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Naira

CBN Suspends Export Proceeds Repatriation Extensions, Tightens FX Regulations

by Genesis Essien January 10, 2025

written by Genesis Essien

The Central Bank of Nigeria (CBN) has taken a decisive step to enhance foreign exchange (FX) regulations by suspending the approval of extensions for the repatriation of export proceeds. This move, announced in a circular dated January 8, 2025, applies to both oil and non-oil export transactions, signaling a stricter stance on compliance with existing regulations.

The directive, signed by W.J. Kanya, the acting Director of the CBN’s Trade & Exchange Department, aims to ensure timely repatriation of export earnings and bolster the country’s foreign exchange reserves.

Key Provisions of the Circular

The CBN’s decision is grounded in provisions outlined in Memorandum 10A (23a) and Memorandum 10B (20a) of the Foreign Exchange Manual (Revised Edition, March 2018). The circular, titled “Suspension of Extension of Export Proceeds on Behalf of Exporters,” outlines the following key measures:

Immediate Suspension of Extension Requests: Starting January 8, 2025, the CBN no longer allows authorized dealer banks to request extensions for their customers to repatriate export proceeds. This effectively eliminates the option for exporters to delay repatriation beyond the stipulated timelines.
Strict Repatriation Timelines:
- Non-Oil Exports: Exporters must repatriate proceeds from non-oil exports and credit them to their domiciliary accounts within 180 days from the bill of lading date
- Oil and Gas Exports: Exporters of oil and gas must repatriate proceeds within 90 days from the bill of lading date.

The CBN has emphasized that these timelines are non-negotiable and that exporters must adhere to them strictly.

Implications for Exporters and Banks

The CBN’s directive places a greater onus on exporters and their authorized dealer banks to ensure compliance with the stipulated timelines.

“Authorized dealer banks have been directed to notify their customers of this development and ensure adherence to the existing regulations,” stated the circular.

Failure to comply with the repatriation deadlines could result in penalties or other regulatory actions against both exporters and banks.

This policy shift is expected to have significant implications for the foreign exchange market. By eliminating the option for extensions, the CBN aims to:

Tighten Control over Foreign Exchange Inflows: Promptly repatriate export proceeds to strengthen the country’s foreign exchange reserves.
Discourage Delays in Repatriation: Address concerns regarding delays in repatriating export earnings, which have been a source of concern for regulators seeking to stabilize the naira and improve liquidity in the foreign exchange market.

Background: Challenges in Foreign Exchange Market

Nigeria has been grappling with challenges in its foreign exchange market, including:

Depreciation of the Naira: The naira has experienced significant depreciation against major currencies in recent years, impacting the cost of imports and fueling inflation.
Foreign Exchange Shortages: Persistent shortages of foreign exchange have constrained businesses and individuals, hindering economic activity.
Low Foreign Exchange Reserves: Declining foreign exchange reserves have raised concerns about the country’s ability to meet its external obligations.

The CBN has implemented various measures to address these challenges, including:

Devaluation of the Naira: The CBN has devalued the naira multiple times in recent years in an effort to align the official exchange rate with the realities of the market.
Introduction of Foreign Exchange Restrictions: The CBN has imposed various restrictions on access to foreign exchange, including limits on personal travel allowances and restrictions on certain imports.
Promotion of Non-Oil Exports: The CBN has implemented various initiatives to encourage non-oil exports, including providing incentives to exporters and improving access to foreign exchange for export-related activities.

If You Ask Me

The CBN’s decision to suspend export proceeds repatriation extensions marks a significant shift in its foreign exchange policy. By eliminating the option for extensions, the CBN aims to ensure timely repatriation of export earnings, enhance regulatory compliance, and improve liquidity in the foreign exchange market.

While this move may present challenges for some exporters, it is expected to have a positive impact on the overall health of the Nigerian economy by strengthening foreign exchange reserves and stabilizing the naira.

January 10, 2025 0 comment

Economy

Federal Government to Collect Maritime Charges in Naira

by Genesis Essien September 26, 2024

written by Genesis Essien

In a significant move aimed at bolstering the Nigerian Naira and reducing pressure on the foreign exchange market, the federal government has proposed that the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigerian Port Authority (NPA) begin collecting charges, fees, fines, and other payments exclusively in Naira.

The announcement was made by the Special Adviser to the President on Information and Strategy, Bayo Onanuga, during a briefing at the State House, Abuja. According to Onanuga, the proposal is part of the economic stabilization bill that the President will present to the National Assembly (NASS).

This decision marks a significant shift in the operations of these two key maritime agencies, which have historically collected their fees in foreign currencies, primarily the US dollar. By mandating Naira payments, the government hopes to reduce the outflow of foreign exchange from the country and strengthen the domestic currency.

The Rationale Behind the Naira-Only Policy

The decision to collect maritime charges in Naira is in line with the federal government’s broader efforts to prioritize the use of the local currency in domestic transactions. This policy shift is seen as a crucial step towards reducing the country’s dependence on foreign exchange and promoting economic self-sufficiency.

