June 20, 2022/CSL Research
As the Central Bank of Nigeria continues its many battles to support the Naira, the downward pressure remains strong as accretion to the external reserves remains weak. As of Thursday, 16 June 2022, the external reserves stood at US$38.41bn. A recent tool applied by the apex bank to improve the country’s forex take is the “Race to US$200 Billion In FX Repatriation (RT200 FX)” Programme which technically aims at raising US$200 billion in Foreign Exchange earnings over the next 3-5 years from non-oil proceeds.
The policy offers N65 for every US$1 repatriated and sold to Authorised Dealer Banks (ADBs) through the Investors & Exporters FX window for third-party use and N35 for every US$1 repatriated and sold into the I&E window for “own” use on eligible transactions.
The RT200 FX Program was unveiled in February 2022. The initiative was anchored on five pillars, namely: Value-adding Exports Facility, Non-oil Commodities Expansion Facility, Non-oil FX Rebate Scheme, Dedicated Non-oil Export Terminal and Biannual Non-oil Exports. The Governor, Central Bank of Nigeria, Godwin Emefiele, speaking at the maiden edition of the biannual Central Bank of Nigeria Non-oil Export Summit, noted that the bank recorded a significant increase in non-oil export repatriation and paid eligible exporters over N3.5bn rebates in the first quarter of implementing the RT200 FX programme. He appealed passionately to the NPA, the Customs and shipping companies in a working group to work with the bankers’ committee to resolve challenges associated with international trade.
FX constraints remain despite relatively high 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. Only recently, the International Air Transport Association expressed concern over the decision by the Federal Government of Nigeria to block foreign airlines from repatriating ticket sales revenue into their respective countries, a decision which could hurt the aviation industry.
Total foreign airlines blocked funds in Nigeria was estimated at US$208m in Q3 2021 but had risen to US$283m in Q1 2022. 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$35bn by the end of 2022, translating to goods and services import cover of 5.4x.
While we appreciate the apex bank’s efforts at increasing the forex take, we note that the N65 and N35 per US$ incentives imply a subtle devaluation of the effective exchange rate, and we are concerned about its sustainability and its effectiveness given the wide parallel market premium.
As of yesterday, the parallel market rate was c.N610/US$ compared with the I&E window rate of N421.33/US$. That said, beyond CBN’s efforts at supporting export businesses, our eyes are on the Dangote refinery scheduled to commence operations in 2023. 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
