In a significant move, the Central Bank of Nigeria (CBN) has abolished an 8-year-old policy that prevented importers from purchasing dollars for 43 specific items, ranging from rice to milk. With the removal of this foreign exchange restriction, a shift in fortunes has occurred for various stakeholders.
Winners and Losers Emerge as CBN Lifts Dollar Ban on 43 Items
By Raven,T4TNEWS
Published on October 13 2023
The Central Bank of Nigeria (CBN) made a groundbreaking decision on Thursday by undoing an eight-year-old policy that had previously restricted importers from purchasing dollars for 43 specific items, including essentials like rice and milk. This pivotal change has produced both winners and losers in the economic landscape.
The Road to a Liberated FX Market
This move represents a significant step toward achieving a fully liberalized foreign exchange market, especially following the devaluation of the currency in June. Analysts and investors are enthusiastic about this development, as it signals a departure from previous capital controls.
For the new CBN governor, Olayemi Cardoso, ending these restrictions, even in a period of limited dollar supply in the official market, sends a powerful message to investors. It signifies his commitment to dismantling unconventional monetary policies and recognizing the pivotal role of a well-functioning FX market in achieving ambitious economic goals.
However, Cardoso’s challenge now lies in enhancing dollar supply. The initial signs indicate that he understands this urgency, with FX market turnover skyrocketing sixfold to $407.65 million on Thursday, marking the highest turnover since September 1. Analysts suggest that allowing oil companies to resume dollar sales to the FX market would be a logical step to boost dollar supply.
To attract autonomous dollar inflows and boost confidence in the FX market, Cardoso must eliminate the multiple CBN circulars that have caused confusion among investors. Analysts at Cardinal Stone view this move as a gradual effort to restore confidence in a market that has long suffered from illiquidity and unorthodox policies.
Manufacturers Rejoice
Among the winners of this policy reversal are Nigerian manufacturers who relied on the 43 items for their production processes. Some of these items, such as steel pipes and iron rods, are crucial raw materials for certain industries. While these manufacturers struggled to find local substitutes during the restriction, they had to resort to buying dollars at a premium on the black market. The removal of the 43 items is expected to narrow the gap between official and parallel market rates, simplifying rate convergence.
Local Producers Benefit
Local producers of some of the 43 items, such as palm oil producers Presco and Okomu, witnessed a surge in earnings during the dollar ban on importers of palm oil. Despite the naira’s depreciation since the FX ban was initiated in 2015, analysts suggest that importing palm oil remains cheaper than purchasing it locally. This implies that local producers will need to offer more competitive pricing to sustain their sales.
Speculators Face Setback
On the flip side, among the losers of reversing the dollar ban are traders who speculated on the naira’s further depreciation. This policy shift challenges their expectations of a declining naira value.
The CBN’s decision to lift the 43-item dollar ban has set the stage for significant economic changes, impacting various sectors and players in Nigeria’s financial landscape.