Furthermore, the government believes that by requiring maritime agencies to collect fees in Naira, it can help to curb the activities of illegal currency traders and reduce the volatility of the exchange rate. This, in turn, can have a positive impact on the overall stability of the Nigerian economy.

Implications for the Maritime Industry

The implementation of the Naira-only policy for maritime charges is expected to have significant implications for the maritime industry in Nigeria. While some stakeholders may initially face challenges in adjusting to the new requirements, the long-term benefits are likely to outweigh the short-term costs.

One of the potential benefits of the policy is that it could lead to a reduction in the cost of doing business in the maritime sector. By eliminating the need for foreign exchange transactions, businesses can avoid the associated fees and exchange rate risks. This could make Nigeria a more attractive destination for international shipping companies and investors.

If You Ask Me: Challenges and Opportunities

The implementation of the Naira-only policy for maritime charges is not without its challenges. One of the key concerns is the potential for non-compliance by some stakeholders. There is a risk that some businesses may attempt to circumvent the policy by engaging in illegal foreign exchange transactions.

To address this issue, the government will need to strengthen enforcement mechanisms and impose strict penalties for non-compliance. It may also be necessary to provide education and training to stakeholders to ensure that they understand the new requirements and how to comply with them.

Despite the challenges, the Naira-only policy for maritime charges presents a significant opportunity for Nigeria to strengthen its economy and reduce its dependence on foreign exchange. By promoting the use of the local currency and reducing the outflow of foreign capital, the government can create a more stable and sustainable economic environment.

The federal government’s decision to mandate Naira payments for maritime charges is a bold and ambitious step that has the potential to have a profound impact on the Nigerian economy. While there are challenges to be overcome, the long-term benefits of this policy are likely to outweigh the short-term costs.

By promoting the use of the local currency and reducing the country’s dependence on foreign exchange, the government can create a more stable and prosperous economy for all Nigerians

September 26, 2024 0 comment

Markets

CBN Injects $31.66 Million into Retail FX Market as Naira Continues to Weaken

by Genesis Essien September 26, 2024

written by Genesis Essien

In a bid to address the persistent depreciation of the naira against the US dollar, the Central Bank of Nigeria (CBN) has announced the sale of foreign exchange worth $20,000 to eligible Bureau De Change (BDC) operators across the country. This decision, as disclosed by the apex bank in a statement signed by Dr. W. J Kanya, Acting Director of Trade and Exchange Department, aims to meet the growing retail market demand for foreign exchange for eligible invisible transactions.

The CBN’s intervention comes on the heels of the naira’s further decline in value against the dollar. On Tuesday, the Nigerian Autonomous Foreign Exchange (NAFEM) rate closed at N1,658.48 per dollar, while the parallel market rate reached N1,670 per dollar. This continued depreciation has raised concerns among businesses and individuals alike, as it can fuel inflation and increase the cost of imported goods.

CBN’s Conditions for BDC Operators

To ensure that the foreign exchange injection benefits the retail market and prevents speculative activities, the CBN has imposed certain conditions on the BDC operators. Firstly, the operators are required to sell the foreign exchange to eligible end-users at a margin of not more than one percent above the purchase rate from the CBN. This means that the BDCs cannot make excessive profits from the transaction.

Secondly, the BDCs are obligated to make the Naira payment to the CBN Deposit Account Numbers assigned to them. Additionally, they must submit payment confirmation and all necessary documentation to the appropriate CBN branches for collection of the $20,000. These measures are designed to prevent the foreign exchange from being diverted to the parallel market or used for speculative purposes.

Impact of CBN’s Intervention on the Retail Market

With 1,583 approved BDC operators, the CBN’s injection of $20,000 per operator translates to a total of $31.66 million being introduced into the retail foreign exchange market. This is expected to provide a significant boost to liquidity and help stabilize the naira exchange rate at the retail level.

If You Ask: Outlook for the Nigerian Naira

The outlook for the Nigerian naira remains uncertain. The CBN’s intervention in the retail foreign exchange market is a step in the right direction, but it is unlikely to be sufficient to address the underlying challenges facing the currency.

To achieve a more sustainable stabilization of the naira, Nigeria will need to implement a comprehensive set of reforms to boost its foreign exchange earnings, reduce its dependence on imports, and improve its investment climate. Only by addressing these fundamental issues can the naira be put on a stronger footing.

September 26, 2024 0 comment

Economy Markets

Naira Plummets Amid FX Supply Crisis, Hits N1,637.59/$1

by Genesis Essien September 11, 2024

written by Genesis Essien

The Nigerian Naira experienced another setback on Tuesday, September 10, as it depreciated further against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX). The decline, exacerbated by a persistent FX supply crisis, has raised concerns about the country’s economic stability.

According to data from the FMDQ Securities Exchange, the domestic currency weakened by 3.61 percent or N57.13, closing at N1,637.59/$1. This marked a significant devaluation from the previous trading session’s rate of N1,580.46/$1. The FX turnover also witnessed a decline, dropping by 27.5 percent to $143.15 million from $197.37 million.

