Annual Report on Exchange Arrangements and Exchange Restrictions 2005


International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of February 28, 2005)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of Nigeria is the Nigerian naira.
Exchange rate structure
MultipleThere are three exchange rates: (1) the official exchange rate, which results from auctions of foreign exchange by the Central Bank of Nigeria (CBN); (2) the interbank market exchange rate, at which commercial banks transact among themselves using proceeds from non-oil exports and personal transfers; and (3) the exchange bureau rate. During 2004, the average premium between the exchange bureau rate and the official rate was 5.5%.
Managed floating with no predetermined path for the exchange rateThe official exchange rate of the naira is determined in the twice-weekly Dutch auctions, in which banks bid on behalf of legitimate users to purchase foreign exchange from the CBN with requests supported by the required documentation. The auction is a sealed bid–multiple price system, with the marginal exchange rate being the rate that clears the market. The CBN announces the amount on offer the day before the auction, and the auction results the day after. Funds purchased from the CBN must be used for eligible transactions only, subject to stipulated documentation requirements. Such funds are not transferable in the interbank foreign exchange market.
The interbank rate is freely negotiable among ADs, including commercial banks. Funds obtained through the Dutch auction system are not eligible for utilization at the interbank market.
Effective January 1, 2004, Nigeria participates in the W-ERM II of the WAMZ, which requires that the spot exchange rate between the Nigerian naira and the dollar be maintained within margins of ±15% around the central rate. However, the CBN has not yet implemented these measures.
On February 1, 2005, Nigeria adopted Monetary, Credit, Foreign Trade, and Exchange Rate Policy Guidelines for 2004/2005 that stipulates a policy band of ±3% around the central rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward exchange transactions in the interbank market are permitted among the ADs in foreign exchange and between the dealers and their customers, subject to prudential limits and provided that the transactions relate to trade in goods and services.
Arrangements for Payments and Receipts
Prescription of currency requirementsn.r.
Payments arrangements
Regional arrangementsYes.
Administration of controlThe CBN formulates basic foreign exchange policy and issues directives as appropriate for the operation of the interbank market. The CBN approves and revokes the appointments of authorized dealers or authorized buyers of foreign currency, and supervises and monitors the operation of the interbank market.
International security restrictionsNo.
Payments arrears
OfficialMost of the arrears are owed to Paris Club bilateral creditors, but there are also small arrears to other creditors.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeResidents other than the monetary authorities, producers of gold, and authorized industrial users are not allowed, without special permission, to hold or acquire gold in any form other than jewelry or coins, at home or abroad.
Controls on external tradeThe importation and exportation of gold in any form other than jewelry require specific licenses issued by the Federal Ministry of Finance (FMF).
Controls on exports and imports of banknotes
On exports
Domestic currencyThe exportation of naira notes and coins by travelers, including residents, in excess of N=10,000 is subject to declaration.
Foreign currencyThe exportation of amounts in excess of $5,000 or its equivalent must be declared.
On imports
Domestic currencyImportation of naira notes and coins by travelers, including residents, in excess of N=10,000 is subject to declaration.
Foreign currencyThe importation of amounts in excess of $5,000 or its equivalent must be declared.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyAny person may open, maintain, and operate a foreign currency account with an AD.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyConversion is permitted only with respect to balances remaining after the completion of contracts or of the account holders’ business in Nigeria.
Nonresident Accounts
Foreign exchange accounts permittedExternal accounts are maintained for diplomatic representatives of all countries and international organizations. They may be credited with authorized payments by residents of Nigeria to residents of foreign countries, with payments from other external accounts, and with proceeds from sales of foreign currencies. They may be debited for payments to residents of Nigeria, for payments to other external accounts, and for purchases of foreign currencies.
Domestic currency accountsFunds derived from local sources may be deposited in nonresident accounts.
Convertible into foreign currencyNonresident accounts may be credited with proceeds from services rendered locally, and remittance can be effected subject to adequate documentation.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsThe CBN may not sell foreign exchange for imports of bottled water, tobacco, beer, or other imports on the prohibited list.
Documentation requirements for release of foreign exchange for importsUnless a “clean report of inspection” has been issued on the goods to be imported, foreign exchange settlements for imports may not be effected. Transactions involving the use of bills for collection are allowed. Transactions executed on private sector initiative do not, however, carry any government guarantee or obligation. Remittances are to be made through the official foreign exchange market or with autonomous funds, and the relevant shipping documents for the transactions are to be channeled through ADs.
Preshipment inspectionAll imports, irrespective of their value, are subject to preshipment inspection. Importers are responsible for the payment of 1% of the f.o.b. value of goods as a service charge for the Comprehensive Import Supervision Scheme.
Letters of creditImport payments covered by confirmed LCs are made, on presentation of the specified documents to the overseas correspondents, on the understanding that the goods paid for will arrive in Nigeria and that all shipping documents are filed by importers with an AD within 90 days of negotiation of the specified letters of credit.
