"Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market." –
CBN Press Release
In its pursuit of bolstering liquidity and stability within the foreign exchange ("Forex") market, the Central Bank of Nigeria (CBN), on October 12, 2023, released a press statement. A prominent feature of this press statement is the decision of the CBN to lift the Forex restrictions on 43 commodities that had previously been barred from accessing foreign exchange via official channels. In this newsletter, we seek to answer questions that will aid your understanding of the implications of this policy shift.
Q1: Why did the CBN previously place Forex restrictions on the 43 items?
A: These restrictions were previously implemented by the CBN with the aim of reducing the demand for foreign exchange for products that could be produced locally. This policy was driven by the goals of boosting employment opportunities, promoting domestic production, and conserving foreign reserves.
The restricted items included a range of products such as Rice, Cement, Margarine, Palm kernel, Palm oil products, Vegetable oils, Meat and processed meat products, Vegetables and processed vegetable products, Poultry and processed poultry products, Private Airplanes/Jets, Indian Incense, Tinned fish in sauce (Geisha)/sardine, Cold rolled steel sheets, Galvanized steel sheets, Wheelbarrows, Head pans, and more.
It is worthy of note that this previous forex restriction was not an outright import ban on these items. The restriction was2 limited to buying Forex in the official market to import these items.
Q2: Why did the CBN lift the forex restriction?
A: As stated in the press statement, the primary aim of this policy shift is to bolster liquidity and stability within the foreign exchange market. The initial restriction forced importers to turn to the parallel market, resulting in surplus demand for Forex. This, in turn, had the effect of weakening the parallel-market exchange rate, ultimately leading to upward price pressures.
Q3: What are some of the implications of the lifting of the previous ban on the 43 items2?
A: With the restriction lifted, importers, especially those dealing with the 43 listed items, can now access foreign exchange more freely, which can boost Forex flexibility and liquidity. They can also take advantage of differences in exchange rates between the parallel and official Forex market. Furthermore, foreign manufacturers have an opportunity to appoint exclusive brand distributors or engage in local manufacturing and assembly outsourcing. This shift could lead to new business prospects and potential collaborations, attracting foreign capital.
Q4: What criticisms have been raised regarding the policy shift?
A: Some experts have criticized the policy, arguing that it has contributed to higher prices for imported food items and food inflation. They also express concerns that the policy may harm Nigeria's manufacturing sector by promoting the importation of goods that could be manufactured domestically.
Q5: What strategies can businesses adopt to navigate the Forex market's volatility and policy shifts?
A: Businesses can consider strategies like maintaining a cash reserve, using hedging instruments to manage exchange rate risk, adopting dynamic business planning and scenario management, and staying informed about regulatory changes issued by the CBN.
In conclusion, the recent policy shift by the Central Bank of Nigeria to lift Forex restrictions on 43 previously prohibited items ushers in a transformative period in the country's foreign exchange market. While offering new opportunities for businesses and investors, it also presents some challenges. For businesses that rely on forex, it would be helpful to explore the strategies in Q5.
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.