Wednesday, August 26, 2020 / 10:10 AM / By United Capital Research / Header Image Credit: World Today
Central Bank of Nigeria (CBN)
recently directed Authorized Dealers to only open Forms M (a
mandatory statutory document to be completed by all importers in Nigeria) for
payments in favour of the ultimate supplier of the product or service, with
immediate effect.
Furthermore, the apex bank announced that it will
immediately introduce the usage of Product Price Verification Mechanism (PPVM)
to verify quoted prices of goods and services before approving Form M. Clearly,
this is a major move against abuse of FX market activities especially by
entities which take advantage their huge FX need for over-pricing and
conduit for arbitraging.
The new directive will be a major shift for most of
the multinationals and large local manufacturers, especially in the FMCG space,
with huge FX needs.
We understand that most of them have related-party
procurement agents in Europe or Asia who purchase raw material, machinery,
equipment, etc. on their behalf. Certainly, the previous structure provides an
avenue for abuse, but it is the structure they are used to.
Hence, we expect some form of pushback, especially as
the circular was silent on what will happen to Form M opened prior to now, that
does not conform to this new policy.
In the absence of an exceptions to key players, the
parallel market is likely to witness further pressure. So, we imagine that the
CBN may be open an engagement with key manufacturers to reach an amicable
agreement.
Still, this may further pressure parallel market rates
in the interim amid the never-ending speculative attacks on the local unit.
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