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Assessing Nigeria's strategy to curb foreign exchange abuse
In a circular, the Central Bank of Nigeria directed that Form M for Letters of Credit, Bills for Collection and other forms of payment should only be opened in favour of the ultimate supplier of the product or service. Reacting to this directive, the Lagos Chamber of Commerce and Industry says while the policy attempts to curb abuses in the foreign exchange market, it would create more problems than it would solve. Muda Yusuf, Director-General of the LCCI joins CNBC Africa’s Christy Cole for this conversation.
Wed, 02 Sep 2020 12:15:38 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Disruption of Domestic Supply Chain
- Challenges in Foreign Exchange Management
- Timing Issues and Post-COVID-19 Recovery Concerns
The Central Bank of Nigeria's recent directive on foreign exchange transactions has sparked controversy and raised concerns within the business community. In a circular, the CBN mandated that Form M for Letters of Credit, Bills for Collection, and other forms of payment should only be opened in favor of the ultimate supplier of the product or service. While the policy aimed to curb abuses in the foreign exchange market, the Lagos Chamber of Commerce and Industry (LCCI) has expressed reservations about its potential impact.
Muda Yusuf, the Director-General of the LCCI, highlighted the challenges posed by the new policy during an interview with CNBC Africa. Yusuf emphasized that Nigeria's economy relies heavily on a network of intermediary businesses that facilitate transactions between local buyers and international suppliers. Imposing restrictions that mandate transactions to be exclusively between the end buyer and the original supplier could disrupt the existing supply chain, especially for small and medium enterprises that rely on intermediaries for credit and support.
The LCCI's critique of the CBN's policy centers on the potential disruption of the domestic supply chain and the adverse effects it could have on businesses in Nigeria. Yusuf pointed out that the current foreign exchange management system in Nigeria lacks transparency and consistency, leading to uncertainties for businesses seeking foreign currency allocations. The volatility in the foreign exchange market, coupled with varying rates and demand pressure, creates challenges for businesses trying to plan and conduct transactions effectively.
Moreover, Yusuf underscored the timing of the CBN's directive, noting that many businesses are still reeling from the economic shocks of the COVID-19 pandemic. With sectors like hospitality, transportation, aviation, and entertainment grappling with prolonged disruptions, the added regulatory burden from the new forex policy could further strain businesses' recovery efforts. The LCCI believes that a market-driven foreign exchange system that promotes certainty and investor confidence is essential to address the current challenges and mitigate risks in the economy.
In response to concerns about the bureaucratic implications of price verification requirements, Yusuf proposed solutions that focus on enhancing market dynamics and exchange rate unification. He called for a more transparent and predictable foreign exchange regime that minimizes risks and encourages investment. While acknowledging the CBN's steps towards exchange rate unification, Yusuf emphasized the need for continued efforts to improve the flow of foreign exchange and create a conducive environment for businesses to thrive.
The debate surrounding Nigeria's foreign exchange policy reflects the complex interplay between regulatory measures, economic recovery, and business sustainability. As stakeholders navigate the challenges posed by the evolving foreign exchange landscape, finding a balanced approach that ensures regulatory compliance without stifling business operations remains a critical imperative for the country's economic growth and stability.
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