Following the directive by the Central Bank of Nigeria’s (CBN) to authorized dealers to only open Forms M (a mandatory statutory document to be completed by all importers in Nigeria) for payments in favour of the ultimate supplier of the product or service, with immediate effect, signs have emerged that this will shrink extra source of dollar supply to the parallel market and push the exchange rate to N500/US$.
Already, the exchange rate between the naira and the US dollar (Naira to dollar exchange) for Wednesday, August 26th 2020, stood at ₦477/US$1 in the parallel market. The rate has been stable at ₦477/ US$1 since last week Thursday, 20th August 2020.
Some people, however, believe that with the commencement of international flights this weekend, the reprieve may come to the local currency and it may get strength against the greenback. According to a parallel market operator in Ibadan, “The commencement of international flights may signal a good omen for the naira as those coming into the country will bring in dollar and other foreign currencies. This will firm up the naira.”
As part of its efforts to save the local currency, the apex bank announced recently that it would immediately introduce the use of Product Price Verification Mechanism (PPVM) to verify quoted prices of goods and services before approving Form M.
Industry players said this is a major move against abuse of foreign exchange (FX) market activities especially by entities which take advantage of their huge FX need for over-pricing and conduit for arbitrating. According to analysts at United Capital Limited, these importers quote high prices to enable them get more forex from CBN and then bring back the excess to sell at the parallel (black) market.
“This may further pressure parallel market rates in the interim amid the never-ending speculative attacks on the local unit,” the United Capital’s analysts feared. The new directive, according to stakeholders, will be a major shift for most of the multinationals and large local manufacturers who may be innocent of the abuses, especially in the Fast-moving consumer goods (FMCG), space, with huge FX needs.
Meanwhile, the exchange rate between the naira and the British pound sterling stood at ₦590/₤1 on Wednesday 26th August, as against ₦585/₤1 recorded on Tuesday 25th August 2020. Also, the exchange rate at the parallel market between the naira and the European euro stood at ₦552/€1 on Wednesday, 26th August 2020. The exchange rate had also closed at ₦552/€1 on Tuesday 25th August 2020.
Checks revealed that most importers have related-party procurement agents in Europe or Asia who purchase raw material, machinery, equipment among others on their behalf. “Certainly, the previous structure provides an avenue for abuse, but it is the structure they are used to,” one dealer said.
Hence, «we expect some form of pushback, especially as the CBN circular was silent on what will happen to Form M opened prior to now, that does not conform to this new policy. «In the absence of exceptions to key players, the parallel market is likely to witness further pressure. So, we imagine that the CBN may be open on engagement with key manufacturers to reach an amicable agreement,» industry watchers from United Capital› s research unit stated in a note to clients.
It was recalled that the CBN in a statement signed on Tuesday by Ozoemena Nnaji, director of CBN Trade and Exchange Department, said the directive is to ensure prudent use of the country’s foreign exchange resources.
This directive came 24 hours after the CBN banned third parties from getting forex using Form ‘M’. “The move by the CBN followed the adoption of the strategy to discourage over-invoicing, which some businesses have allegedly used to divert foreign exchange from the country, through the opening of “Forms M” for which payment is routed through a buying company, agent, or ther third parties,” the statement read.