Despite President Muhammadu Buhari’s apparent strong opposition to the devaluation of the naira – foreign investors are still expecting an imminent devaluation of the local currency – New Telegraph has learnt.
According to sources in the forex market, the expectation that the naira would soon be devalued is the main reason why most foreign investors are reluctant to invest in the country.
A Lagos-based Bureaux De Change (BDC) operator, who did want his name in print, told this newspaper that his efforts to source forex from investors overseas have not been successful because of the concern that the Central Bank of Nigeria (CBN) could suddenly devalue the naira.
He said: “I have been trying to get inflows from some of my contacts in Dubai and the United Kingdom, but it is either they are reluctant to sell or they insist on selling at close to the going parallel market rate.
According to them, they are expecting that the CBN would soon devalue the naira and they don’t want to be caught unaware when this happens, as it could lead to them losing money.”
He explained that since the apex bank ended its weekly dollar sale to BDCs last January, many of the currency dealing firms have been struggling to survive and have been trying to source forex from investors outside the country.
“We thought that by now investors would have accepted the fact that President Buhari is not going to change his mind on the issue of devaluation. But that is not the case; they (investors) still believe that the CBN will devalue at some point,” he said.
After its last devaluation of the local currency in February last year in which it pegged naira at N197 to the dollar, the CBN has consistently argued that it did not think the time was ripe for any further devaluation.
Despite the dwindling foreign reserves, the regulator, with President Buhari’s backing, has maintained its position, introducing forex restrictions and rejecting calls by the International Monetary Fund (IMF) and other international rating agencies that it should devalue the naira.
The local currency currently exchanges officially at N199 per dollar, but trades at N320 to a dollar at the parallel market. Only a fortnight ago, President Buhari reiterated his stance that he would not agree to the devaluation of naira, noting that he would stand his ground against it as he did when he was the military Head of State in 1984.
He said: “When I was military Head of State, the International Monetary Fund and the World Bank wanted us to devalue the naira and remove petrol subsidy, but I stood my grounds for the good of Nigeria.
“The naira remained strong against the dollar and other foreign currencies until I was removed from office in August, 1985 and it was devalued. But how many factories were built and how many jobs were created by the devaluation?
That is why I’m still asking to be convinced today on the benefits of devaluation.”
According to data released by the National Bureau of Statistics (NBS) last Wednesday, Nigeria’s total foreign capital importation declined by as much as 54.34 per cent to $710.97 million in the first quarter of the year (Q1 2016) compared to $1.55 billion in Q4 2015.
The agency also said that year-on-year, capital importation declined by 73.79 per cent, adding that both the quarterly and year-on-year decline represented the lowest records since the series began. It said:
“The fact that the amount of capital imported has dropped to a record low suggests that there are further reasons why Nigeria has attracted less foreign investment in recent quarters.
Investors may be concerned about whether or not they will be able to repatriate the earnings from their investments, given the current controls on the exchange rate. In addition, as growth has slowed in recent quarters, there may be concerns about the profitability of such investments.