The Central Bank of Nigeria (CBN)’s decision to add maize/corn imports to its foreign exchange exclusion list is likely to lead to a further weakening of the naira on the parallel market, analysts have said.
In a circular to deposit money banks (DMBs) posted on its website last Monday, the apex bank directed the lenders to immediately discontinue the processing of Form M for maize/corn importation into the country.
Analysts said that the directive meant that CBN had added maize to its forex restriction list. The list, which originally had 41 food and non- food items on it when it was drawn up by the regulator in 2016, lengthened to 44 items with the inclusion of maize.
The CBN said the move was part of its efforts to “increase local production, stimulate a rapid economic recovery, safeguard rural livelihoods, and increase jobs which were lost as a result of the ongoing COVID-19 crisis.”
According to the analysts, however, the development will shift demand for forex to the unofficial parallel market thereby piling more pressure on the naira.
The local currency has been on a downward trend in the parallel market in recent times due to the sharp drop in the price of oil (the commodity that accounts for about 90 per cent of Nigeria’s export earnings).
Reacting to the forex restrictions, analysts at leading non-bank currency broker, AZA, said in a note obtained by New Telegraph that “pressure mounted on the naira …as scarcity of dollars weakened parallel market rates to 470 and official rates to 386. New restrictions imposed by the CBN denying dollars for imports of maize and corn are likely to drive sustained pressure on the currency in coming days.
“The bar on FX transactions for import of the commodities would take the number of items restricted from the official market to 44. While the directive is aimed at encouraging domestic food production through import substitution, widening restrictions on FX transactions further drives trading to the unofficial market, complicating the CBN’s stated goal of unifying multiple currency rates.”
Under pressure from the World Bank and the International Monetary Fund (IMF) to unify the country’s multiple exchange rates in order to qualify for budget-support loans, the CBN on July 7 adjusted the exchange rate at the official window, according to data on FMDQ website, by 5.54 per cent to N381 per dollar from N361/$, sparking speculations that it had officially devalued the local currency.
A few days earlier, the regulator had adjusted the naira’s rate from N360/$1 to N380/$1 at the Secondary Market Intervention Sales (SMIS). The SMIS is the market where importers bid for forex using Letters of Credit and Form M. It was established by CBN for importers to ease the pressure faced by businesses in the foreign exchange market through sales of foreign currency to authorized dealers (wholesale) or to end users through authorized dealers.
CBN Governor, Mr. Godwin Emefiele, had stated at a Citibank investors conference recently that the banking watchdog was targeting exchange rate unification around the Investors and Exporters’ (I&E) forex window, which is also known as the Nigerian Autonomous Foreign Exchange Market (NAFEX).
He said: “What we mean by exchange rate unification is moving towards the Nigerian Autonomous Foreign Exchange Market (NAFEX). NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.
“That means that whether you are a business man, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars you can come to the market. Like some of you must have seen, three years before 2019, we saw a relatively stable forex market because the NAFEX rate and even the rate at which the central bank transacts business does outside the NAFEX were substantially close to each other. So, the CBN will continue to pursue unification around the NAFEX.”