The Central Bank of Nigeria (CBN) has announced a significant policy shift, suspending the extension of export proceeds repatriation periods for exporters, effective January 8, 2025. This directive requires exporters to repatriate their foreign earnings within the stipulated timeframes, eliminating the flexibility for extensions. The directive applies to both oil and non-oil export transactions. For non-oil exports, proceeds must be repatriated and credited to the exporters’ domiciliary accounts within 180 days from the bill of lading date. For oil and gas exports, the timeframe is 90 days from the bill of lading date. The CBN emphasized that these timelines are non-negotiable, and exporters must strictly adhere to them. The move aligns with ongoing efforts by the CBN under Governor Olayemi Cardoso to reform Nigeria’s foreign exchange market and bolster economic stability.CBN
Context of CBN’s Recent Foreign Exchange Reforms
Since assuming office in 2023, Governor Olayemi Cardoso has pursued a series of foreign exchange reforms aimed at improving liquidity, transparency, and investor confidence in the Nigerian forex market. Key reforms include:
- Unification of Exchange Rate Windows: The multiple exchange rates were consolidated into a single market-driven window, allowing rates to be determined by market forces through the Investors and Exporters (I&E) window.
- Clearing Forex Backlogs: The CBN has addressed a $7 billion backlog of foreign exchange commitments to restore confidence and improve liquidity.
- Monetary Policy Tightening: The Monetary Policy Rate has been increased multiple times, with the latest hike bringing it to 27.25% to curb inflation.
- Bank Recapitalization: Nigerian banks have been mandated to increase their capital base significantly, with international banks required to meet a minimum of N500 billion by March 2026.
- Restricting Ways and Means Financing: The CBN has limited the use of ways and means financing to fund government budget deficits, focusing on reducing monetary expansion and curbing inflationary pressures. Under Governor Cardoso, no new advances have been made through this channel, and the outstanding balance as of December 31, 2023, was approximately ₦3.22 trillion.
The latest directive on export proceeds repatriation aligns with these reforms by ensuring that foreign exchange inflows are timely and adequately accounted for, strengthening Nigeria’s currency position and reducing market volatility.
Export Proceeds Repatriation: Global Practices and Market Characteristics
Export proceeds repatriation policies are common in various economies aiming to safeguard forex reserves and promote economic stability. Countries implementing similar measures include:
- Indonesia: Exporters of natural resources must retain their export earnings within the country for a minimum of one year, up from three months previously. The policy reflects the country’s heavy dependence on commodity exports for forex stability.
- India: Exporters must repatriate proceeds within nine months from the date of export, with limited exceptions introduced during the COVID-19 pandemic. India’s controlled currency environment mandates partial conversions to the local rupee.
- Sri Lanka: Exporters must repatriate export earnings within 180 days, with partial mandatory conversion to local currency, aligning with Sri Lanka’s efforts to manage forex volatility.
- Thailand: Export proceeds exceeding USD 1 million must be repatriated and converted into Thai baht immediately after receipt, emphasizing a controlled forex market to manage inflow stability.
The implementation of export proceeds repatriation is often seen in markets where:
- Forex Volatility is High: Measures are designed to reduce currency fluctuations and stabilize exchange rates.
- Heavy Dependence on Export Earnings: Policies focus on significant export sectors like natural resources to protect forex reserves.
- Controlled Currency Environments: Mandatory partial conversion of proceeds ensures consistent liquidity in the domestic currency market.
Implications for Nigerian Exporters
The new CBN policy may lead to:
- Increased compliance pressure on exporters, requiring stricter financial planning.
- Improved forex liquidity as foreign earnings are funnelled back into the Nigerian financial system more quickly.
- Potential challenges for businesses with longer payment cycles in global trade agreements.
The CBN’s decision to halt the extension of export proceeds repatriation aligns with its broader strategy to stabilize Nigeria’s foreign exchange market. However, exporters with longer payment cycles may face cash flow constraints and operational challenges, potentially reducing their competitiveness in global trade. It may also be viewed as a mixed signal i.e. a reluctance to move away from a regime that relies more on restrictions and controls rather than market measures to stimulate forex inflows and the stability of Nigeria’s exchange rate. Some of the exporters expected to repatriate forex (non-oil exports) proceeds have not benefitted from supportive mechanisms like trade financing or credit guarantees.