Tag: Markets

Items Not Valid for Foreign Exchange (FX) in the Nigerian FX Markets

In an attempt to sustain the stability of the Foreign Exchange (FX) Market and ensure efficient utilization of Foreign Exchange for the derivation of optimum benefits from goods and services imported into Nigeria, the Central Bank of Nigeria (CBN) recently issued a new directive in a circular it distributed.

The directive exempts some imported goods and services from the list of items eligible to access FX at the Nigerian Foreign Exchange markets in order to foster and support local production of these items in the country.

The implication of this development is that importers desiring to import any of the items listed in the aforementioned CBN’s directive would be required to source for FX funds without any recourse to the Nigerian Foreign Exchange market (Interbank market and BBN Intervention).

The list of the affected items are outlined below but may be reviewed as the need arises. However, please note that the importation of these items are not banned.

The items include the following:

Rice

Cement

Margarine

Palm kernel/Palm oil products/vegetables oils

Meat and processed meat products

Vegetables and processed vegetable products

Poultry chicken, eggs, turkey

Private air-planes/jets

Indian incense

Tinned fish in sauce(Geisha)/sardines

Cold rolled steel sheets

Galvanized steel sheets

Roofing sheets

Wheelbarrows

Head pans

Metal boxes and containers

Enamelware

Steel drums

Steel pipes

Wire rods(deformed and not deformed)

Iron rods and reinforcing bard

Wire mesh

Steel nails

Security and razor wine

Wood particle boards and panels

Wood Fibre Boards and Panels

Plywood boards and panels

Wooden doors

Toothpicks

Glass and Glassware

Kitchen utensils

Tableware

Tiles-vitrified and ceramic

Textiles

Woven fabrics

Clothes

Plastic and rubber products, polypropylene granules, cellophane wrappers

Soap and cosmetics

Tomatoes/tomato pastes

Eurobond/foreign currency bond/ share purchases

In our view, we understand Share Purchases (item 40 in the list) to be referring to Nigerians who access the foreign exchange market to invest in foreign securities and not foreign investors who inflow funds into Nigeria for the purposes of investment.

The CBN stated this was in a bid to sustain the stability of the foreign exchange market and ensure the efficient utilization of foreign exchange whilst encouraging local production of these items. The CBN also stated clearly that importation of these items are not banned, however importers of these items shall do so using their own funds without recourse to the Nigerian Foreign Exchange Markets.

The implication of this is that there will be reduced demand on the official market which means reduced pressure on the official FX market. However, there will be increased pressure on the parallel Market (Bureau de Change). The gap between the parallel and the official market will widen and the rate for dollars in the parallel market will increase. This will also lead to an increase in the cost of these items locally for consumers and ultimately inflation.

Profound Capital Markets for Renewable Energy – Eco-Plant Corporation

Investing in Renewable and Efficiency Energy is on the verge across the world. Individuals are becoming more sensible towards their environment, which resulted in more businesses adopting environmentally friendly business practices and becoming a sustainable green business. Converting into green business has been a wakeup call for many companies and for some companies it was already a mentioned market trend which was recognized by them quite early.

Following the global financial crisis, a more varied funding market is emerging in many countries. Established investors are assisting in filling the funding gap missed by the shrinkage in bank lending in the rouse of the crisis, particularly in long-term financing for infrastructure projects, and sitting alongside banks to offer a wider pool of capital to developers.

The economic climate overcoming the financial crisis of increased regulatory supervision and persistently low rate of interest led to pension funds and insurance companies in seeking an alternative source for a long-term stable investment.

Abundant number of pieces of evidence shows that renewable energy and energy efficiency are booming sectors for business. According to a report, 190 of the fortune 500 companies together saved around 3.7 billion dollars through their energy efficiency initiatives and collective renewable energy.

With the growing streak of this trend around the world, there is an increase in debt finance in the market from established investors mostly for an infrastructure project and more conventional renewable energy assets including solar PV, onshore wind and Bioenergy. Established investors that are on a quest to match long-term investments, index-linked liabilities and higher secure returns as compared to currently available bonds, are attracted by stable, long-term and index-linked type of assets.

A considerable amount of investment has been made in operating assets through which increasing capacity of risk has been taken by the investors. However, similar to banks, there seems to be a very little appetite for development risk factors. Established investors are moving faster towards banking counterparts in being able to provide reimbursement profiles and staged drawdown facilities that are suitable for this kind of financial markets.

Investments from non-bank institutions have often been through the purchase of participation in the secondary debt trading market or bond markets. However, a market of debt facilitates private placement (PP) which is a small group of sophisticated investors has been slowly developing.

Private placement market will entirely substitute other forms of finances for renewable projects. There are already long-established private placement market groups in many countries for corporate debt. Since the financial crisis, smaller national markets have also developed. To help encourage the development of private placement market, loan market association published a suite of standardizing the documentation for private placements across many countries for providing a proper framework. It is hoped that these suit will help to raise confidence in the market and will encourage investment by reducing the time and costs often associated with current private placements in certain countries.

Certain efforts are taken to simplify and make the process more transparent by turning towards more private placements. Governments across various countries have announced a tax exemption for private placements, this will help in encouraging both borrowers and institutional investors to invest in the capital market.

Many countries now support the growth of renewable energy sector and help in encouraging to further invest in energy infrastructure, renewable power and fossil fuels. Attracting cross-border investment and minimizing dependency on traditional bank debt, will further encourage institutional investment for key sector helping to stimulate growth and aid resilience in various economies.

Banks are also returning to the market which showed a substantial increase in long-term debt facilities offered by banks for renewable energy projects. In addition, many banking facilities are likely to preserve a significant role together with established investors by providing them ancillary facilities and deposit services. This includes catering to letters from credit facilities and working capital which non-banking investors are not able to provide the investors with. Likewise, the role of the bank is to provide trustee and agency with services in case the funds are ill-equipped.

Predictable sustained growth in Institutional Investment, alongside returning bank debt and other innovative funding structures, is creating a deeper impact on the capital market for renewable energy projects. Investors looking to invest in green business are coming across greater opportunities from future perspectives which is just a matter of time. Clean energy is just the tip of the iceberg. A recent study shows that companies could earn around 12 trillion dollars by 2030 in business revenue and saving by adopting sustainable, low-carbon business models. Investors all over the world are taking a note, as green bonds are increasingly seen as smart investments.

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