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Currencies

CBN’s list of 36 imported items valid for forex explained

More clarification at last

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Nairametrics| The Central Bank of Nigeria Wednesday May 17th , released a 36-item list of materials that the apex bank considered ‘Valid for foreign exchange.’ This was in response to the confusion, misconceptions and inquiries that occurred in recent weeks.The list was released in a circular dated May 17, 2017 and signed by the Director, Trade and Exchange department, W.D Gotring.

In response to the confusion emanating from its circular dated May 3rd 2015, wherein the apex bank had announced that items classified as valid for forex shall now qualify for allocation of forex, it issued an updated version (now removed from the website of the CBN) clarifying that the original 41 banned items (hitherto referred to as not valid for forex) still remained banned. We explained this mix up in this article.

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In our article, we did note that the CBN was yet to provide a list of the items picked from the 41 banned list that was now valid for forex. The CBN has now responded with a circular dated May 17, 2017, with the complete list of 36 items, hitherto banned, that now qualify for forex.

As usual, the new circular lacked details that should make it easy for manufacturers to clearly understand their message. The circular looked hastily prepared without referring to previous circular’s.

However, Nairametrics did some research and provide an explanation that we hope will help our readers understand what is going on.

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What’s the difference between 36 items and 41 items

  • When the CBN issued a circular in 2015 excluding 41 imported items from accessing the forex market, it did not provide the HS codes of the items.
  • According to the customs nomenclature for list of non-prohibited items, every single item of import in Nigeria has an HS Code.
  • So, for example, while Vegetables and processed vegetables (number 1 on the list) was included in the original list of banned items, it remained a compound name for a list of other items in the vegetable family. As such, the CBN has now excluded Animal or vegetable fats and oil and fractions, Hydrogenated from the list and are now eligible for forex.
  • Another example is seen in other broad categories such as glass and glassware (Number 31) and woven fabrics (number 36) which were initially listed as being invalid, but have various sub-items under them.

Why the items were removed

  • The CBN, without actually reversing the ban on the 41 broad items, seems to be relaxing the ban on various sub-items, especially those that are essential for manufacturing purposes.
  • This could be an aftermath of increasing pressure from manufacturers, who through their various associations, and at various occasions, have been pressing for a relaxation on the banned items.
  • For them, many of the raw materials required for their production activities were inadvertently included in the broad groups of the initial list.
  • For example, MAN President Dr. Frank Udemba Jacobs, had highlighted this very problem earlier when he told The Nation: The association has done an analysis on the banned items and we broke the 41 items into 110 and of the 110, 75 are raw materials for our membersIt is these 75 items we ask the Federal Government to remove from the list so that our members can source forex to buy their raw materials.
  • The CBN had thus, in releasing a list of 41 items, bundled up several other sub-items which are essential inputs for several manufactured goods.
  • The custom list of imported items, for example includes about 5,925 items all broken down into their individual nomenclature and HS codes, instead of their cluster or compound name.

Implication for Forex

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  • The new circular while lessening black market FX demand for these goods, could lead to an increase in official demand for forex by manufacturers.
  • Also, considering that the CBN has effectively stopped its 60:40 rule that allocated forex specially to manufacturers, they will have to be restricted to the accessing forex through the window created for importers.
  • Importers of these items, who hitherto resorted to the black market to meet their import needs, will also shift demand to the official market, which is currently pegged.
  • While, this could lead to a slight appreciation on the black market, we envisage that the pressure created by the renewed demand could force the CBN to shift its peg, thus weakening the naira in that window.

What is still unclear

  • In the circular referred to by the CBN, revealing that items earlier declared as not valid for forex but now valid, the CBN had placed restrictions.
  • For example, these items were for small-scale importers who are restricted to a maximum of $20,000 per quarter as allocation for imports.
  • The latest circular listing out items now eligible for forex, did not clearly state if there are limits to how much forex they can buy and at what rate or of it remains for small-scale importers.

 

 

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Patricia

Chacha Wabara-Ogbobine is a Legal practitioner with over 9years post call experience. A research Consultant, professional writer and a blogger at heart,owner of four thriving websites with well over 10years of experience. Totally in love with keeping fit and coaching weight loss enthusiasts. I love my quiet time, being with my kids, watching TV series for hours on end.

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Currencies

U.S dollar gains against major currencies, U.S Fed warning limits upside

The U.S. Dollar Index tracks the American dollar against a basket of other major currencies.

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U.S dollar rises against major currencies, U.S and China’s economic data support the dollar, U.S dollar gains ground, U.S. President Trump boosts investors’ Optimism

The American dollar gained on Wednesday at London’s trading session, with global investors and currency traders turning to the safe-haven asset amid a resurgence of COVID-19 caseloads.

