The VFD Group is a proprietary investment company with subsidiaries in banking, asset management, real estate, currency exchange and mortgage financing. In this interview, Chief Executive Officer of Everdon BDC, the currency exchange subsidiary of the Group, Theresa Ezeh speaks on the firms outlook for the foreign exchange market, Foreign Portfolio Investment (FPI) inflows and recent measures to increase inflow of diaspora remittances into the country.
By Babajide Komolafe
Last year the naira depreciated by 28.3 percent in the parallel market and by 5.1 percent in the I&E window. Some analysts have predicted further depreciation this year. What is your outlook in this regard?
There is a factor which we overlook when we think of currency or exchange rate. We forget that beyond being a function or an economic indices, the market is largely a function of a demand and supply, push and pull situation. So there are several factors responsible for where this exchange rate finally ends at and the strength of the naira eventually – if it appreciates or depreciates.
Now that being said, we all understand the peculiarity of 2020 and how the economic turns went about. Factors that would have strengthened our naira ordinarily, like exports, were shut down for quite a while in 2020. The world was trying to understand what this thing (COVID-19) is. And even when we were ready to start pushing out products, some countries were still not open to accept, and if our dependent economies were not open to accept, then there is nothing we can do, and those are all the factors that aggravated the naira situation last year.
But we can see that with the vaccines that are already out and economies opening up gradually, production restoring, exports restoring, with all of these in place, of course, the expectation is that the naira will be strengthened this year. Also in the light of all the goings on, the CBN is constantly and increasingly monitoring the outlook and bringing out policies to match whatever outcomes are obtainable, such that as the situations are unfolding, there are matching policies to ensure that the naira is steered in the right direction So our outlook this year is that the naira will be strengthened.
Do you see FPIs returning to Nigeria this year and hence a reversal of the downward trend experienced last year?
Again in 2020, the major focus for most countries as well as corporates was more tailored around survival. If we don’t take Nigeria in isolation, and look at countries where FPIs form a large part of their inflow, the trend is the same across board – FPIs dropped.
Not just that FPIs dropped, other forms of inflow also dropped because, of course, we realised that across the globe, earning powers reduced drastically.
Since immunity is now possible by way of vaccines, in 2021, we expect that with countries and corporates coming back on track, investors will also begin to look for countries where they will get good yields.
Another factor that contributed to the downturn last year was that because a lot of money markets across the globe took a downturn, interest rates crashed drastically across money markets across the globe. So there was a lot of liquidity in most countries such that interest rates were even in the negatives. Interest rates are typically close to zero in Europe and America, last year what we saw was that they went into the negatives and people were even looking at where to keep their money without losing value, retaining at least the value. But this year, since things are turning the way they are, investment opportunities of course will increase. And we trust the CBN being sensitive to economic turnarounds will also put in place or ensure that the money market is sufficiently equipped to attract and retain FPIs.
You know it is one thing to attract and another thing is to retain. So if what you are attracting is less than what you are retaining, at the end of the day, we would still end up with a deficit at the end of the year. So we trust that the CBN is able to attract and retain the FPIs that will come in this year. Economies around the world were close to a recession last year but it looks like that trend is reversing. So I am sure that we are rightly positioned to attract more FPIs this year than last year.
Towards the end of last year, the CBN announced some measures to facilitate inflow of diaspora remittances. Besides the initial impact in the parallel market where the naira appreciated by N30 in four days, there have not been any further noticeable impacts.
Do you see these measures making a significant impact on the fortunes of the naira in 2021?
The step that the CBN took in terms of redirecting how remittances come into Nigeria, is extremely brilliant. It was a long time coming. Of course by the announcement itself, we saw the impact on the economy initially. It is also expected that policies of this nature take a while to impact on the long term. In the same light, one would expect to see how it trickles into the economy over time.
At the beginning, the currency took an instant hit but this has continued to gradually adjust. So, apart from that first huge movement, which created an immediate adjustment, what we are now seeing is a gradual correction.
What the CBN policy did was to take away the remittances inflow from bulk inflow and break it down into trickles in the economy, basically making it a micro economic inflow. And so it will gradually enter into the economy. We don’t expect to see any further huge movement as a result of this policy, what we now expect is that the effect of the changes will now be experienced gradually. If you have followed the trend, you will see that we have continued to see a continuous adjustment of the rate in the parallel market towards the right direction such that the naira has continued to gain strength.
This idea is really brilliant. It was a long time coming. It is one way to ensure that at this time that economies and corporates are not investing, of the the surest source of inflow into Nigeria is remittance and for the CBN to have found a way to capture this inflow into the economy at a micro level is extremely brilliant. We would continue to see the positive effect of it throughout the year.
How do you think the participation of BDCs will impact the remittances collection business in the country?
Diaspora collections for BDCs will be another angle that the CBN may want to consider to increase the integration of BDCs into the financial system inclusively. Currently, BDCs are licensed for cash transactions and essentially for the distribution of PTAs and BTAs. In 2020 when we experienced that constant exchange rate increase, once the CBN resumed funding of BDCs, the increase was pegged and then other factors came into play and the rates started reducing.
In other words, if the BDCs are empowered better to enhance circulation of currency flow, it would lead to a positive impact on the strength of the naira. It will therefore be good for the CBN to consider how to integrate the BDCs more.
The BDCs also have the power of numbers. There are over 5,000 licensed BDCs in Nigeria and that is like a powerful network of agents already. So any policy that uses the BDCs to spread either inflows into the economy or outflows – in this case more inflows, because we are looking to strengthen the naira – the power of multiplicity of numbers will give that policy an immediate advantage.
Besides being a member of the VFD Group, what are the unique propositions of Everdon BDC that sets it apart from the over 5,000 BDCs in the country?
We have a couple of unique selling points at Everdon BDC. We at Everdon BDC pride ourselves on integrity, timeliness and clarity of information. We ride on the back of the group’s advantage to also push us out for publicity. But beyond that, Everdon BDC has also created a profile for itself in terms of relevance for rate referencing and for timeliness, speed and flexibility of service. So all of these factors have created a unique selling point for Everdon BDC as a BDC within the VFD Group.
What new offerings should your customers expect in 2021?
This 2021, we are looking to deliver more safe services. Because our business involves cash exchange, we have also implemented policies around keeping our touchpoints, our parties, people that the customers have to interact with in the process of making exchanges, ensuring that we run our business in a safe and convenient environment. So our customers should be assured that in addition to the regular speed, which due to limitation in work hours and others they may experience some changes, we will ensure to carry them along and provide information on the go. They should expect safe services in 2021, timeliness, speed, integrity and all the other things they know us for and have made them stick to us all these years. We think that safety currently ranks high.