CBN releases operating guidelines for repatriation of the non-oil export proceeds
The Central Bank of Nigeria (CBN) late last month, released the operating guidelines for the non-oil export proceeds repatriation rebate scheme as introduced in the RT200 FX programme. Precisely, the guideline stipulates that exporters will be paid (1) NGN65.00 for every USD1.00 repatriated and sold at the Investors and Exports Window (IEW) to Authorised Dealing Banks (ADBs) for other third party use, and (2) NGN35.00 for every USD1.00 repatriated and sold at the IEW for own use on eligible transactions only. Meanwhile, the RT200 FX programme or “Race to $200 billion in FX Repatriation” aims to attain a goal of USD200.00 billion in FX repatriation from non-oil exports over the next three to five years. In addition, the scheme would rest on five key anchors – (1) non-oil commodities expansion facility, (2) dedicated non-oil export terminal, (3) non-oil FX rebate scheme, (4) value-adding exports facility, and (5) biannual non-oil exports summit.
In this report, we accessed the CBN’s motive for the scheme, analysed the effectiveness on the FX market, and identified the potential constraints that could hamper the scheme’s progress.
The CBN’s Move to Improve FX Repatriation Through Non-Oil Exports
As a start, export earnings constitute the most significant portion of the aggregate US dollar earnings for the country. Based on the data obtained from the CBN, export earnings contributed 62.8% of Nigeria’s total dollar earnings between 2009 and 2020. Simultaneously, remittances and investments contributed 21.2% and 13.4%, respectively. Although Nigeria’s domestic production base is diversified away from crude oil, export earnings remain tilted towards oil exports. Precisely, crude oil and gas exports accounted for 87.8% of total exports between Q1-18 and Q3-21, while non-oil exports contributed 12.2%. Thus, the country’s export earnings have always been susceptible to fluctuations in the price of crude oil, which is not within the control of policymakers.
The Non-Oil Exports Proceeds Repatriation Rebate Scheme
According to the operating guidelines from the CBN, the rebate scheme is designed to incentivise non-oil exporters to encourage the sale of FX proceeds and encourage repatriation into the FX market. Thus, the key objectives of the rebate scheme include (1) enhancing FX inflow, (2) diversifying FX inflow sources, (3) increasing the contribution of non-oil exports to total exports, (4) ensuring FX inflow stability and sustainability, and (5) supporting export-oriented companies in expanding export operations and capabilities. Although the rebate scheme is just one of the five key anchors of the RT200 FX programme, the CBN aims to raise USD200.00 billion in FX earnings from non-oil export proceeds over the next three to five years.
For us, we see the rebate scheme as a tacit devaluation of the Naira to serve as an incentive for non-oil exporters to repatriate their proceeds into the FX market. That said, we believe the most significant factor responsible for the low repatriation of non-oil export proceeds into the FX market is low aggregate non-oil export earnings. Others include the (1) wide margin between the official and parallel market exchange rate and (2) lack of flexibility in the country’s exchange rate framework. On the second point, we suspect that the majority of the exporters prefer to keep their proceeds in offshore accounts for raw material import payments.
Is a Rebate Scheme Effective Enough to Boost Non-Oil Exports?
On a balance of factors, we think the new policy will have a limited impact in the short-to-medium term. Hence, we do not believe it would significantly improve FX liquidity and, by extension, may not lead to exchange rate convergence. Consequently, we expect the parallel market exchange rate to remain pressured in 2022FY, more so that election uncertainties would dominate H2-22 amidst the lingering FX liquidity challenges. Therefore, we maintain our view that the currency will trade between NGN440.00/USD and NGN460.00/USD at the IEW by the end of 2022FY. Over the short-to-medium term, we believe a significant increase in FX supply at the parallel market and improved flexibility at the IEW are instrumental in narrowing the gap between the IEW and parallel market exchange rate.
That said, we laud the CBN for coming up with the RT200 FX programme to boost the contribution of non-oil export earnings to the country’s total foreign exchange earnings. Notably, we like one of the programme’s anchors, which involves creating a dedicated non-oil export terminal. A dedicated terminal for non-oil export could serve as a key to partly reducing the bottlenecks involved in the number of months containers wait before they are shipped for exports. However, we believe a non-oil export terminal will not be enough to drive the significant non-oil exports needed to achieve the programme’s aim over the medium term. Besides, we think the presence of structural bottlenecks and administrative challenges at the ports will continue to undermine the competitiveness of Nigeria’s non-oil exports in the global market. Accordingly, we believe adequate support from the fiscal authorities would be significant in boosting non-oil exports and solving the exchange rate issues.
