Investors at the Nigerian Exchange Limited reacted positively to the floating of the naira on Wednesday as the market gained N992 billion.
Nigerian banks led top gainers on Wednesday as the Nigerian Exchange continued its recent rebound attributed to critical economic decisions by the Bola Tinubu administration.
In a development that followed Tuesday’s bullish trading day, the All-Share Index traded 3.99 per cent higher to close at 59,985.10 index points, up from the 58,163.55 index points recorded in the previous day’s trading session.
The market capitalisation also appreciated by N992bn, closing at N32.662tn. This represented a 3.13 per cent gain against the N31.670tn recorded in the previous trading session.
International Breweries (10.00 per cent) led the gainers while Pharm Deko (-9.65 per cent) led the losers. UBA Plc was the most traded equity by volume at the end of Wednesday’s session.
Other top gainers included Sterling (10 per cent), Transcohot (10 per cent), Dangote Sugar (10 per cent) and First Bank Nigeria Holdings (10 per cent).
Following Pharmdeko on the losers list were CWG (-9.44 per cent), NNFM (-8.66 per cent), BUA Cement (-6.52 per cent), and ARDOVA (-5.06 per cent).
The top three traded shares by volume were UBA (230,764,290), GT CO (125,469,900) and Zenith Bank (119,143,503).
Value-wise, the top three traded shares were GTCO (4.2bn), Zenith Bank (N3.9bn) and UBA (N2.7bn).
Vice Chairman, Highcap Securities Limited, David Adonri , cited the floating of the naira by the CBN as a major factor that helped consolidate the momentum from the previous day’s trading period.
He said, “Those of us who are operators in the financial sector, we have been clamouring for floating of the naira so that the true value of the naira can emerge from a market-determined rate. This floatation is quite attuned to our yearnings.”
Reacting to this, a facilitator with the Nigeria Economic Summit Group, Dr Ikenna Nwaosu, kicked against the unification of the exchange rates adding that there should be at least two rates, one for commercial and one for education.
He however admitted that it would bring clarity to the foreign exchange market.
“It brings a lot of clarity to forex as against the multiple forex windows under the former regime. The last regime under the suspended CBN governor had almost 12 forex windows. There was one for oil and gas, one for import and export and there was one for students so there were so many but this unification brings some clarity,” Nwaosu said.
The Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers, Mr Taiwo Oyedele, said the development might drive the government’s $42bn external debt to N90tn.
He said, “With the Nigerian naira now exchanging in the official forex market at market-determined rates, a significant market distortion has been removed. Expectedly this will come with both positive and negative implications.
“The major impacts will include a significant rise in government debt in naira terms by about N12tn to N90tn i.e. external debt of $42bn will increase by the difference between the old and new rates.”
Oyedele also noted that there might be an increase in debt to Gross Domestic Product ratio by about five per cent, alongside an increase in foreign debt service cost.
He, however, said that this move would likely increase the government’s revenue and reduce the budget deficit.
“Government’s revenue will increase in naira terms resulting in a higher tax/revenue to GDP ratio. Corporate tax collection may however decline as many businesses crystallize forex losses due to the higher exchange rate.
“Possible reduction in budget deficit if government’s forex revenue exceeds foreign currency obligations, an increase in the budget deficit will arise if otherwise,” he said.
Oyedele also said that the development would lead to cost savings and attract foreign exchange inflows, adding that the capital market will benefit from this, among other benefits.
Also speaking, the Deputy-President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa likened the decision by the CBN to float the naira as a painful but necessary surgery that needed to be conducted on the economy.
According to him, the decision to keep separate windows has caused significant damage to Nigeria’s economy for a long period of time.
He said, “It was a situation whereby we managed to keep something that was bad for a very long time until we had a government that had the willpower to do what needed to be done. We did not have governments that thought things through, they didn’t understand that it simply does not align with the natural order of any economy to have such a wide variation in the price of a homogenous commodity.
“It doesn’t require such a complicated economic analysis to show that we had engaged in self-destruction for a long time. If you want to be among the top 20 economies of the world, you can’t have that kind of situation where two exchange rates are miles apart.”
Similarly, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Olusola Obadimu hailed the move. He described the double-window exchange rate as a scam that only benefitted a few Nigerians.
He further noted that with the floating of the naira, exporters would no longer worry about being shortchanged whenever they repatriate the proceeds of their exports through the I & E Window.
Obadimu said, “It was a scam, just like a fuel subsidy. Some people had access to it at the official rate and were taking advantage of the situation. From basic economics, subsidy breeds corruption. It may be unfair to a majority of the people but it breeds corruption which benefits the privileged who have access.
“It’s good news for us because exporters will now be able to get the correct rate for their proceeds based on their forex earnings. Before, if you export through official channels, whatever comes back to you, they exchange at the official rate, which is a disincentive to exports. It is a disincentive because the person who is exporting his goods, some of his inputs are also imported and there is not enough forex available for you and have to source for it at the parallel market.”
The Managing Director, Cowry Asset Management Limited, Johnson Chukwu, said the development was good but stressed the need for the CBN to stabilise the exchange rate by releasing foreign exchange into the market.
He said, “There’s no doubt that we all want a harmonisation of the exchange rate, what was at stake is the method they would have adopted harmonising it; whether they were going to have a gradual harmonization of the exchange rate where they would allow the currency to devalue over time, or simply allowed it to float.
“The concerns now are: Does the Central Bank of Nigeria have the capacity to intervene in the market to help stabilise it within a particular range? That then means they must have a war chest to meet demands. In the first instance, the CBN must clear the arrears so that what comes into the market is new. This will reduce the pressure that we have in the market, the CBN should also come up with their own range within which range the currency should trade. If you trade outside that range, the CBN should intervene to stabilise because there must be some level of certainty about the currency.”
