Nigeria’s FX market faces growing demand as 43 items unbanned

The official foreign exchange market is set to see increased demand following the lifting by the Central Bank of Nigeria of the ban placed on importers of 43 items in 2015. 

The CBN had said on Thursday in a circular that the importers of all the 43 items “are now allowed to purchase foreign exchange in the Nigerian foreign exchange market”.

With the restrictions in the official market for eight years, the parallel market saw increased demand from many businesses that needed dollars to import raw materials and goods into the country. At 1,040/$, the naira has depreciated significantly at the unofficial market despite the FX reforms that led to a large devaluation in mid-June. The official rate closed at 759.20/$ at the Investors & Exporters window on Thursday, according to FMDQ Group.

The CBN said it was committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue.

“Consultation is ongoing with market participants to achieve” a single FX market, it said.

The central bank said the prevailing FX rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.

“As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian foreign exchange market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease,” it said.

A growing number of economists, analysts and other stakeholders have hailed the latest move by the central bank 

“The central bank is right to discourage use of FX policy as a determinant of which importer achieves what margin of profitability. That is the role of levies and tariffs. FX market exclusions only fuel the parallel market & widen arbitrage,” The Founder of Stanbic IBTC Bank, Atedo Peterside, said on social media platform X on Friday.

The Head of Macro Strategy at FIM Partners UK Ltd, Charlie Robertson, described it as a welcome move and “another market-friendly step towards unified exchange rates”.  

“It should reduce pressure on the naira in the parallel market – where importers of those 43 items had to access US dollars instead. It might even be anti-inflationary, as those 43 products included rice, meat and vegetables – which had to be sourced at N1,000,” he said by email.

He however said there is still more to do. “To reduce FX shortages in the official FX market, the CBN might also need to signal that commercial banks can offer a weaker naira rate for US$, to help increase the supply of dollars from current holders of US dollars (Nigerians and foreign). Higher interest rates would help in that regard.”