Nigeria - Foreign Exchange Controls Nigeria - Foreign Exchange
There are numerous rules contained in the enabling laws and regulations particularly the Central Bank of Nigeria (CBN) Act, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, and Money Laundering (Prohibition) Act. Section 20(1) of the CBN Act provides that the currency notes issued by the CBN shall be legal tender in Nigeria. Section 20(5) forbids anyone from refusing to accept the naira as a means of payment in Nigeria but empowers the CBN to prescribe the circumstances and conditions under which other currencies may be used as a medium of exchange. It is clear from these provisions that pricing in foreign currency is not prohibited but refusal to collect naira as payment. Section 1(2) of the Foreign Exchange Act (FEA) empowers the CBN, with the approval of the finance minister, to issue guidelines from time to time, to regulate the procedures for transactions in foreign currency. Section 8 requires that such guidelines issued for supervision and monitoring must be consistent with the FEA. Based on section 10, an eligible transaction for the purchase of foreign exchange includes any transaction adequately supported by appropriate documentation except where the transaction is prohibited by law.
Given the downward pressure on naira as a result of the steep decline in foreign currency revenue accruing to government from petroleum, the CBN has taken a series of measures aimed at addressing the issues. First, naira was devaluated in November 2014 from about 160 to 176 to the US$. A further decline took place in February 2015 when the CBN suspended the dollar auction system and set a new target of 196.5 for the interbank rate (this has just been increased to 197). The naira devaluation did very little to stem the pressure and so in April 2015 the CBN issued a Press Release indicating that some institutions price their goods and services in foreign currencies and demand payments in foreign currencies rather than the naira, which is the legal tender in Nigeria. Reference was made to section 20 of the CBN Act of 2007, which states that the currency notes issued by the CBN shall be legal tender in Nigeria…for the payment of any amount. The focus in this case was on payment rather than pricing.
However, on 21 May 2015, another circular was issued to the effect that pricing of goods and services must only be in naira referencing section 20(5). It is however instructive to note that the section does not prohibit pricing in other currencies, it only prohibits refusal to accept payment in naira. The circular exempts certain organizations from receipts and payments in foreign currencies including revenue agencies, operators in the oil and gas industry, maritime, aviation and operators in the free trade zones. On 23 June 2015, a directive was released by the CBN to exclude certain transactions from eligibility to access foreign exchange in the Nigerian foreign exchange market. A list of 40 prohibited items was provided including rice, cement etc. On 30 June, a circular was issued to clarify that the items which are prohibited cannot be funded through interbank, exports proceeds and Bureau de Change (BDC). On 1 July 2015, furniture was added to the list to make it 41 items. The list is subject to review at any time. One of the reasons given for the action is to encourage local production even though it seems the main objective is to preserve the dwindling foreign reserve given that local production (of say rice) will not happen overnight and people won’t stop eating in the meantime. It is the same logic that crude oil should be refined locally but the importation of refined products is not classified as “Not Valid for Forex” until local demand can be met by local supply. While the exchange rate in the interbank has been fairly stable, the rate in the parallel market has continued to devalue.To encourage investment in Nigeria, the GON has removed all barriers to repatriation of capital, profit and dividend. Repatriation of proceeds from disposal of assets is allowed. Overall, U.S. companies are encouraged to consult their Nigerian bankers for advice with respect to foreign exchange dealings. Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.