CBN clarifies on requirements for divestment, repatriation of foreign investments

The Central Bank of Nigeria (CBN) has issued a new circular to all authorised dealer banks and the general public, providing clarification on divestment and repatriation of foreign investments as specified in sections of the Foreign Exchange Manual.

The circular, signed by W. J. Kanya, acting director of the trade & exchange department, addresses the requirements for divestment and repatriation of foreign investments related to Certificates of Capital Importation (CCI).

The clarification concerns Memorandum 20, section 2(vi) of the Foreign Exchange Manual, and emphasises that the provisions apply to both divestments and the repatriation of all CCI-related transactions.

According to the circular, any divestment or repatriation of foreign investment, whether pre-liquidation or upon maturity, must be accompanied by evidence of an electronic Certificate of Capital Importation (CCI) and evidence of redemption of investment in local currency assets, such as money market instruments, debt securities, or equities.

The CBN has urged all stakeholders to note these requirements and ensure compliance. The circular aims to provide clarity and guidance to financial institutions and investors engaged in foreign exchange transactions related to capital importation.

This move by the CBN is part of its ongoing efforts to maintain transparency and uphold regulatory standards in Nigeria’s financial markets.

Divestment and Repatriation of Foreign Investments Explained

Divestment

Divestment refers to the process of selling off an asset or investment. In the context of foreign investments, divestment occurs when a foreign investor decides to sell their investments in a country, such as shares, bonds, real estate, or other assets. The goal of divestment might be to liquidate the investment for cash, reduce exposure to a particular market, or reallocate capital to other opportunities.

Repatriation

Repatriation involves transferring money or financial assets back to the investor’s home country. After divesting from an investment in a foreign country, an investor might choose to repatriate the proceeds. This means converting the proceeds from the local currency into the investor’s home currency and transferring the funds back to their country of origin. Repatriation can involve profits, dividends, or capital from sold assets.

In the context of the CBN circular, these terms refer to the procedures and documentation required when a foreign investor sells their investments in Nigeria (divestment) and transfers the proceeds back to their home country (repatriation). The circular emphasises that proper documentation, such as evidence of the Certificate of Capital Importation and proof of the investment’s redemption in local assets, is required for these transactions.

Implications of divestment and repatriation of foreign investments on the economy

The divestment and repatriation of foreign investments can have significant implications for a country’s economy.

When foreign investors divest and repatriate their investments, it leads to capital outflow, where money leaves the country. This outflow can reduce the amount of foreign currency in the domestic economy, potentially leading to a depreciation of the local currency. A weaker currency can increase the cost of imports, contribute to inflation, and impact the purchasing power of consumers.

Divestments by foreign investors can put downward pressure on asset prices, including stocks, bonds, and real estate. If a large number of investors decide to divest simultaneously, it can lead to a decline in market confidence, reducing the valuation of local companies and financial instruments. This could also lead to increased volatility in financial markets.

In terms of external reserves, when repatriation occurs, foreign investors convert their proceeds into foreign currency, which can reduce the country’s foreign exchange reserves. A decrease in these reserves can limit the central bank’s ability to stabilize the currency, intervene in the foreign exchange market, or support import payments.