Foreign Exchange market proceeds of International Oil Companies (IOCs) will now be transferred in batches as directed by Nigeria’s Central Bank.
This is the new development, but the directive of the Central Bank of Nigeria (CBN), on the transferring Foreign Exchange (FX) proceeds may pose some challenges to International Oil Companies (IOCs) in Nigeria.
The CBN had stated that such FX proceeds can only be transferred to the IOCs home country after 90 days.
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According to the CBN, the IOCs are required to send 50% of the FX proceeds at once, and the other 50% after 90 days.
CBN’s Directive Will Boost Nigeria’s FX Market
This is expected to push the $2.2 billion FX backlogs up and affect IOCs’ operations.
The move is expected to reduce dollar scarcity in the Nigerian FX markets.
Experts believe the move is part of CBN’s efforts to increase liquidity in the forex market.
Recently, the CBN cleared $2.3 billion of the estimated $7 billion owed.
A circular signed by CBN Director, Trade and Exchange Department, Hassan Mahmud, authorised dealer banks to allow IOCs to repatriate their FX in batches.
What CBN Is Saying
According to him, this would reduce the negative effects on the foreign exchange market.
“A maximum of 50% in the first instance, while a balance of 50% could be repatriated after 90 days from the date of the inflow of the export proceeds,” Mahmud said.
“The CBN has observed that proceeds of oil exports by IOCs operating in Nigeria are transferred offshore to fund parent accounts of the IOCs (otherwise referred to as “cash pooling”).
“This has an impact on liquidity in the foreign exchange market,” the circular, with reference number TED/FEM/PUB/FPC/001/004, said.
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What the circular is saying is that IOCs can transfer their FX proceeds, but such actions should not affect the Nigerian FX market.
Understandably, IOCs need to have access to their FX proceeds, particularly to meet their offshore obligations.
This must be done with minimal negative impact on liquidity in the Nigerian foreign exchange market.
