Nigeria’s dollar crackdown risks stoking illegal trading

A petrol station attendant counts Nigerian's currency, the naira, depicting Nigeria's first president, in Abuja, Nigeria.Photographer: Suzanne Plunkett/Bloomberg News

A petrol station attendant counts Nigerian's currency, the naira, depicting Nigeria's first president, in Abuja, Nigeria.Photographer: Suzanne Plunkett/Bloomberg News

Published Aug 27, 2020

Share

INTERNATIONAL - Nigeria’s all-out effort to defend its currency by targeting importers and exporters with tougher regulations risks pushing more currency traders to the black market and more companies into distress.

As a scarcity of foreign-exchange worsens in Africa’s largest economy, the central bank on Tuesday ordered banks to report exporters that fail to repatriate income earned abroad. The directive came only a day after the regulator banned importers from using external agents to pay for goods, a bid to tighten oversight of payments made outside the nation’s borders.

The threat of punishment for non-compliance, including banning exporters from accessing dollars, won’t work said Bamidele Ayemibo, the lead consultant at 3T Impex Trade Academy in Lagos, an adviser on exports and imports. Exports are secured at the parallel-market rate, while the central bank wants to force firms to repatriate foreign currency at the much stronger official rate for the naira.

Nigerian Central Bank Targets Exporters Failing to Remit Dollars

“If they sanction them, then they would just kill exports completely,” he said. “The central bank 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.”

Nigeria Bans Firms From Buying Imported Goods Via Third Parties

Importers are also likely to balk. Multinationals and large local manufacturers have big foreign-exchange needs and use agents in Europe or Asia to purchase raw material, machinery and equipment on their behalf. The central bank is also introducing a process to verify prices of items being imported, which could cause delays.

‘Extremely Stressful’

In the absence of exceptions for key importers, the naira will probably weaken further in the parallel market, fueling “never-ending speculative attacks on the local unit,” United Capital Plc said in a note.

A spokesman for the central bank didn’t immediately answer a text message to his mobile phone.

The central bank’s clamp down on third-party importers could cause local companies to default on previously agreed obligations, which will spillover into supply chain and output disruptions, causing productivity, revenue and employment losses, the Manufacturers’ Association of Nigeria said in an emailed statement.

“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail in the coffin of many of our ailing members,” the association said.

The naira has been devalued twice this year after the drop in the price of oil, the country’s main foreign-exchange earner. The central bank stopped regular interventions in the currency market in March, leaving international investors trapped in the local market.

The parallel dollar-market rate, which the central bank says is illegal, is near a two-year high of 477 naira.

Lenders including Stanbic IBTC Bank Plc and Zenith Bank Plc have also cut the amount of foreign currency customers can spend abroad. Guaranty Trust Bank Plc has stopped cash withdrawals from dollars accounts unless physical dollars have been deposited.

Facing Bankruptcies

The currency shortage is now playing out in another part of the market. Licensed bureau de change operators are complaining they’re on the brink of collapse after the central bank stopped making foreign-exchange sales to them, while illegal money changers are thriving.

“People cannot pay for offices, staff, not even regulatory fees or taxes,” said Aminu Gwadebe, the president of the Association of Bureau De Change Operators, which has about 5,000 members. “We don’t have any sources, all our sources are shut down. We are the most vulnerable.”

BLOOMBERG

Related Topics: