Nigeria operates a state-managed forex policy which entails the direct supervision of the foreign exchange market by the central bank of Nigeria. In other words, the CBN manages requests for foreign exchange through authorized dealers and regulates the exchange rates through a hybrid system of auctions. The CBN also maintains an exhaustive list of goods/items that are eligible for foreign exchange at the official rate.
However, the prevailing economic strains in the country occasioned by Covid 19, intermittent devaluation of the Naira, and the gradual depletion of our foreign reserves have made a review of the processes for accessing foreign exchange inevitable. To this end, the Guidelines were issued by CBN to plug some identified loopholes in the prior existing procedures applicable to exporters and importers in accessing foreign exchange and promote overall prudency and efficiency in these processes.
Content of the Guidelines
The following summarizes the key provisions of the Guidelines:
- The Guidelines was to take effect on February 1, 2022;
- The introduction of e-Valuator and e-Invoice documentation process which replaces the hard copy final invoice documentation process for all import and export transactions;
- The adoption of the Global Price Verification Mechanism in estimating the prices of goods for import and export transactions. The Global Price Verification Mechanism is to be guided by a benchmark price which is the actual spot market price obtainable at the time of consummation of invoicing, in that market where the goods are traded;
- The prohibition of import and export transactions with unit prices that are more than 2.5% from the global benchmark prices from successful completion of either form M or Form NXP (as the case may be).
The following exemptions are provided:
- Exemption of individual invoices with a value of less than USD10,000 (or its equivalent in another currency) from submitting e-invoices, except where suppliers have an annual cumulative invoicing value equal to above USD500,000 (or its equivalent in another currency);
- Exemption of import and export transactions made by all security agencies in the country;
- Exemption of supplies to diplomatic and consular missions and supplies to international agencies dependent on the United Nations;
- Exemption of donations made by foreign governments or international organisations to foundations, charities and recognised humanitarian agencies;
- Exemption of goods directly supplied by a foreign government.
The provisions of the Guidelines are generally laudable and reformative. The digitization of the documentation process for procuring foreign exchange for import and export transactions is long overdue and consistent with the evolving trends and practices of the digital age. This will further fast-track the review process and ensure that decisions on the status of each application are communicated in good time. Furthermore, applications that do not fully satisfy the requirements prescribed can be easily sorted and discountenanced without wastage of productive in reviewing such applications. The automation of the application process will also limit the incidence of human influence/manipulation of the process since the latitude of human discretion will be greatly reduced.
In the same vein, the introduction of the Global Price Verification Mechanism (GPVM) will help in curbing fraudulent and subversive practices in the forex market. It is no longer news that many importers/exporters regularly doctor invoices and other documents presented in their applications for forex for selfish gains. This has further worsened the pressures on the CBN in meeting forex demands leading to forex scarcity and deprivation of other deserving applicants of forex. However, with the GPVM which is anchored on a benchmark pricing of commodities at the spot market price, bogus and fraudulent applications can be easily identified and rejected.
The prescription of a margin of difference of 2.5% as the maximum permissible difference between the commodity price stated in the application and the price computed pursuant to the GPVM will further entrench prudency in the pricing of commodities by applicants. The fact that GPVM can easily be ascertainable by any importer/exporter will ensure that they are guided and have this price as a reference point when negotiating the prices of commodities with their suppliers/buyers. In addition, this policy will also ensure competitive pricing and ensure that importers in particular source for commodities with competitive prices as a condition precedent to accessing foreign exchange. This will invariably help reduce the cost of imported goods and ultimately benefit the local consumer in the country.
The clarity and certainty in the language used in specifying the consequences for noncompliance with the Guidelines is commendable. For ease of reference, the relevant provision of the Guideline on this subject is reproduced below:
Imports and exports with unit prices that are more than 2.5 per cent of the verified global checkmate prices would be queried and will not be allowed for successful completion of either form M or Form NXP as the case may be.
From the above excerpt, the consequence for non-compliance - which is query and decline of the application - is not in doubt nor subject to the discretion of the reviewing officer. This will stamp out the likelihood of applicants inducing reviewing officers to compromise the application process.
The moratorium period of less than two weeks to the implementation of the Guidelines is considerably insufficient. Given the relatively profound impacts of the Guidelines on import/export transactions in the country, it would have been desirable for a longer moratorium to be provided in the Guidelines so that relevant stakeholders can make necessary adjustment in preparation for compliance. Pertinently, the CBN should have created time for pilot-testing the new digital process and embark on advocacy explaining the process to the stakeholders.
Furthermore, less literate/non-computer savvy merchants may stand the risk of being excluded from forex for their transactions. As is common knowledge, Nigeria has a large population of non-literate persons and an even larger population of persons that are unable to operate computers. Accordingly, since the Guidelines incorporate and contemplate a lot of digital processes, it may be difficult for this significant class of the population to comply with its provision.
Additionally, the annual subscription fee of $350 payable for registration and authentication is high. Rather than paying $350 as annual subscription, a reduced renewal fee of $100 be paid after the expiration of first registration. This is because, the difference of $250 is quite substantial when converted to our local currency and can be saved by the importer/ exporter in the Nigerian economy.
In similar vein, the annual cumulative supplier's invoicing threshold of $500,000 prescribed for the eligibility for exemption of individual invoices not exceeding $10,000, should be reduced to $100,000. This will guard against the likelihood of abuse of this regulatory exemption.
Lastly, there are doubts on the availability of the technical capacity and infrastructure required to facilitate the implementation of the Guidelines. In a country like Nigeria with epileptic power supply and slow internet connections, the efficacy and smooth implementation of the Guidelines may be jeopardized. Furthermore, adequate measures should be adopted to safeguard the integrity of the data and documents that will be uploaded to the electronic portal against hacks and compromise.
The Guidelines is a welcome initiative of government and should help curtail the ongoing severe hemorrhage of forex resources by unscrupulous import and export merchants and their willing collaborators. That said, the CBN should address the concerns raised earlier in this write-up and evaluate the impact/efficacy of the Guidelines in achieving its intended objectives. Doing this will provide valuable information that will assist in future amendments or revisions to be made to the Guidelines.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.