The American Dollar Index, which monitors the U.S dollar against a basket of other currencies, gained 0.06% to 96.907 at 5.33 am local time.

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However, many currency traders’ positive bias on the greenback further weakened over a warning from several U.S. Federal Reserve officials that the rising number of COVID-19 caseloads could distort the fragile economic recovery, with some global central banks stimulus programs due to expire soon.

READ MORE: Novavax secures $1.6 billion funding for COVID-19 vaccine production

“The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus,” Yukio Ishizuki, foreign exchange strategist at Daiwa Securities, told Reuters.

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Quick fact: The U.S. Dollar Index tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, Euro). Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to countries like Europe, and Japan, would need to pay less dollars in meeting such obligations.

READ MORE: Gold price rises further due to influx of new COVID-19 cases

“The Fed’s comments on the economy sound sombre. There’s reason to worry because it is hard to see when the virus will be brought under control,” Yukio added.

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Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke about the fundamentals triggering the U.S index volatility. He said:

“The USD is stronger this morning, aided by risk aversion and perhaps the continued run of surprisingly strong US data.

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“However, the US data’s comfort blanket is being throttled by the rising COVID-19 case count in many US states that might point to renewed economic headwinds ahead.”

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Currencies

Exchange rate remains stable as CBN “adjust official rates” from N360 to N381/$1 

The CBN still continues to warn against currency speculators who patronize the black market.

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Central Bank Continues intervention in Forex market to stabilize Naira, Naira to depreciate slightly over $1.52 billion maturing contracts expires, Naira hits N388.84 to $1 at the currency spot market, Investors and Exporters (I&E) window, Naira weakens against the dollar by 1.14% amidst uncertainty, Naira gains against the dollar at I&E window, forex liquidity up by 242%  

Data published on the website of the FMDQ on Tuesday reveals that the CBN official rate has been adjusted from N360 to a dollar to N381 to a dollar sending mixed messages to traders who wonder if the CBN has devalued again. However, the official rate quoted on the website of the CBN remains at N360/$1. 

According to Reuters, “the naira eased 5.5% on the official market on Tuesday, after the central bank sold dollars to lenders at a lower rate, bowing to pressure from international lenders to unify its multiple exchange rates.” Reuters also reports “the naira eased to 380.50 in off-market trades, from 360.50 close on Monday” quoting sources from traders. 

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Nairametrics cannot confirm if the latest adjustment is reflective of the SMIS rates or if the central bank has now taken a bold step towards unification and adjusted its official rate. Reuters claims it’s a move to “unify the exchange rate”. 

NAFEX: The exchange rate between the naira and dollar at the Investors and Exporters (I&E) window remained stable on Tuesday, closing at N386.50 to a dollar. This was the same rate that was recorded on Monday as traders continue to mull over CBN’s adjustment of the exchange rate at the SMIS window. The opening indicative rate was N387.18to a dollar on Tuesday. This represents an 18 kobo drop when compared to the N387 to a dollar opening rate that was recorded on Monday.      

Parallel Market: At the black market where forex is traded unofficially, the naira remained stable as it closed at N461 to a dollar on Tuesday which was the same rate that it exchanged on Monday.  

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Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS and the NAFEX (I&E window). Nairametrics reported last week that the government has set plans in motion to unify the multiple exchange rates in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion.    

Forex Turnover   

Meanwhile, forex turnover at the Investor and Exporters (I&E) window had a rebound on Tuesday, July 7, 2020, as it gained 918.4% day on day, a significant increase from the figure that it achieved on Monday at the foreign exchange market. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.      

According to the data tracked by Nairametrics, forex turnover rosefrom $10.15million on Monday, July 6, 2020, to $103.37million on Tuesday, July 7, 2020, representing a 918.4% gain on a day-to-day basis. This is a reversal from the previous day’s drop in turnover but falls short of the $200 million mark that was in January and last week. 

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The improved liquidity appears to have brought some measure of temporary stability in the foreign exchange market.   

Forex Sales Data 

The latest figure from the CBN shows that the apex bank injected $11.5 billion foreign exchange into the economy in the first quarter of 2020. The data showed that CBN supplied $2.96 billion, $3.39 billion and %4.7 billion in the months of January, February and March respectively into the forex market. 

The I&E window, small and medium enterprises and invisible segments had a total of $7.23 billion, the BDC segment got $3.6 billion and the interbank and WDA/RDAS received $0.67 billion. 

