In the absence of exceptions for key importers, the naira will probably weaken further in the parallel market, fueling “never-ending speculative attacks on the local unit,” United Capital Plc said in a note.
The Central Bank of Nigeria (CBN) recently directed Authorized Dealers to only open Forms M (a mandatory statutory document to be completed by all importers in Nigeria) for payments in favour of the ultimate supplier of the product or service, with immediate effect.
Furthermore, the apex bank announced that it will immediately introduce the usage of Product Price Verification Mechanism (PPVM) to verify quoted prices of goods and services before approving Form M.
Clearly, this is a major move against abuse of FX market activities especially by entities which take advantage their huge FX need for overpricing and conduit for arbitraging.
The CBN has also directed all banks in the country to submit the names, addresses and Bank Verification Numbers (BVN) of exporters that have defaulted in repatriating their exports proceeds, for further action.
The new directives will be a major shift for most of the multinationals and large local manufacturers, especially in the FMCG space, with huge Foreign Exchange (FX) needs, according to United Capital.
“We understand that most of them have related-party procurement agents in Europe or Asia who purchase raw material, machinery, equipment, etc. on their behalf. Certainly, the previous structure provides an avenue for abuse, but it is the structure they are used to. Hence, we expect some form of pushback, especially as the circular was silent on what will happen to Form M opened prior to now, that does not conform to this new policy.”
In the absence of an exceptions to key players, the parallel market is likely to witness further pressure, the investment firm said.
The move by the CBN may be doomed to failure analysts say.
Exporters prefer to repatriate dollars at the higher parallel-market rate, while the CBN wants to force firms to repatriate foreign currency at the much stronger official rate for the naira.
The naira has been devalued twice this year after the drop in the price of oil, Nigeria’s main foreign-exchange earner.
The black market dollar rate is near N477 per dollar, while the increasingly illiquid interbank rate is closer to N386 per dollar.
The CBN may be open an engagement with key manufacturers to reach an amicable agreement, according to United Capital.
“Still, this may further pressure parallel market rates in the interim amid the never ending speculative attacks on the Naira.”