Dollar clampdown risks fuelling illegal currency market in Nigeria: Report

*Stakeholders urge CBN to allow market forces to determine the Dollar price

Isola Moses | ConsumerConnect

Nigeria’s current effort at defending the Naira by allegedly targeting importers and exporters with tougher regulations may push more traders to the black market for their Dollars for transactions.

As scarcity of foreign-exchange worsens in Africa’s largest economy, the Central Bank of Nigeria (CBN) Tuesday, August 25 had ordered banks to report exporters that fail to repatriate income made abroad, according to Bloomberg.

Report indicates that the directive came a day after the regulator banned importers from using external agents to pay for goods, a bid to keep money inside the country’s borders.

Bamidele Ayemibo, Lead Consultant at 3T Impex Trade Academy, in Lagos, an adviser and trainer on exports and imports, was quoted to have said that the threat of punishment, which could see exporters banned from accessing Dollars won’t work.

The cost of exports is secured at the parallel-market rate, whereas the CBN wants to compel firms to repatriate foreign currency at a loss at the much stronger official rate for Naira, the country’s currency.

On the CBN’s reported targeting of exporters failing to remit Dollars, Ayemibo said: “The Central Bank saying they would sanction them is laughable. If they sanction them, then, they would just kill exports completely.”

According to him, the CBN is trying to avoid allowing the currency to float freely.

The 3T Impex Trade Academy Lead Consultant stated: “The CBN should do what it needs to do to encourage exporters to repatriate, first by allowing market forces to determine the price at which they sell; and then, sanctioning those who don’t repatriate after.”

Meanwhile, as Nigeria bans firms from buying imported goods via third parties, report says importers are also likely to balk.

Multinationals and large local manufacturers have big foreign-exchange needs and agents in Europe or Asia who purchase raw material, machinery and equipment on their behalf.

The CBN as well is introducing a process to verify prices of items being imported, which could cause delays, report stated.

United Capital in a note said: “We expect some form of push back. In the absence of exceptions for key importers, the Naira will probably weaken further in the parallel market, fuelling “never-ending speculative attacks on the local unit.”

The Naira has been devalued twice this year after the drop in the price of oil, the country’s main foreign-exchange earner.

The banking regulator stopped regular interventions in the foreign-exchange market in March, leaving foreign investors trapped in the local market and manufacturers struggling to access greenbacks to import raw materials.

Thus, in terms of speculative drive, the Nigerian Naira official rate is reportedly trading 26% weaker to parallel market.

Whereas the parallel dollar-market rate, which the Central Bank says is illegal, is near a two-year high of 477 Naira, according to report.

The Dollar trades at about 388 Naira in the more flexible investors and exporters window, where liquidity has thinned out due to a lack of inflows.

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