CBN ends currency sales to banks

The Central Bank of Nigeria (CBN) has announced its intention to stop selling foreign currencies (forex) – US dollar, euro, pound sterling, among others – to banks.

The apex bank had warned depository banks (DMBs) that it would stop selling foreign currencies to them by the end of 2022.

While announcing the introduction of what it called the RT200 program, the CBN said it was time for banks to source foreign currency by funding entrepreneurs with ideas, skills and support for businesses. make responsive and attract foreign currency to Nigeria.

This was revealed by CBN Governor Godwin Emefiele during the Bankers Committee press conference on Thursday.

Experts said the new CBN policy, if properly managed, would reduce pressure on the naira, increase productivity, expand exports, attract foreign exchange to the country and create job opportunities for the people.

Experts said there was no shortcut to foreign direct investment, recalling that they had previously told the government that stopping the disbursement of currency to currency exchange operators alone would not save the naira and that the way to solve the problem had to be comprehensive, including holding the banks to account.

What is the new intervention?

CBN said the RT200 program will have the following five key anchors: Value Added Export Facility, Non-Oil Expansion Facility, Non-Oil Currency Reimbursement Program, Dedicated Non-Oil Export Terminal and Semi-annual non-oil export summit.

Emefiele, in his speech, said: “After careful consideration of the options available and extensive consultation with the banking community, the CBN is announcing, with immediate effect, the Committee of Bankers’ ‘RT200 FX Programme’, which stands for the ‘Course to US$200”. billion in currency repatriation.

The CBN governor said the new policy targets the non-oil export sector.

“The RT200 FX program is a set of policies, plans and programs for non-oil exports that will enable us to achieve our ambitious but achievable goal of US$200 billion in foreign currency repatriation, exclusively from non-oil exports. oil companies, over the next 3. 5 years,” he said.

The head of the apex bank noted that the country could not continue to depend on foreign exchange earnings to finance its imports from a product that it could not determine both in price and quantity.

Emefiele further disclosed that CBN will review its intervention programs in the future to ensure that they continue to achieve the desired results.

“While interest rates on our various intervention facilities were expected to return to 9% from March 1, 2022, we are announcing that rates would remain at 5% for another year given the promising trajectory we have established. in terms of economic growth. and job creation.

“In effect, the prime interest rate of 5% on our intervention facilities would now be extended until March 1, 2023,” he said.

Why banks should generate their forex

The CBN Governor said commercial banks had no choice but to start exploring ways to generate their currencies.

“I told them in the meeting that the era ends when your client has a claim for $200 million and you transfer all claims to CBN.

“Before or towards the end of this year, we will tell them not to come to the central bank for foreign currency anymore. Go generate your export revenue, finance people who want to generate export revenue and when they arrive you can sell to your customers who want 200 million dollars.

“Maybe when we see the record export revenue you have generated, we will give you 10% of that.

“So you have to go join the race to build your foreign exchange from your export customers to fund your import customers,” he said.

How the success of the “Naira-4-Dollar” policy inspired a new decision

Emefiele revealed that the recent naira-to-dollar policy has led to a significant improvement in diaspora inflow from an average of US$6 million per week in December 2020 to an average of over US$100. million US dollars per week in January 2022.

The naira-for-dollar scheme, which started on March 8, 2021, was originally scheduled to end on May 8, 2020. But the apex bank said the scheme would continue indefinitely. With this program, recipients of diaspora remittances are rewarded with an additional N5 for every dollar transferred through official channels.

The apex bank governor said, “I think the lessons we have learned from our remittance policies can be applied to improve some aspects of the inflow of foreign currency into the country.

“As we know, there are four main sources of foreign exchange inflows into Nigeria; oil export earnings, non-oil export earnings, diaspora remittances and foreign direct/portfolio investment.

“Most of them are unreliable sources that are constantly subject to the exogenous vicissitudes of global economic developments.”

What the new policy means

The Value Added Export Facility will provide concessional and long-term financing to businessmen who wish to expand existing factories or construct new ones with the sole aim of adding significant value to Nigeria’s non-oil commodities. before exporting them.

