In a significant policy shift, the Central Bank of Nigeria (CBN) has approved the inclusion of the CFA franc on the Nigeria Export Proceeds (NXP) form, facilitating the repatriation of export earnings in this currency. This development was announced by Nonye Ayeni, Executive Director of the Nigeria Export Promotion Council (NEPC), during a press briefing in Abuja on the non-oil export performance for 2024.
Ayeni highlighted that the CFA franc is a dominant currency in cross-border trading and its acceptance for export proceeds is a significant achievement for the council. She stated, “I am delighted to inform you that the CBN has magnanimously approved CFA to be captured on NXP forms for the repatriation of export proceeds.” The NEPC plans to collaborate with the CBN and financial institutions to ensure effective implementation of this policy.
This move is expected to streamline the repatriation process for Nigerian exporters trading with neighbouring countries that use the CFA franc, thereby enhancing trade efficiency and compliance with foreign exchange regulations. It also aligns with Nigeria’s broader strategy to diversify its economy and strengthen non-oil export sectors.
Furthermore, the council is working to integrate informal border trade into the formal system, a move anticipated to increase foreign exchange earnings and improve the accuracy of the country’s export data collection.
These initiatives reflect the NEPC’s commitment to strengthening Nigeria’s export framework and supporting exporters in navigating the complexities of international trade.
Nigeria’s Trade with CFA Franc Countries
Nigeria maintains significant trade relationships with neighbouring countries that utilize the CFA franc, particularly within the West African region. These interactions encompass both formal and informal trade sectors, contributing substantially to the economies involved.
Informal Trade Dynamics
A considerable portion of Nigeria’s trade with CFA franc countries occurs informally. For instance, a survey conducted by Benin’s National Institute of Statistics and Demographics estimated that in 2019, Benin’s informal exports amounted to approximately 226 billion CFA francs, with Nigeria accounting for 86.8% of this trade. Similarly, informal imports were around 730.7 billion CFA francs, with Nigeria representing 89.5% of these transactions. These figures highlight the extensive informal trade network between Nigeria and its CFA franc-using neighbours.
Impact of Currency Valuations
Currency fluctuations play a pivotal role in shaping trade dynamics between Nigeria and CFA franc countries. The depreciation of the Nigerian naira relative to the CFA franc has been a significant factor. Reports indicate that this depreciation has led to increased informal exports of commodities such as corn and rice from Nigeria to neighbouring countries, as traders capitalize on the stronger CFA franc.
CFA Franc to Nigerian Naira Exchange Rate Trends (2020-2025)
Over the past five years, the exchange rate between the CFA franc and the Nigerian naira has exhibited significant fluctuations, influenced by various economic factors affecting both currencies.
2020-2023 Overview
Between 2020 and 2023, the CFA franc to Nigerian naira exchange rate experienced moderate volatility. The Nigerian naira faced depreciation pressures due to factors such as declining oil revenues and the country’s overvalued and fixed exchange rate which depleted foreign exchange reserves. Nigeria’s poor management of monetary policy lead to a gradual and steady increase in the CFA franc’s value relative to the naira.
2024 Highlights
In 2024, the exchange rate dynamics became more pronounced:
- Peak Value: On September 28, 2024, the CFA franc reached its highest value against the naira in recent years, with 1 XOF trading at approximately 2.8416 NGN.
- Average Rate: Throughout 2024, the average exchange rate was around 2.6369 NGN per 1 XOF, indicating a general strengthening of the CFA franc against the naira during the year.
- Lowest Point: The lowest exchange rate was recorded on January 31, 2025, with 1 XOF equal to 2.3784 NGN.
Factors Influencing the Exchange Rate
Several factors have contributed to these exchange rate movements:
- Economic Policies: Monetary and fiscal policies in Nigeria, including decisions by the Central Bank of Nigeria regarding interest rates and foreign exchange controls, have impacted the naira’s value.
- Commodity Prices: As a major oil exporter, Nigeria’s economy is sensitive to fluctuations in global oil prices. Declines in oil prices can reduce foreign exchange earnings, exerting pressure on the naira.
- Inflation Rates: Differing inflation rates between the West African Economic and Monetary Union (which uses the CFA franc) and Nigeria can affect the purchasing power parity, influencing exchange rate movements.
Implications for Trade
The appreciation of the CFA franc against the Nigerian naira has significant implications for trade between Nigeria and CFA franc-using countries:
- Export Competitiveness: Nigerian goods become relatively cheaper for CFA franc countries, potentially boosting Nigerian exports to these nations.
- Import Costs: Conversely, imports from CFA franc countries become more expensive for Nigerian consumers and businesses, which could lead to a decrease in imports from these countries.
Trade Balance and Economic Implications
The substantial informal trade between Nigeria and CFA franc countries has notable economic implications. For Benin, for example, the high volume of informal trade with Nigeria underscores the strong economic ties between the two nations. However, this also presents challenges in accurately capturing trade data and formulating effective economic policies.
In summary, Nigeria’s trade with CFA franc countries is characterized by robust informal exchanges, significantly influenced by currency valuations. Understanding these dynamics is crucial for policymakers aiming to enhance trade relations and economic integration within the region.
