Nigeria’s foreign exchange market has had a long and fraught history.
In 1995, the Central Bank of Nigeria introduced what was supposed to be an autonomous foreign exchange market. The intention was to make it easier to sell foreign exchange to end-users through authorised dealers and at a rate set by the market.
Back then, the official exchange rate was being held at a constant (N22 to the US dollar), even as market rates traded at up to 4 times higher.
Successive central bank governors were responsible for introducing different exchange rates and by the middle of the 2000s, at least 4 could be discerned: for the central bank, forex bureau, the interbank market and international wires.
After years of holding the exchange rate in an official band of N197 to N199 to the dollar, post-2008 the government came under pressure to fully deregulate the foreign exchange market due to falling oil prices and an uncertain global trading climate.
Difference as high as N200 to the dollar
However, he was quick to add that the regulator would still intervene in the market periodically to either buy or sell forex. (Note: In one such instance in February 2017, the central bank pumped about US$700 million into the market, causing the naira to appreciate about 13% on the black market.)
Periodic government intervention has led to significant differences in the various exchange rates. The difference can be as high as N200 to a single dollar. (Note: Find the current official rate set by the government here.)
So-called “forex billionaires” has made huge fortunes on the back of this difference. To stem it, the central bank has sought to restrict dollar access in the country. This includes through threatening jail terms for forex speculators to show the government’s resolve to narrow the gulf between the different exchange rates.
The Nigerian government has now set different dollar exchange rates according to who needs the foreign exchange. This factsheet identifies the different rates currently in force. (Note: Of course, the rates quoted in this article will change over time.)
So how many exchange rates are there?
When Nigeria’s 2017 budget estimate was presented to parliament in January, it incorporated an exchange rate of N305 to the dollar. This was 50 kobo (Note: 100 kobos make one naira) more than the official rate of N304.50 at the beginning of 2017.
The government will use this rate to service both domestic and external debt, including that denominated in dollars.
Highlighting the major swing in the currency’s fortunes, the 2016 budget incorporated an exchange rate of N197 to the dollar.
Following allegations of forex market manipulation in the thousands of registered forex bureau operators across Nigeria, the central bank clamped down on traders in November 2016, stipulating that the dollar may not be traded for more than N400.
Unregistered bureaus were closed and some traders who traded above N400/$ were arrested. (Note: Central bank registered bureau operators can be found here.)
Nigerian banks each charge a different exchange rate, which oscillates between the official rate and the black market rate. For example, on 10 March, Guaranty Trust Bank’s online rate was N320/$ and Access Bank’s was N325/$.
Due to the frequently shifting rates and dollar scarcity, some banks suspended online use of dollar-dominated cards.
Travel allowances, school fees & others
The central bank announced a new foreign exchange band on 20 February.
It allows individuals who need dollars for travel, payment of school fees abroad or foreign medical needs to get it at a rate not exceeding the interbank rate by more than 20%. (Note: Find the guidelines for applying here.)
Nigeria’s economy is import driven. The government has therefore made provision for manufacturers, fuel importers, local airlines and commodity producers to access foreign exchange at preferential rates.
In May 2016, the country’s petrol pricing guideline was based on N285/$, for example. Fuel marketers recently said the scarcity of dollars could upset the pricing plan leading to either fuel shortages, higher pump prices or both.
Worshippers are also not left out. In August 2016, the federal government approved a concessionary exchange rate of N197 to the dollar for the more than 65,000 Nigerian pilgrims who were heading to Mecca the next month.
International money transfer operators
The ever-present black market
Formally referred to as the parallel market, Nigeria’s black market is resilient. At its simplest, the black market rate would be the amount you would change dollars for from the “Abokis” lurking on any street corner in Lagos. (Note: Aboki means “my friend” in Hausa).
This is despite the foreign exchange law of 1995 prescribing jail terms for unregistered individuals or agents dealing in forex.
In February 2017, the US dollar traded for a record N525 on the black market. This was about 68% higher than the official rate of about N305 at that time. – 13/03/2017