From his inaugural speech on May 29, President Bola Tinubu had signaled his intention to institute fast reforms in the Nigeria’s economy. He said the nation’s monetary policy requires a “thorough house-cleaning” and that a unified exchange rate would redirect funds into meaningful investments that power the real economy.
According to him, “Monetary policy needs thorough house cleaning. The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”
Then, he matched his words with action on June 9, when he suspended Godwin Emefiele as governor of the CBN. Folashodun Shonubi, a deputy governor in charge of operations at the bank, has taken over in an acting capacity. Emefiele was detained “for investigative reasons”.
And indeed, on 14 June the CBN announced the unification of all segments of the foreign exchange (FX) market – replacing the old regime of multiple exchange rate “windows” for different purposes with, in effect, a market rate.
Like a wildfire, Shonubi’s appointment began to have impacts on the market. Firstly, Nigeria’s eurobonds became bullish as investors and analysts viewed the appointment of Shonubi as the interim governor as a reset towards a more traditional economic path under President Bola Tinubu.
Until his elevation to central bank governor, Shonubi had been deputy to Emefiele and was in charge of operations at the institution. He also represented Emefiele as a member of the board of the Federal Inland Revenue Service – a role he held since December 2019.
The 61-year-old has had a stellar career in Nigerian banking with a combined experience of over three decades in the banking and engineering sectors.
Shonubi holds three degrees, including two master’s degrees – in business administration and mechanical engineering – from the University of Lagos.
He began his career in engineering, but pivoted to focus on the financial industry in the mid-1980s.
He had a three-year stint at Citibank Nigeria Limited in the ’90s, holding the position of head of treasury operations and also worked at a number of Nigerian commercial banks including First City Monument Bank (FCMB), Ecobank Nigeria Plc and Union Bank of Nigeria Limited.
Between 2012-2018, he was head of the Nigeria Inter-Bank Settlement System Plc – which regulates infrastructure for inter-bank payments – from where he joined the CBN.
The business community in Nigeria has commended the appointment of the new bank chief as another decisive move by Tinubu, who has also cut controversial fuel subsidies, signed a new act to boost electricity generation and also introduced a student loan regime within his first 15 days as president. President Tinubu is said to have bypassed the other three deputy governors who all outrank Shonubi.
Perhaps the first major decision of the apex bank under Shonubi happened on Wednesday, June 14, when the CBN directed Deposit Money Banks to remove the rate cap on the naira at the official Investors’ and Exporters’ Window of the foreign exchange market, to allow for a free float of the national currency against the dollar and other global currencies.
In a statement signed by the CBN’s Director of Financial Markets, Dr Angela Sere-Ejembi, the apex bank confirmed that it had collapsed all foreign exchange segments into the I&E window.
It read, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market: Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.”
Almost immediately, following the CBN’s announcement, the Nigerian stock market continued its upward trajectory extending the gains recorded the previous day.
According to stockbrokers and market operators, investors remained optimistic as the market responded positively to the latest information confirming that the central bank has been instructed to buy and sell forex at market-determined prices.
‘‘This development has sparked renewed enthusiasm and confidence among market participants extending the stock market rally to two days after a slew of positive announcements by the Tinubu administration,’’ said Ahmed Oke, a Lagos-based stockbroker.
On 13 June Nigeria’s stock market anticipated the move, jumping to its highest level in 15 years after the appointment of an acting CBN governor. The index of the Nigerian Stock Exchange soared 4% higher on the day to a closing price of 58,164 points, sending stocks’ year-to-date gains to 13.5%. The stock market continued its rally after the CBN liberalised the market, with market capitalisation climbing 3.26% to reach N32.7 trillion on 15 June, demonstrating increased value of listed companies on the stock exchange.
The number of deals executed on 14 June showed a 15% increase compared to the previous trading period, with volume of trade rising by 9.28% to show increased market participation and increased liquidity.
