Nigeria targets exporters to fix problem of its own making

Nigeria is going after exporters who are diverting their dollar proceeds away from the official market to the unofficial market where they get more naira for their dollars.

Starting Jan. 31, exporters who failed to repatriate their proceeds as instructed by the Central Bank will be barred from accessing banking services, a steep punishment that is only arising because the apex bank has created a huge incentive for dollars to go through unofficial channels.

There’s a differential of about 25 percent between the official and unofficial channels and the longer the CBN allows that, the more businesses with dollar income will find ways to get better value for their cash, especially if they incur costs at the weaker black market rate.

“It means the CBN must remove any incentive to divert dollars away from the official market by working to close the gap between that market and the black market, otherwise nothing will change,” a senior banker who did not want to be named said.

“Going after exporters in this manner will only worsen the dollar shortages in the country as it may encourage hoarding,” the banker said.

The latest measures are part of an effort to defend the country’s currency by targeting importers and exporters with tougher regulations.

That’s after a plunge in oil prices, like the one in 2016, and the coronavirus pandemic led to dollar shortages in Africa’s largest crude producer resulting in a wide spread between the official exchange rate and the parallel market.

It’s not the first time Nigeria has gone after exporters for failing to repatriate their proceeds through the official market. In 2016, exporters who were again seeking better value for their dollars at the black market after a wide spread opened up between both markets fell on the wrong side of the CBN.

But the battle between the CBN and exporters only made what was already a bad situation worse as exporters devised means of moving their money through unofficial means thereby starving the official market of dollar liquidity.

It wasn’t until the CBN allowed exporters get a market-reflective rate for their dollars through the creation of the Investors and Exporters window that dollar liquidity improved and the economy looked up.

The creation of the I&E window remains one of the most applauded moves by the Abuja-based banking regulator.

The CBN made efforts to unify its multiple exchange rates last year as dollar inflows thinned, but the process has since slowed and analysts are unsure whether a full convergence will happen this year.