International Oil Companies (IOCs) in Nigeria will get more naira for their dollar earnings after the Central Bank on Wednesday permitted the companies to resume dollar sales to banks in a move aimed at injecting dollar liquidity into the Investors & Exporters window.
The development means IOCs are no longer mandated to sell their dollars to the CBN at the artificially low price at which they sold prior to the naira float last month. That leaves them with more naira for their dollars as they will now be selling at a rate that’s over 60 percent weaker than the previous rate.
Allowing IOCs to sell dollars to banks will also help improve dollar liquidity in the I&E window, which is considered a crucial factor in luring foreign investors back to Nigeria.
“We expect this to inject additional liquidity into the Investors & Exporters window and help address the existing backlog of US dollar demand in the market,” a source familiar with the matter said.
“For the IOCs, they must be heaving a huge sigh of relief knowing they can now get more naira for their dollar earnings,” an oil and gas industry source said.
The CBN’s acting governor, Folashodun Shonubi, has been reversing the policies of suspended Governor Godwin Emefiele since he was handed the job by President Bola Tinubu who only took the helm of affairs in Nigeria in late May but has started making moves to deliver the thorough house cleaning of monetary policy he promised.
Since floating the naira and ending years of a hard currency peg that drained dollars from the economy and spooked investors, the CBN is now focusing on boosting dollar supply to help ease the pressure on the naira which lost over 60 percent of its value in one fell swoop following the long overdue reform.
The naira gained 1.2 percent at the I&E window, Wednesday. Total foreign exchange turnover was up 20 percent to $89.37 million from $73.86 million worth of trades, according to data from FMDQ.
Emefiele had mandated the IOCs to only sell dollars to the CBN in the thick of a dollar crunch in 2020. The IOCs were forced to sell the dollars at an artificially propped official rate that was more than 50 percent stronger than the more market-reflective parallel market rate.
It was one of the curious moves made by Emefiele which though was intended to keep dollars flowing, ended up draining the market of the greenback and knocking investor confidence.
“It will take a lot of undoing the harmful policies of the Emefiele-led CBN to get Nigeria back on track and this is one of many,” a foreign fund manager said.
“The 43 blacklisted items is another grey area that is undermining confidence in the CBN’s new currency reform,” the fund manager who used to invest in Nigerian equities and bonds before he exited in 2020 said.