On Monday, a press conference in Lagos featured Mr Ade Shonubi, the acting governor of the Central Bank of Nigeria (CBN). In that conference, he said the CBN was partnering with local banks to clear out forex backlogs —estimated at $10 billion— in two weeks.

“The local banks have been working with the Central Bank on various structures to clear [the backlog],” Shonubi said. FX backlog is the foreign currency investors and importers have demanded but not received. These requests come from manufacturers and importers who buy raw material inputs from abroad, parents who pay their children’s tuition fees abroad, Nigerians who pay medical bills abroad, travellers who source Business Travel Allowances (BTAs) and Personal Travel Allowances (PTAs), etc.

Many of these requests stalled for years due to dollar scarcity, a decline in foreign direct investments (FDIs) and foreign portfolio investments (FPIs) inflows, and a drop in foreign reserves positions amongst other offshore investment opportunities.

According to Shonubi, banks have already catered to “a large amount” of foreign exchange demand. He also said local banks control three times (75%) more foreign currency transactions than the central bank. This statement seems consistent with the apex bank’s move to recede from being a regular player in the market to a regulatory background. He added that the bank’s involvement in the FX market was because of the restructuring with the banks and that the backlog would be cleared in “the next one or two weeks.”

The CBN has been trying different ways to stabilise the FX rate and clear the backlog of greenback demand requests in recent weeks. It had planned to use a $3 billion loan from the Nigerian National Petroleum Corporation to boost the foreign exchange market’s liquidity, but investors backed out. Only the African Export-Import (Afrexim) Bank remained as the sole provider.

These backlogs have shaken investor confidence in Nigeria, as many fear that they might not be able to get back the profits they make in Nigeria. Foreign airlines have arguably suffered the most from the backlog of demands, with up to $812 million in revenue trapped in Nigeria. However, many airlines have started withdrawing their funds from Nigeria in recent weeks, showing the CBN’s progress. According to the CBN, other foreign investors have also been able to settle over $5 billion worth of dividends from the country between October 2022 and March 2023.

Clearing the FX backlogs will achieve two primary objectives: stabilise the Naira and boost investors’ confidence. After the CBN floated the exchange rate, the official market rate quickly rose from ₦462/$ to ₦700/$ and as high as ₦930 on the parallel market. So, an investor who took a loan at the former rate would have to repay a higher amount in Naira to settle the same amount in dollars. This rapid devaluation has caused severe economic difficulties and hit startups that raised money in dollars hard, with some founders saying that many businesses might close down.

However, the CBN’s ability to meet this demand is under public scrutiny. Nigeria’s foreign reserves have been on a downtrend since 2021. JP Morgan estimated that Nigeria’s net reserves fell to $3.7 billion at the end of 2022 from the previous year’s $14 billion. And although the CBN has debunked this report, it hasn’t restored confidence.

Also, part of Shonubi’s speech was another round of pointing fingers. He accused Bureau De Change (BDC) operators who were round-tripping the market of causing Nigeria’s forex woes. “The BDCs: instead of playing its primary role, the foreign currency they get, they take them to the black market,” he said. “Even when they get the dollars that are available, they would rather keep it and sell in the black market.”

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