
There was a huge gap between the official exchange rate and the parallel market exchange rate, plus an opaqueness in the foreign exchange management system, which caused uncertainty, and the acute scarcity of hard currency. Consequently, there was an exodus of foreign capital and little or no new investments into the country. However, foreign portfolio investors returned with the opening of the IEFX. Prior to this, investors were of the view that the naira was overvalued and not at a market-determined level.
With the impact of the policy on the economy, it is obvious that I&E window is strengthening investment flows into the country. On the part of this newspaper, we can only urge the apex bank to continue to sustain the policy.