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.
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.
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 members. It 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
- 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.