Impact of Nigeria ‘s New Forex Regime on Businesses

Recently, the Central Bank of Nigeria (CBN) announced the unification of all segments of the Nigerian forex market. The bank announced the collapse of all windows into the Investors & Exporters (I&E) window.

The key objective for this move is to improve liquidity and stability in the market and attract foreign investors into the Nigerian economy. As a result, all transactions will now be done through the Investors and Exporters (I&E) window, where the exchange rate will be determined by market forces. Applications for medicals, school fees, Business Travel Allowances Personal Travel Allowances, and SMEs would continue to be processed through deposit money banks.

The Nigerian Central Bank will still intervene in the forex market as it deems fit. In reality, there is no currency that operates as a complete float, as monetary authorities tend to intervene in forex market activities as the need arises, but in this case, the intervention of the bank has reduced.

Impact and Implications for Businesses

Impact No 1

The new policy may affect the pump price of petroleum possibly in the short run and in the long run, it is expected to drive down the price of petroleum

Impact No 2

If all things go as planned, the exchange rate will begin to go down. Currently, the weighted average rate (I & E) has gone from N460.97 /$1 on April 20, 2023, to N753.94/$1 on June 26, 2023. It is anticipated that the country, in the long run, would have a stronger Naira. As the country is still dependent on the importation of fuel, a steadily growing naira, should become stronger, chase up to the dollar and surpass it.

Impact No 3

There shall be opportunities for new entrants into the manufacturing industries. Their entrance would result in healthy competition and will also bring out the best in any system.

Impact No 4

This development would attract foreign investors. In the past foreign investors have been cautious about Nigeria’s forex policies as such slowed down their investment appetite for the country. The reduction of uncertainty in the foreign exchange market and therefore enhances the confidence of investors.

Impact No 5

Ultimately it is expected that the liquidity in the foreign exchange market would be enhanced. Thereby promoting transparency in forex allocation, minimise corruption vulnerabilities, and reducing opportunities for sharp practices such as round-tripping.

Impact No 6

Market efficiency is anticipated as well as an improvement in capital inflow and market penetration as well as improved participation in the export market by Nigerian businesses.

Impact No 7

These changes would potentially cause the increased cost of imported goods. Imports would become more expensive, and costs will be transferred to the final consumers. Raw materials would be more expensive also as they are dependent on forex, forcing up the cost of goods and services, especially on the banned items.