The 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, CBN announced that it will immediately introduce the usage of the 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 of their huge FX need for overpricing 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 exception 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 neverending speculative attacks on the local unit.
United Capital Research