The Central Bank of Nigeria on Thursday unwinded an 8-year-old policy that restricted importers of some 43 items from rice to milk from buying dollars from the banks.
With the foreign exchange restriction lifted, here are some of the winners and losers.
Cardoso, FX market & naira
Nigeria’s broken foreign exchange market took a step closer towards a fully liberalized market with the dollar ban on the 43 items lifted.
It’s the biggest FX reform yet since the currency was devalued in June and will excite analysts and investors who had warned that the restriction showed the central bank was still maintaining some form of capital controls.
For new CBN governor Olayemi Cardoso, ending the restrictions, even at a time when dollar supply remains thin in the official market, sends an important signal to investors that he is committed to unwinding the unorthodox monetary policies of his predecessor and perhaps understands the critical role of a well-functioning FX market in achieving the $1 trillion GDP target (more than double the current GDP) which he spoke of in Morocco.
He however needs to focus now on improving dollar supply to the market. The early signs suggest Cardoso understands that. Turnover in the FX market jumped sixfold compared to the previous day to $407.65 million Thursday, the largest turnover since Sept. 1.
Analysts say a logical next step to boost dollar supply will be to allow oil companies to resume dollar sales to the FX market.
Cardoso will have to put an end to the multiple CBN circulars that create confusion for investors in order to attract autonomous dollar inflows.
“To our minds, this is a move to gradually improve confidence in the FX market, which has been weighed by long-dragging illiquidity and unorthodox policies,” analysts at Cardinal Stone said.
“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,” the analysts said in a note to clients.
Nigerian manufacturers who rely on one or some of the 43 items hitherto banned from buying dollars from banks are among the winners of the policy reversal.
Some of the items on the list from steel pipes and iron rods are part of critical raw materials for some manufacturers.
The manufacturers who could not find sufficient local substitutes but managed to keep their doors open following the restriction had to resort to buying dollars at a premium on the black market.
With expectations that the premium between the official and parallel market will narrow on the back of the delisting of the 43 items. Demand for dollars by importers of the items had been channeled to the parallel market therefore complicating efforts for a rate convergence.
Local producers of some of the 43 items had a field day during the FX ban as it translated to increased sales for their products.
Palm oil producers, Presco and Okomu are among those that reported bumper earnings following the dollar ban on importers of palm oil.
Despite the rapid slide in the naira since the FX ban was first introduced in 2015, analysts say it is cheaper to import palm oil than buy locally which means the local producers will need to offer more competitive pricing to maintain sales.
“Among losers of the reversal of the FX ban are local companies that are not efficient enough to compete with imports,” an analyst who did not have authorisation to speak publicly said.
Among the losers of reversing the dollar ban are traders who bet against the naira expecting a further plunge in its value.