To stabilise the domestic foreign exchange market, the Central Bank of Nigeria (CBN) has implemented measures to regulate the movement of Export revenues from International Oil Companies (IOCs) to their overseas parent accounts. This decision aims to prevent the depletion of liquidity in the market caused by this practice. The CBN emphasised the importance of IOCs having convenient access to their export proceeds in order to fulfil their offshore duties while also minimising any adverse effects on liquidity in the Nigerian foreign exchange market. This message was conveyed through a circular sent to dealer banks regarding the practice of cash pooling.
The national bank stated that, as part of efforts to liberalise the forex market in the West African country, new measures are being implemented. Nigerian banks can now only pool up to 50 percent of repatriated proceeds as cash initially, in line with the current reforms in the foreign exchange market. The circular which is available on the CBN website stated that the remaining 50 percent can be brought back after 90 days from when the export proceeds were received.
Cash pooling arrangements must be made with the operator’s parent company.
Before executing any transactions, dealer banks must establish a cash pooling arrangement with the oil operator’s parent company and receive approval from the CBN for repatriating funds, as stated in the circular. IOCs are permitted to procure foreign currency for conversion in Nigeria to cover their domestic costs in accordance with the bank’s credit policies outlined on its website. The ban on importers purchasing foreign currency for 43 items in Nigeria was lifted by the CBN on October 12, following its implementation in 2015.
Fitch Ratings’ report published on November 3, 2023 highlighted the ongoing impact of foreign currency shortages on Economic Growth and foreign Investment due to the lack of FX liberalisation. Mele Kyari, CEO of Nigerian National Petroleum Co. Ltd., stated on October 9 that the national oil and gas company has resumed being the sole importer of petrol as private companies are struggling to access foreign currency. Kyari announced in June that NNPC has transitioned to paying for gasoline imports in cash instead of relying on crude swap agreements.
NNPC remains committed to its responsibilities despite challenges.
Since 2016, the Nigerian National Petroleum Corporation (NNPC) has been settling its gasoline debts by trading crude oil with a mix of foreign and local trading firms, as reported by Reuters on June 4. This unconventional payment method was necessitated by a lack of cash to cover petroleum imports. The Central Bank of Nigeria also disclosed on January 18 that it had cleared $2 billion in foreign exchange obligations in industries like petroleum, aviation, and manufacturing.
In a recent announcement on Social Media platform X, formerly known as Twitter, it was stated that the bank had resolved all its liability with 14 banks and initiated settlements with international airlines. Explaining the situation further, Hakama Sidi Ali, who is the acting director of corporate communications at CBN, explained that the bank remains committed to its responsibilities which include addressing foreign exchange arrears just like it has been doing for the past three months.
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Lastly, the CBN recently made a significant change by eliminating restrictions on the pricing difference between buyer and seller rates in interbank foreign exchange transactions. They have also lifted limitations on the sale of interbank proceeds. A circular sent to banks on February 8 stated that one of the main goals of the CBN’s reforms is to encourage a market-driven price discovery system for foreign exchange. Banks were notified by the CBN on January 31 that restrictions on rate quotations by international money transfer operators have been lifted.