Oke said, “Investors generally have positive sentiments towards the idea of Nigeria unifying its exchange rates. Multiple exchange rates have been a source of confusion for investors. When they bring in funds at the official exchange rate and can only repatriate their earnings at the black-market rate, they make conversion losses on their investments. Investors recognise that a unified exchange rate should help alleviate these problems and improve the ease of doing business in Nigeria.”
He also said that unifying the exchange rates could help prop investors’ confidence in the Nigerian markets.
Commenting on the floating of the naira, head, financial institutions ratings at Agusto & Co, Ayokunle Olubunmi, noted that at the right rate, the unification of the supply of dollars in the country is set to improve.
Olubunmi noted that, at the initial stage, there might be some volatility at the market, however, the rate will eventually stabilise with time.
“If it is implemented as stated, there will be some volatility in the short term, but the forex windows will converge at a rate lower than the prevailing parallel market rate. It is a good policy. The main challenge we have in the forex market is illiquidity or inadequate supply and the reason is that the price does not reflect the fundamental price of naira.
“It is good that they did not peg it but float it, if it is implemented as planned.
On his part, the chief executive of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, welcomed the bold step taken by the Tinubu administration towards the unification of the naira exchange rate.
According to him, “the liberalisation of the foreign exchange market would unlock the huge potential for investment, jobs and capital flows. Investor confidence would be positively impacted.
According to him, the policy regime would reduce uncertainty and inspire the confidence of investors; as well as minimise discretion and arbitrage in the foreign exchange allocation mechanism.
“Rate unification does not imply that rates will be exactly the same in all segments of the market. The objective is to ensure that the differentials are very minimal, possibly between 5-10 per cent,” he stated.
On his part, the managing director of Highcap Securities Limited, Mr. David Adonri, said a directive from CBN to banks to sell dollars at market rate signals deregulation of the forex market.
According to Adonri, a market clearance rate determined by forces of supply and demand signals the unification of the exchange rate.
“This is a giant stride in deregulating the economy, coming at the heels of subsidy removal. The structural rigidities in the economy and pressure points are gradually being eliminated,” he added.
A senior stockbroker, Mr. Tunde Oyediran said: “This is a sign of good things that will happen to our market. It makes our stocks cheap to foreign portfolio investors and encourages them to buy value stocks. This will affect other spheres of our economy and bring foreign direct investment into the country.’
CEO, Sofunix Investment and Communications, Sola Oni stated that it had been a long-awaited policy and it is consistent with the manifesto of President Bola Tinubu.
He said, “A unified exchange rate will bring about a realistic exchange rate. It is a measure of price discovery. It will narrow the wide gap between the official and parallel market rate. This shall enhance market efficiency, stabilise the balance of payment and protect the economy from the risk of imported inflation among others.”
Oni pointed out that the stock market was already responding to the new policy of exchange rate unification as reflected in the rally on NGX in the last couple of days, saying that the central bank has an obligation to address the supply side of forex to avert a situation of uncontrollable exchange rate at this juncture.
Also, some investors have hailed President Tinubu for his aggressive moves, seeing them as signals that he is keen on resetting the country’s economy on an orthodox path. The currency moves followed the scrapping of a fuel subsidy that cost the country $10bn last year. That was announced in the inauguration speech and two days later state oil company NNPC said the pump price of petrol had risen more than 200% from N189 per litre to between N480 and N570 per litre.
Reacting to the issue of governing rules of the apex bank and the need for it to discharge its duties a responsible organization, a financial analyst, Kunle Akinpelu said the CBN has an approving authorities for its operations which is its Committee of Governors consisting of the CBN governor and the four deputy governors and the CBN board of directors which includes the governor, the four deputy governors, and seven external members including the permanent secretary of the Federal Ministry of Finance and the accountant-general of the federation.
Akinpelu also urged the CBN to restore price and exchange rate stability, make monetary policy resilient to the commodity markets, put development financing on the backfoot, be more serious with the regulation of financial institutions and obey the laws guiding the CBN’s activities.
