Party Primaries Edge Out Private Businesses from FX Market
Two days after the ruling All Progressives Congress (APC) held its presidential primary, illiquidity has worsened in the black market with major Bureau de Change (BDC) operators unable to meet the growing demand.
With politicians taking more than necessary from the market, there are concerns that the crowding-out effect would hurt the economy severely in months to come and worsen the political risk.
Findings by The Guardian suggest that some currency traders cannot single-handedly raise as little as $1,000 as they have run out of liquidity following the massive mop-up during the presidential nomination exercises.
The protracted currency crisis has taken a dramatic turn in the last three weeks, with reports that delegates of the two major political parties were mobilised majorly in hard currencies.
Reports of ‘dollar rain’ began to be widespread a week ago after the opposition Peoples Democratic Party (PDP) conducted its presidential primary in the Federal Capital Territory (FCT). Checks in the market showed that illiquidity has worsened in the past week with the naira selling between N600 and N610 to a dollar. The dollar peaked during PDP’s convention, trading for as much as N610/$ but retraced to about N602/$ last week. As at yesterday, the value of local currency slumped to N607/$ as uncertainties continue.
The Guardian learnt that major dealers are still hoarding their assets, believing that the naira is yet to bottom out.
A dealer in Lagos said most of his colleagues ran out of supply in the last few weeks. Asked what could have been responsible, he said the greenback was mopped up for use by politicians and after the conclusion of party primaries, the money is yet to get to the retail end of the market.
“You know the way things are done. Some of the delegates would still sit on the dollars, expecting the rate to go up. The few who need money have sold back to the dealers who were contracted to mop up the market in the first place, and the dealers are sitting on the cash. Supply is at a very low state now,” he said.
Further investigation suggested that major dealers are holding on to their holdings for possible bargain hunting in the coming days. Speculative activities are in full gear with major traders expecting the dollar to inch close to N700/$, thus creating a wider profit margin.
Thus, private enterprises, which need FX for businesses are starving as there is no supply anywhere. A textile trader in Lagos told our correspondent she put an “urgent business on hold since last week and had to cancel my trip because I cannot get dollar anywhere.
“When I mentioned to the ‘aboki’ that has been supplying me dollars for over seven years that I needed $25,000, he just told me to forget it, that he can’t raise it even if he combs the whole of Lagos,” she said.
Former director-general of the Lagos Chamber of Commerce (LCCI) and pro-market crusader, Dr. Muda Yusuf, warned that private sector operators would be worse off in the coming days as they cannot match the “war chest” of politicians who are now major competitors in the currency market. He added that the trend portends danger for the economy.
Yusuf, who spoke on a television programme, expressed concern about the widening gap between the official and parallel market rate, saying it is a major disincentive to foreign capital flow.