By Emmanuel Akon
Nigeria’s Central Bank, CBN, recently, announced a policy shift in the country’s foreign exchange operations as it collapsed all segments of the forex market into one.
CBN’s Director of Financial Markets, Dr Angela Sere-Ejembi, in a statement, said all windows of foreign exchange are now collapsed into the investors and exporters window.
Sere-Ejembi goes ahead to add that applications for medicals, school fees, Business Travel Allowance, BTA, Personal Travel Allowance, PTA, and Small and Medium Enterprises, SMEs, would continue to be processed through deposit money banks.
With improved transparency in the system, the move is expected to allow Nigerian students schooling abroad, as well as patients seeking treatment in foreign hospitals and businessmen, the opportunity to access forex at CBN-approved rates rather than the high rates at the parallel market.
In the wake of CBN’s introduction of guidelines barring remittances of foreign exchange through the use of form A in 2016, patients, students and businessmen were the worst hit with some describing it as a threat to their existence.
Reports indicate that in 2021 alone, it was estimated that Nigerian students spent £1.93 billion on tuition, rent, health insurance, and other costs in the United Kingdom.
The Balance of Payments database of the Central Bank of Nigeria obtained by a Nigerian newspaper, The Punch, also showed that Nigerians spent about $3bn on foreign healthcare-related services from 2020 to 2022, while between 2016 and 2022 Nigerians spent a total of $7.07bn on overseas treatments.
The inclusion of medicals, school fees, and SMEs mirrors the basic needs of some Nigerians and the CBN is applauded for giving it priority in its foreign exchange policy. As the demand for educational and health services abroad remains high, a corresponding demand for foreign exchange to facilitate access to those services remains a priority to those in need.
Meanwhile, the apex bank has also announced the re-introduction of the "Willing Buyer, Willing Seller model at the investor and import, I and E Window, stating that operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007.
It is expected that the CBN’s posture on this segment will allow market forces to determine exchange rates as it could promote fair pricing in the forex market.
According to the bank, all eligible transactions are permitted to access foreign exchange at this window.
“The operational rate for all government related transactions shall be the weighted average rate of the preceding day's executed transactions at the I&E window, calculated to two (2) decimal places. Proscription of trading limits on oversold FX positions with permission to hedge short positions with OTC futures. Limits on overbought positions shall be zero.
“Re-introduction of order-based two-way quotes, with bid-ask spread of N1. All transactions shall be cleared by a Central Counter Party (CCP) Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades, The operational hours of trades shall be from 9am to 4pm. Nigeria time. Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023,” the bank said.
As an import-dependent economy, foreign exchange remains the nexus of Nigeria’s domestic and foreign trade, and critical in determining domestic prices of all imported products and services, which directly impact on the purchasing power of Nigerians.
FX, therefore, is not only a factor in shaping the country’s outlook on inflation but a significant force on the base of fiscal policies. In the last eight years, the value of the Nigerian Naira has taken a downward slide, ebbing at N765 per a US dollar, days after the announcement at the parallel market, while the official rates remained at N465.5.
Strength of the Naira in 2015
Rising from an official rate of N197 per US Dollar in 2015, at some point, the exchange rate spiralled out of control and the Naira witnessed a free-fall, receding at the current exchange rate.
In the midst of the crisis, one of the measures adopted by the Central Bank of Nigeria, CBN, to curb the downward slide was to pull several billions of dollars from the foreign reserves to fight dollar scarcity.
However, the policy was not effective as the crisis worsened and the currency further depreciated against the US dollar at both the official and unofficial markets, after the CBN announced the naira redesigned policy in 2022.
The dollar was sold for as high as N783.00 at some point before receding to the current exchange rate in the region of N667.
The policy shift of collapsing all segments of the forex market into one, the apex bank says, is aimed at improving liquidity and stability in the FX market. The unification policy is expected to curb poorly regulated practices in the market to improve investors’ confidence and also open up access to foreign investment into the country.
As a policy anchored on foreign exchange management and its availability, it is expected to boost import and export activities, especially of the non-oil subsector of the economy and other international trading activities, and thus add to diversification of the economy.
While there are indications that the unification will enhance the availability of dollars to Nigerian importers and possibly slow down the downward slide of the Naira, there is no guarantee that things are going to return to the better old days where exchange rate was below N200 and inflation was stable at a single digit. Currently, it is over 22 percent.
Will the African Business Space Suffer?
Nigeria, as a business hub in the West African sub-region and a signatory to the trans-African trade agreement, the African Continental Free Trade Area, AfCFTA, requires a stable, transparent and well-regulated foreign exchange market to boost its chances of benefiting from trade opportunities embedded in the AfCFTA agreement.
Speaking on the impact of the policy on small businesses, a businessman, Mr Vincent Anthony, of Plus Computer and Services Ltd, Wuse, commended the Central Bank of Nigeria, stating that the unification would provide access to Forex and facilitate easy transactions for his company.
Anthony says, "in my office we purchase directly from the company, HP, so most of the time we go through the process of conversion before we actually get access to buy the products.
"So, with the unification, I think it's easier for us to get our products directly from the company. For now, that is a positive one from the government."
A businesswoman in Wuse, Abuja, Patricia Imbul, expressed confidence that the new CBN's policy on FX will help to stabilise prices of goods and services.
"It will help because prices will not go up again and they will be fairer. Once the dollar and the naira stabilise, there would be no fluctuation of prices again. It would affect businesses positively.
"Sometimes, it is difficult to access dollars, but if I can walk into a bank and access dollars, then it would be easier to transact business internationally.
"If the dollar is unified and I give you a price, after two months you come, the price will still be the same," she says.
Apparently, quick access to foreign exchange and stability in market prices would slow down inflation and improve profitability for business owners.