CBN’s Intervention Efforts

In an attempt to address the mounting pressure on the Naira, the Central Bank of Nigeria (CBN) has stepped in with a fresh injection of foreign exchange into the market. On Friday, the apex bank supplied dollars to Bureau De Change (BDC) operators, allocating $20,000 each at a rate of N1,580/$1.

The CBN’s decision to intervene was aimed at easing the demand for foreign currency in the retail market, particularly for essential transactions such as personal travel allowances, business travel allowances, medical bills, and school fees.

“Each eligible BDC will be allocated $20,000 at the approved rate,” said Mr. W. J. Kanya, acting director of the CBN’s Trade Exchange Department. “BDCs are authorized to sell to end-users at a margin not exceeding one percent above the purchase rate from the CBN.”

Impact on Other Currencies

While the Naira faced challenges against the US Dollar, it demonstrated some resilience against other major currencies. In the spot market, the local currency gained against the Pound Sterling, closing at N2,110.06/£1 compared to the previous day’s N2,095.29/£1. However, it remained unchanged against the Euro at N1,804.99/€1.

Black Market Remains Stable

In the parallel market, the Naira remained relatively stable against the US Dollar, trading at N1,650/$1. While the black market rate has often been higher than the official rate, the minimal fluctuations suggest that the CBN’s interventions have had some impact on curbing illicit foreign exchange activities.

Impact on the Economy

The continued depreciation of the Naira has significant implications for the Nigerian economy. It can lead to higher prices for imported goods, as businesses pass on the increased cost of foreign currency to consumers. This can contribute to inflation and erode the purchasing power of Nigerians.

Moreover, the weaker Naira can make it more expensive for Nigerian businesses to import raw materials and machinery, which can impact their competitiveness and profitability. It can also discourage foreign investment, as investors may be concerned about currency risk and potential capital losses.

Outlook for the Naira

The outlook for the Naira remains uncertain, as a number of factors continue to weigh on its value. The persistent FX supply shortage, coupled with the ongoing economic challenges facing Nigeria, suggest that the Naira may face further downward pressure in the near term.

However, the CBN’s intervention efforts and potential improvements in the country’s economic fundamentals could help to stabilize the Naira. It is also important to monitor developments in the global economy, as fluctuations in international currency markets can impact the value of the Naira.

As the Nigerian economy continues to navigate these challenges, the Naira’s performance will be a key indicator of the country’s overall economic health.

September 11, 2024 0 comment

Markets

Naira Stays Within ₦1600/$

by Genesis Essien September 10, 2024

written by Genesis Essien

As of September 9, 2024, the Nigerian Naira (₦) continued its tumultuous journey against major foreign currencies. While the official NAFEM closing rate for the US dollar stood at ₦1,580.46/$, the black market rates for the dollar, pound sterling, and euro remained significantly higher, reflecting the underlying demand-supply imbalances in the foreign exchange market.

The British Pound (GBP) was trading at ₦2,145/£ for buying and ₦2,192/£ for selling on the black market. Similarly, the Euro (EUR) was quoted at ₦1,775/€ for buying and ₦1,805/€ for selling. The US Dollar (USD) was being bought at ₦1,663/$ and sold at ₦1,673/$

The black market, fueled by a combination of factors including capital flight, speculative activities, and unmet demand for foreign currency, has long been a parallel exchange rate system in Nigeria. It offers a more flexible option for those seeking to convert naira into foreign currency, often for essential imports or urgent overseas transactions.

However, the existence of a robust black market can also have negative consequences. It can undermine the credibility of the official exchange rate, encourage illicit financial flows, and distort economic activity. Additionally, the disparity between the two rates can create opportunities for arbitrage, where individuals profit from buying foreign currency at the official rate and selling it at the black market rate.

The CBN’s Interventions

In an effort to address the FX scarcity and narrow the gap between the official and black market rates, the Central Bank of Nigeria (CBN) has taken several measures. One such measure is the sale of foreign currency to Bureau de Change (BDC) operators. By providing these operators with a source of dollars, the CBN aims to increase the supply of foreign currency in the official market and reduce reliance on the black market.

Additionally, the CBN has introduced the Investors and Exporters Foreign Exchange Window (IEFX), redesignated the NAFEX rate as the official exchange rate, and tightened monetary policy. These measures have been aimed at promoting transparency, attracting foreign investment, and discouraging speculative activities.

However, the impact of these interventions has been mixed. While the CBN’s efforts have helped to stabilize the official rate to some extent, they have not been able to eliminate the black market altogether. The persistent demand for foreign currency, coupled with the challenges of enforcing regulations, has made it difficult for the CBN to fully address the FX crisis.

The Economic Implications of Naira Volatility

The volatility of the Nigerian Naira has far-reaching implications for the economy. It can lead to inflation, as businesses pass on the increased costs of imported goods to consumers. It can also discourage foreign investment, as investors become uncertain about the stability of the currency. Moreover, it can make it difficult for Nigerian businesses to compete in the global market, as they face higher costs of imported inputs.

The Nigerian government has also explored other options to address the foreign exchange challenges, including increasing domestic production of goods and services to reduce import dependency. Additionally, efforts have been made to attract foreign investment and promote exports to increase foreign exchange inflows.