The Central Bank of Nigeria (CBN) has stated that the restriction on forex for 43 import items led importers to resort to the parallel market, contributing to a surplus demand for forex and consequently weakening the parallel-market exchange rate, resulting in price increases.
In a statement released over the weekend explaining the reasons for lifting the restriction, the CBN emphasised its intention to promote orderliness and professional conduct among all participants in the Nigerian Foreign Exchange Market.
The goal is to allow market forces to determine exchange rates based on the willing buyer-willing seller principle.
The CBN’s statement noted, “The Forex restrictions pushed importers into the parallel market, contributing to a surplus demand for FOREX. This weakened the parallel-market exchange rate, pushing up prices.”
Addressing the implications of removing the FX restriction, the Apex Bank explained, “Monetary policy tools become more effective with the attainment of a unified, well-functioning market for FX, where pricing is based on a willing-buyer and willing-seller system.
With this, the CBN’s core functions and mandates become realisable. The willing-buyer and willing-seller system will allow the exchange rate to adjust to clear the market and ensure a steady supply.”
“In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.
Importers of these products rely on the parallel market to source FX for importing these goods. This puts additional demand pressure on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market.
Removing these restrictions eliminates the need for importers of these products to go to the parallel market, thus reducing the pressure on the naira.”
The statement also highlighted the benefits to local production: “Local production will benefit from cheaper imported inputs, and consumers will benefit from cheaper retail products.
The policy is suitable for a unified FOREX market and is positive for inflation. It is expected that employment generation will be boosted as closed factories reopen. Price stability will benefit the economy and the standard of living in general.”
Recall that the CBN, on June 23, 2015, issued Circular TED/FEM/FPC/GN/01/010, which listed 41 product categories as not eligible for FOREX in the Nigerian Foreign Exchange market.
Two more product categories were added in subsequent years, bringing the total of imported product categories restricted from accessing FX to 43.
The aim of the restriction was to reduce foreign exchange demand for products that could be locally produced, improve employment generation, and conserve foreign reserves.
The 43 restricted items included 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) or Sardine, Cold-rolled steel sheets, Galvanised steel sheets, Wheelbarrows, Head pans, Metal boxes and containers, Enamelware, Steel drums, Steel pipes, Wire rods (deformed and not deformed), Iron rods, Reinforcing bars, Wire mesh, Steel nails, Security and razor fencing and poles, Wood particle boards and panels, Wood fibre boards and panels, Plywood boards and panels, Wooden doors, Toothpicks, Glass and glassware, Kitchen utensils, Tableware, tiles (vitrified and ceramic), Gas cylinders, Woven fabrics, Clothes, Plastic and rubber products, Polypropylene granules, Cellophane wrappers and bags, Soap and cosmetics, tomatoes and tomato pastes, and Eurobond/foreign currency bond/share purchases.
