By Nduka Chiejina, Abuja and Collins Nweze, Lagos
A measure aimed at saving dollars for the economy and improving exchange rate stability has been introduced by the Central Bank of Nigeria (CBN). It approved the use of Product Price Verification Mechanism to check over-invoicing in the foreign exchange (forex) market.
The development came in the wake of continuous slide of the naira. Yesterday, the naira exchanged at N477/$ to the dollar at the parallel market. The official exchange rate remained at N379/$. This created a N98 gap between the two rates, heightening the temptation for round-tripping among forex dealers.
In a circular to all authorised dealers, CBN Director, Trade and Exchange Department, O.S. Nnaji, said the policy was part of the apex bank’s moves to ensure prudent use of foreign exchange resources and eliminate over-invoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumers.
In the circular released on Monday, Nnaji directed authorised forex dealers to desist from opening of ‘Forms M’ whose payment are routed through a buying company/agent or any other third parties.
He said in accordance with the new measure, “all authorised dealers are hereby requested to only open ‘Forms M’ for Letters of Credit, Bills for Collection and other forms of payment in favor of the ultimate supplier of the product or service”.
Additionally, in line with best practices around the world, the CBN will be immediately introducing a Product Price Verification Mechanism to forestall over-invoicing and or mis-pricing of goods and services imported into the country.
“All authorised dealers shall use this mechanism to verify quoted goods in favour of the ultimate supplier of the product or service. This directive is with immediate effect. All authorised dealers shall use this mechanism to verify quoted prices before Forms M are approved,” he stated.
The CBN has continued to take steps to strengthen the naira and support foreign reserves accretion by constantly creating new policies and bottlenecks meant to reduce dollar spending and meet critical obligations.
In February, the CBN introduced new domiciliary account rules in which it directed that customers can deposit dollar into their domiciliary accounts but are not allowed to transfer it to another party.
“Also, only electronic fund transfers into domiciliary accounts can be transferred from such accounts to third parties while cash deposits into such accounts can only be withdrawn in cash.
Another policy encouraged foreign portfolio investors to invest in high yielding Open Market Operation (OMO) bills at 14 per cent, while local investors were restricted. Foreign holdings of OMO bills (CBN’s investment instrument to control liquidity) account for over $5 billion of the $37.3 billion foreign reserves.
Besides, it restricted importers of milk from accessing forex from official market, limiting the importation of milk and other dairy products to six firms- FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria PLC (MSK only), and Integrated Dairies Limited.
According to the policy guideline, all Forms ‘M’ for the importation of milk and its derivatives will only be allowed for the aforementioned companies.