Nigeria Backpedals on Currency Rules as Naira Weakens

The central bank of Nigeria has backtracked on its rule that banned companies from sourcing imports from third parties other than manufacturers after continuous downward slide of the local currency in the black market due to rising demand.

The circular by CBN to banks this week explained that importers can now open bills of collection in favour of agents and third parties to import goods, a softening of the restrictions introduced in August.

This directive has forced importers to redirect their dollar demand to the parallel market, resulting in a weakening of the naira to a three-month low of 480 naira to the dollar on Friday. The naira traded at 385.50 to the greenback on the importer and exporter window as of 4:22 p.m. in Lagos, with the spot rate at 383.

The widening gap in the official and parallel rates is being fuelled by individuals and companies diverting export proceeds and their remittances away from approved channels. As a remedy, CBN has asked banks to report any exporter caught in theis unwholesome act.

The DG, Lagos Chamber of Commerce and Industry, Musa Yusuf queried “How do you tell an exporter to export and you are giving him 386 per dollar? Is that fair to the exporter.”

There is a need to allow the foreign-exchange market to function properly to attract more inflows of foreign exchange to avoid transactions being driven underground, Yusuf advised.

And corroborating, Bala Idris, import manager for Nasco Group, makers of snacks and cereals said the previous central bank directive hurt businesses. It led to his firm cutting production capacity and reducing working hours by 10% due to increase in the local prices of raw materials after it was unable to import.

Idris said that the central bank has to allow for a more flexible and practical exchange rate to improve liquidity. Authorities should allow the naira to change hands at 450 to 480 per dollar because in his words “that will motivate exporters to bring all their inflow into the market for genuine importers.”

 

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