The Central Bank of Nigeria (CBN) has given the green light to importers of 43 items prohibited from accessing foreign exchange in the official market eight years ago. This move will help the naira to be come stronger on the parallel market, analysts have said.
This was disclosed in a statement signed by Isa AbdulMumin, the CBN’s director of corporate communications.
The CBN had on July 1, 2015 restricted the availability of foreign exchange to the importation of 41 items which could be competitively produced within the economy.
Some of the items include rice, cement, margarine, palm kernel/palm oil products/vegetables oils, meat and processed meat products, vegetables and processed vegetable products, poultry – chicken, eggs, turkey, Private airplanes/jets, Indian incense, tinned fish in sauce (geisha)/sardines, cold-rolled steel sheets, galvanised steel sheets, and roofing sheets.
“Importers of all the 43 items previously restricted by the 2015 circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian foreign exchange market,” the statement said.
“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 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 N1,000,” said Charlie Robertson, head of macro strategy at FIM Partners UK Ltd.
He 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.”
Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest, said the move was long overdue and that the bold step was commendable, and would result in naira appreciation in the parallel market.
“We expect improved activity at the Foreign exchange market formerly known as the I & E window. However if CBN does not match the demand with sufficient supply, we will see further depreciation in that market. However, we expect to see appreciation in the black market due to reduced demand,” he said.
The CBN said it is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.
According to the statement, 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,” it said.
The CBN said the prevailing 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,” it said.
“Regarding the readmission of the 43 items to the forex market, its immediate impact will be to reduce the premium between the official and the parallel market. But it will have negative implications for import substitution and local manufacturing efforts,” Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said.
He said the decision to readmit 43 items is ill-timed in view of the current forex shortage, and that the official exchange rate will further rise to meet the parallel market rate.
“We welcome the decision of the CBN to discontinue the forex exclusion policy on the 43 items. It is a move in the right direction. It is part of the policy normalisation process,” Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise, said.
He said the exclusion of the 43 items was one of the several drivers of distortions in the forex market, adding that the exclusion of the items also contributed to the persistent divergence in rates between the official window and the parallel market.
According to him, the exclusion was also in conflict with extant trade policy as the items were not under import prohibition in the first place. It was an example of lack of policy coordination under the previous administration.
Yusuf said: “The new directive will also improve transparency and disclosures in foreign exchange transactions. Meanwhile, the CBN should avoid market suppression tendencies, especially outside the I&E window.
“The fiscal authorities should continually monitor the economic landscape to shape the character of fiscal policy measures to regulate imports in line with comparative advantage principles. We need to worry about the risk of import surge. There is also a need to upscale the use of fiscal policy measures to boost domestic production and productivity.”