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The CBN suspended the sales of forex due to the lockdown in the country in April which was triggered by the coronavirus outbreak. It however resumed partial sales of forex in May to commercial banks for households and SMEs making essential imports. 

Forex Liquidity Issues  

The volatility and uncertainty of the forex market still persist due to accumulated demand and liquidity shortages across markets.  The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it had plans to implement.   

The CBN on Friday adjusted the naira at the retail forex auction from N360 to a dollar to N381 to a dollar in a move that most analysts see as part of the plans to unify the exchange rate of the Naira. A devaluation last occurred in March. The apex bank wants to unify the exchange rate to conserve the dwindling external reserves which have been hard hit by demand by ever-increasing importers and the foreign investors wishing they exit the country.   

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This current step taken by the CBN has moved the retail auction for importers and individuals, which is the official rate, closer to the over-the counter-spot for investors and exporters. Nairametrics spoke to some traders who are still reviewing what the latest move by the CBN could mean on the future price of forex. Whilst some believe this is a major step towards reunification others believe the real test of the value of the exchange rate could be when the economy finally opens. For now, projection is all speculation, one trader informs Nairametrics.      

The CBN still continues to warn against currency speculators who patronize the black market, thus widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated following the drop in economic activities induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.      

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The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex.  

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Currencies

Naira remains stable as traders and speculators remain in state of flux

Forex traders are wondering what next from the CBN.

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Naira Exchange Rate

The naira depreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N386.50 to a dollar, compared to the N386 to a dollar that was reported on Friday, July 3, representing a 50 kobo drop. This is as traders mulled over reports that the CBN had adjusted the exchange rate at the SMIS window. The opening indicative rate was N387 to a dollar on Monday. This represents a 14 kobo drop when compared to the N386.86 to a dollar opening rate that was recorded last week Friday.     

At the black market where forex is traded unofficially, the naira remained stable as it closed at N461 to a dollar on Monday which was the same rate that it exchanged last week Friday. Speculators appear to be uncertain about what next to do, as they do not know what other moves the CBN has in the offing.

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Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government has set plans in motion to unify the multiple exchange rates in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion.   

READ ALSO:  Equities: CBN’s heterodox policies is driving domestic investors’ to the stock market.

Forex Turnover  

Forex turnover at the Investor and Exporters (I&E) window recorded a decline on Monday, July 6, 2020, as it dropped by 90.3% day on day, a major decline from the figure that it achieved on Friday at the foreign exchange market. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.     

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According to the data tracked by Nairametrics, forex turnover decreased from $105.05 million on Friday, July 3, 2020, to $10.15 million on Monday, July 6, 2020, representing a 90.3% decline on a day-to-day basis. This is a reversal from the impressive turnover that was recorded the past 2 days and a far cry from the $200 million mark that was in January and last week.  

The very low liquidity puts a lot of pressure on the foreign exchange market.     

READ MORE: Quick Take: SWOT analysis of Nigeria’s financial sector according to Fitch Solutions

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Forex Liquidity Issues 

The volatility and uncertainty of the forex market still persist due to accumulated demand and liquidity shortages across markets.  The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it had plans to implement.  

The CBN on Friday adjusted the naira at the retail forex auction from N360 to a dollar to N380 to a dollar in a move that most analysts see as part of the plans to unify the exchange rate of the Naira. A devaluation last occurred in March. The apex bank wants to unify the exchange rate to conserve the dwindling external reserves which have been hard hit by demand by ever-increasing importers and the foreign investors wishing they exit the country.  

This current step taken by the CBN has moved the retail auction for importers and individuals, which is the official rate closer to the over-the counter-spot for investors and exporters. Nairametrics spoke to some traders who are still reviewing what the latest move by the CBN could mean on the future price of forex. Whilst some believe this is a major step towards reunification others believe the real test of the value of the exchange rate could be when the economy finally opens. For now, projection is all speculation, one trader informs Nairametrics.     

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The CBN still continues to warn against currency speculators who patronize the black market, thus widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated following the drop in economic activities induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.     

READ ALSO: Nigeria’s Foreign Portfolio investment to crash by $11.4 billion in 2020- IMF

The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex.  

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The pressure in the forex crisis is compounded by the continuous slide in the external reserve which dropped to $36.19 billion as of June 29, 2020. This represents a drop of about $400 million within a month when compared to the $36.59 billion that it was as of May 29, 2020. 

According to a report from Reuters, the confusion in the foreign exchange market continued as currency traders refused to quote prices for the naira at the official market during retail auction amid confusion about the impact of the CBN’s exchange rate adjustment. 

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Patricia
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