Nigeria Backtracks On Currency Rules After Naira Weakens

Nigeria’s central bank has backtracked on a rule that banned companies from sourcing imports from third parties other than manufacturers after the naira extended losses in the black market due to rising demand.

A circular by the regulator to banks this week explained that importers can open bills of collection in favor of agents and third parties to import goods, a softening of restrictions introduced in August.

The directive forced importers to redirect their dollar demand to the parallel market, resulting in a weakening of the local unit to a three-month low of 480 naira to the dollar on Friday. The naira traded at 385.50 to the greenback on the importer and exporter window as of 4:22 p.m. in Lagos, with the spot rate at 383.

The widening gap in the official and parallel is rates is being fueled by individuals and companies diverting export proceeds and their remittances away from approved channels. The central bank has said banks should report any exporter caught in the act.

“How do you tell an exporter to export and you are giving him 386 per dollar? Is that fair to the exporter?” said Muda Yusuf, director general for Lagos chamber of Commerce and Industry.

There is a need to allow the foreign-exchange market to function properly to attract more inflows of foreign exchange to avoid transactions being driven underground, Yusuf said.

The previous central bank directive hurt businesses, Bala Idris, import manager for snacks and cereal-maker Nasco Group said. It led to his firm cutting production capacity and reducing working hours by 10% due to increase in the local prices of raw materials after it was unable to import.

The central bank has to allow for a more flexible and practical exchange rate to improve liquidity, Idris said. Authorities should allow the naira to change hands at 450 to 480 per dollar because “that will motivate exporters to bring all their inflow into the market for genuine importers.”

– Bloomberg