The Central Bank of Nigeria (CBN) has issued its New Policy Actions in the Foreign Exchange Market.

The new rules mean letters of credit (L/Cs) should be easier to obtain for businesses outside the manufacturing sector.

Liquidity woes

The Nigerian foreign exchange market has in recent months experienced significant pressures due to a lack of liquidity.

The manufacturing sector meanwhile has been very concerned about the lack of L/C availability because of foreign exchange shortages (DC World News, 13 January 2017).

Manufacturing priorities

Last year, concerns grew that if Nigerian manufacturers were unable to add value to imported raw materials, this would damage the country's economy.

So the CBN in August 2016 ordered authorised dealers to dedicate at least 60 per cent of their total foreign exchange to the importation of raw materials for the manufacturing sector.

The rest of the economy would have to share the remaining 40 per cent.

60/40 rule abolished

While the new rules seek to prioritise manufacturers, all allocation and utilisation rules will no longer be imposed on banks, effectively abolishing the so-called 60/40 rule.

This should significantly improve availability and access to foreign exchange and therefore L/Cs, particularly for transactions unconnected with imports of raw materials for manufacturing.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.