The CBN in one of its most controversial moves ever recently placed 41 items on indirect import prohibition list, banning them from benefitting from the country’s forex market. As such, businesses wishing to import these items will have to look for an alternative source of funding it. Some of resorted t black market to purchase forex, however that hasn’t worked quite well either as forex paid into local bank accounts also face transfer restrictions as imposed by the CBN.
However, it appears Nigerian businesses have found a new way around it according to an article from the Guardian. Here is an excerpt;
The Lagos Chamber of Commerce and Industry (LCCI), said last week that operators in the real sector have now developed “Transfer market”, with which they now source foreign exchange to finance their international transactions, to navigate the CBN policies.
The Director, General, Mr. Muda Yusuf, who explained the impact of the Nigeria’s monetary policies on the real sector, said Nigerians are now travelling to Cotonou to exchange and transfer fund for their transactions.
According to him, many rich Nigerians in Diaspora are now operating parallel foreign exchange market by accepting to settle transaction cost on behalf of their friends or associates, who will in turn pay in Naira into their Nigeria account at a rate above what is obtainable in the local parallel foreign exchange market.
Nigerians are now travelling to neighbouring countries to use transfer market. Some are transferring money by using some companies, friends and associates abroad to offset transaction cost with the agreement to pay the Naira equivalent and at a rate above the exchange rate in the parallel market into their local account. In this method of transfer, there is about 10 to 15 percent increase in the cost of transfer. There are also security issues with transfers,” he said.
Yusuf, who said the findings are based on research conducted by the chamber on the impact of CBN policies on the real sector, said the policies, especially the one on domiciliary account, has made investors to give up confidence on Nigeria as a destination for investment.
When you talk about country risk in the global business environment, one of the element is the risk with which you can move money in and out or do international business without hindrance. If people have no confidence that when they come to do business, they can easily go away with their profit, or that letter of credit will be respected, they will not come. We have businessmen, who have outstanding settlement before the new policies; they can no longer remit fund. These are business organisations that have transactions, and credit lines in foreign currencies. They have defaulted.
This default affects confidence internationally, because they cannot meet up with their obligations to their financial partners. Bills for collation is a facility that companies used to enjoy. They ship in goods for weeks, months before paying back. This has become an issue because of default resulting from inability to transfer fund. This affects credibility. We know that there is liquidity challenge in the market, which the CBN is trying to manage. But the apex bank is not managing it well. They should allow the fundamentals of demand and supply to determine the exchange rate. The market should be allowed to adjust to the reality of demand and supply. That approach is more efficient, transparent and less destructive.”