He said this is important because exporting unprocessed commodities does not bring in much foreign exchange.

“In Nigeria today, we produce about 770,000 metric tons of sesame, cashew nuts and cocoa. Of this, about 12,000 metric tons are consumed locally and 758,000 metric tons are exported.

“Unfortunately, of the 758,000 metric tonnes exported each year, only 16.8% is processed. The rest is exported as raw sesame, raw cashew nuts and raw cocoa, giving Nigerian farmers an infinitesimal slice of the value chain for these products.

“For example, the global chocolate industry is valued at around US$130 billion. Of this amount, Côte d’Ivoire, Ghana and Nigeria account for more than 72% of world cocoa exports.

Our correspondent reports that the Non-Oil Commodities Expansion Facility will also be a concessionary facility designed to significantly boost local production of exportables.

It will be designed to ensure that expanded and new factories funded by the Value Creation Facility are not deprived of raw material inputs in their production cycle.

In addition, the Non-Oil FX Rebate Scheme is a special local currency rebate program for non-oil exporters of semi-finished and finished products who present verifiable evidence of repatriation of export proceeds sold directly in the I& E to stimulate liquidity in the market. .

According to Emefiele, “Similar to the Naira4Dollar program, which has helped to increase remittances from just $6 million per week to over $100 million per week, we will establish the terms for granting a rebate for each dollar that non-oil exports earn an exporter sells in the market, for the benefit of other FX users and not to finance its operations.

“While this rebate program is effective immediately, detailed guidelines for this program will be communicated next week. Our plan is to modulate the percentage of the rebate based on the level of value added in the exported product.”

The third anchor of the RT200 program is the construction/establishment of a dedicated non-oil export terminal.

Why Nigeria failed to get it right

According to the African Center for Supply Chain Practitioners, Nigeria loses an estimated $14.2 billion a year due to port congestion.

Paraphrasing a December 2020 Financial Times article, congestion has become so bad that if it costs $3,500 to ship a 40ft container from China to Lagos, a distance of 22,000 kilometres, it costs $4 000 USD to move the same container from the port to the mainland of Lagos, a distance of only 12 kilometers.

Shedding light on this, Ahmed Sani, a financial expert, said the CBN’s decision to charge banks with sourcing foreign currency was good.

“Banks are holding billions of money dormant that don’t benefit anyone just because the CBN is there to take on everybody’s problems,” he said.

“My only concern is the policy inconsistency and my prayer is that the CBN will hold its ground this time around and ensure that banks and contractors do the needful.

“If we manage to empower our farmers to produce food and cash crops for export, and if we also encourage our entrepreneurs to add value to what we produce before export, foreign currency will flow in. in the country and the pressure on the naira will ease. ,” he said.

Another analyst, Michael Sambo, said that if banks support local production with the spirit of exporting, the naira will regain its strength.

“The naira is losing its strength because we are lazy. Everyone rushes to the CBN for foreign currency to travel out of the country for medical or leisure tourism, for education, and to import toothpicks and tissue paper.

“We should allow foreign exchange from the sale of oil to be used to provide infrastructure for Nigerians,” he said. CBN Governor Emefiele said a dedicated port would be able to create more than 100,000 direct and indirect jobs and would give a huge boost to the quest for a significant improvement in non-oil export earnings in the country. Nigeria.

“Let me point out that under this agreement, loans to companies wishing to expand or build new factories that will generate verifiable export earnings for the economy will remain at 5% per annum for 10 years, including a two-year moratorium,” he added.

Ede Dafinone, a veteran Chartered Accountant and Chairman of the Manufacturers Association of Nigeria Export Group (MANEG), said: Everything the government is doing to encourage exports is a welcome development.

“I am pleased to see the focus on industries where we have an international competitive advantage.”

Dafinone was recently appointed to the board of the Nigeria Export-Import Bank (NEXIM). He said the CBN should put in place a mechanism to ensure strong monitoring and evaluation.

“There have been other efforts to support exports in this country and they are bearing fruit and we have to continue on this trajectory because when you see what the UAE is doing, let’s say in the field of renewable energy, it is a phenomenon.”

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