February 11, 2022/CS;L Research

Based on news reports, the Central Bank of Nigeria (CBN), at a virtual press conference after the bankers’ committee meeting on Thursday, announced a new scheme to improve dollar supply known as Bankers’ Committee “RT200 FX Programme”, which stands for the “Race to US$200 billion in FX Repatriation’’. The RT200 FX Programme is a set of policies, plans and programmes for non-oil exports that will enable the country to attain its goal of US$200 billion in FX repatriation, exclusively from non-oil exports over the next 3-5 years. The CBN governor also noted that the CBN will stop the sale of foreign exchange to Deposit Money Banks by the end of the year as banks must begin to source forex from export proceeds.

Under the programme, which is to take effect immediately, the CBN will provide concessionary and long-term loans with a 10-year tenor, 2-year moratorium and 5% interest rate for businesses interested in expanding existing plants or building new ones to add significant value to the non-oil commodities before exporting them. Similar to the naira for dollar programme, this programme will also include a forex rebate scheme where the exporters will be paid N5 for every dollar they put into the economy. The governor also announced that interest rates on its intervention loans, which were expected to revert to 9% by 1 March, would remain at 5% till 1 March 2023.

FX constraints remain despite increasing oil prices. Crude oil terminal maintenance, shutdown, vandalism, and reduced investments in the oil sector have continued to undermine oil production, masking the gains from increasing oil prices. In our view, CBN is unlikely to ramp up interventions at the I&E window to pre-pandemic levels in the near term, as inflows remain tepid. We project the FX reserves to deplete to US$35bn by the end of 2022, translating to goods and services import cover of 5.4x. With that reserve level, we expect the CBN to maintain its current monthly intervention in the FX market of US$1.9bn, which is 1.6x lower than the average for Q1-2021 (pre-pandemic level).

We agree with the CBN that a lasting solution to the country’s perennial FX problems is a strategy to increase non-oil export proceeds. Beyond CBN’s efforts at supporting export businesses, our eyes are on the Dangote refinery scheduled to commence operations in the third quarter of 2022. The refinery, which has sufficient capacity to meet local demand and exports, should boost refined petroleum exports while simultaneously offering structural tailwinds to FX liquidity. That said, we reiterate our view that beyond the provision of finance to export businesses, efforts need to be geared towards addressing the multiple structural issues that affect the productivity of these businesses.