The Central Bank of Nigeria (CBN) has finally lifted the foreign exchange restrictions it placed on importers of 43 items eight years ago.
The CBN in a statement signed by Dr. Isa AbdulMumin, the director of corporate communications, said a significant change has been made in the foreign exchange market policy.
Importers who were previously restricted from purchasing foreign exchange for 43 specific items, as outlined in the 2015 Circular referenced as TED/FEFPC/GEN/O1/010 and its addendums, are now allowed to participate in the Nigerian Foreign Exchange Market to buy foreign currency for their transactions.
“This is a welcome move by the CBN. It’s another market-friendly step towards unified exchange rates. It should reduce pressure on the naira in the parallel (BDC) market – where importers of those 43 items had to access US dollars instead. It might even be anti-inflationary, as those 43 products included rice, meat and vegetables – which had to be sourced at NGN1,000,” Charlie Robertson, head of macro strategy at emerging-market investment firm FIM Partners, said.
“There is still more to do. To reduce FX shortages in the official FX market, the CBN might also need to signal that commercial banks can offer a weaker naira rate for US$, to help increase the supply of dollars from current holders of US dollars (Nigerians and foreign). Higher interest rates would help in that regard.”
As at October 2021, the Central Bank of Nigeria (CBN) had restricted access to Forex from FX market for the following 43 items: Rice, cement, Margarine, Palm kernel, palm oil products and vegetable oils, Meat and processed meat products and Vegetables and processed vegetable products.
Others are: Poultry and processed poultry products, 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 bars.
Also included on the list were: Wire mesh, Steel nails, Security and razor fencing and poles, Wood particle boards and panels, Wood fiberboards 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 and bags, Soap and cosmetics, Tomatoes/tomato pastes, Eurobond/foreign currency bond/ share purchases, Piston crowns, Ball bearings, High voltage cables, Transformers/switch gears and Gas cylinders were also on list.
AbdulMumin said the CBN is actively working to address the existing backlog of foreign exchange transactions, and the CBN is currently engaged in ongoing discussions with various stakeholders to find solutions and facilitate the clearance of this backlog.
A long-term goal of the CBN he added is to establish a unified foreign exchange market, by simplifying and streamlining the FX market in Nigeria.
The CBN he stated is in consultation with various market participants to work towards the achievement of this goal, which would lead to a more cohesive and efficient foreign exchange market in the country.
In trying to maintain price stability within the country, AbdulMumin said the CBN periodically injects funds into the Nigerian Foreign Exchange Market to enhance liquidity.
“This is a move to gradually improve confidence in the FX market, which has been weighed by long-dragging illiquidity and unorthodox policies. We recall that the lifted ban was instituted due to a material plunge in FX inflows. Thus, to forestall the re-occurrence of the underlying drivers of dollar demand management and unorthodox FX policies in Nigeria, the supply of FX will have to improve sooner rather than later,” Cardinal Stone analysts said.
“To improve FX supply, the CBN and fiscal authorities may have to evaluate the possibility of raising dollar facilities (via Diaspora bonds, Eurobonds or concessionary loans from bilateral/multilateral institutions), asset sales (full or partial), among others. Curbing oil thefts, enhancing domestic oil production efficiency, and issuing new oil mining licenses are potential short-to-medium solutions.”
As market conditions improve and become more stable, the frequency and scale of these interventions by the CBN he said will decrease over time.
The statement reads: the Central Bank of Nigeria (CBN) will continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle.
He said: “The CBN reiterates that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.
As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.
He added: “Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEFPC/GEN/O1/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market.
“The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.”
The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal. Participants and the general public are to be guided by the above.