Import licenses and other nontariff measures
Negative listThe importation of the following items is prohibited: barite and bentonite, gypsum, kaolin, barley and malt, beer and stout, bottled water, poultry (including eggs), maize, millet, sorghum, vegetable oils, wheat flour, secondhand clothing, gaming machines, housewares, mosquito repellent coils, plastic, used air conditioners, compressors, textile materials containing hazardous chemicals (such as chloride), refrigerators, motor vehicles and motorcycles more than eight years old, and retreaded or used tires. The importation across land borders of cassava, cassava products, and frozen poultry is prohibited. The importation of biscuits, noodles, cacao products, spaghetti, and toothpicks is prohibited.
Other nontariff measuresAn appropriate insurance certificate issued by a registered insurance company in Nigeria is required for importing goods.
Import taxes and/or tariffsImport duties range from 2.5% to 150%. The minimum duty of 2.5% applies to agricultural inputs (e.g., fertilizers) and industrial raw materials that are not locally available. The maximum duty of 150% applies to cigarettes, table water, and other bottled water, both flavored and unflavored. Most goods are subject to rates between 5% and 20% due to concessions provided to a wide range of goods that help local production. More than 190 products carry tariffs of 100% or higher. Tariff protection is high for finished goods. In addition, the following import surcharges apply: a 5% port development surcharge; a 1% Raw Materials and Development Council surcharge; a 0.02% freight rate stabilization surcharge earmarked for the Nigerian Shippers Council; and an ECOWAS levy of 0.5%. Certain categories of imports are exempt from import taxes. Imports that were duty-free in the past are now subject to a duty charge of at least 2.5%. Imports of sugar confectionaries are prohibited. Imports of sugar are subject to a 50% duty.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsExport proceeds must be repatriated within 90 days of the date of shipment of the goods.
Surrender requirementsNon-oil exporters are permitted to sell their export proceeds to AD banks at interbank rates, or use the funds to finance eligible transactions.
Financing requirementsNo.
Documentation requirementsExports require the following: (1) completion of an official foreign exchange form; (2) registration with an AD; (3) inspection of the goods by an agent; (4) submission of all original copies of bills of lading relative to all commercial exports to the collecting/negotiating bank; and (5) proof of payment of administrative charges to the Nigerian Export Supervision Scheme.
Letters of creditPayment for exports should be made with LCs or any other international mode of payment.
DomiciliationRepatriated non-oil export proceeds and other inflows should be held in domiciliary accounts maintained with ADs in Nigeria. Holders of the domiciliary accounts have easy access to their funds maintained therein, subject to the existing guidelines, and may sell their export proceeds to banks other than those where they maintain their domiciliary accounts.
Preshipment inspectionEffective October 1, 2004, all exports are subject to preshipment inspection irrespective of value. Exporters are required to pay a service charge of 1% of f.o.b. value, which accrues to the Nigerian Export Supervision Scheme.
Export licensesProduction of unrefined gold and petroleum products is subject to licensing. The exportation of African antiques, works of art, and objects used in African ceremonies is prohibited, except under certain conditions. Exports of timber (rough and sawed), raw hides and skins, scrap metal, unprocessed rubber latex and rubber lumps, palm kernels, and yam tubers are prohibited. Exports of petroleum are handled by the Nigerian National Petroleum Corporation and Marginal Field Operators.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersApplications for foreign exchange must be submitted to banks; such payments are allowed, subject to documentation requirements.
Trade-related payments
Indicative limits/bona fide testYes.
Investment-related paymentsTransfers of profits are permitted freely when the basic transaction has been approved, subject to completion of the official foreign exchange form for invisible trade and other documentation requirements. ADs are required to submit monthly reports to the CBN on capital transfer and repatriation and remittances of profits and dividends.
Prior approvalApplications for the remittance of profits and dividends from capital investment are made through ADs and do not require prior approval, but are subject to documentation requirements.
Indicative limits/bona fide testInterest on bills for collection transactions is limited to a maximum of 1% above the prime rate prevailing in the country of the beneficiary.
Payments for travel
Quantitative limitsYes.
Indicative limits/bona fide testADs may sell foreign exchange for personal travel, subject to documentation requirements (i.e., a completed official foreign exchange form for invisible trade, a valid passport, and evidence of travel). There are additional documentation requirements for travel for medical and business purposes.
Foreign workers’ wages
Indicative limits/bona fide testUp to 100% of net salary after taxes may be transferred abroad, subject to documentation requirements.
Other paymentsUp to 5% of consulting and legal fees for projects of a highly technological nature, for which local expertise is not available, may be remitted.
Quantitative limitsYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsAll proceeds must be received through banks.
Surrender requirementsInflows for the domestic operations of oil companies are sold directly to banks.
Restrictions on use of fundsYes.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsApplications for private capital transfers abroad are processed by banks, subject to satisfactory documentation. No prior approval is required, except in the case of the Debt Conversion Program (DCP).
On capital market securities
Shares or other securities of a participating nature
Sale or issue locally by nonresidentsThese transactions may be conducted through ADs, subject to documentary requirements.
Purchase abroad by residentsResidents of Nigeria may deal in foreign currency securities and may buy from, or sell to, nonresidents of Nigeria any security payable in naira without prior approval.
Bonds or other debt securitiesThe DCP regulates the purchase of selected Nigerian foreign debt instruments (mainly CBN promissory notes arising from past consolidation of unsecured trade credit arrears) at a discount, and the disposition of the naira proceeds on the conversion of such debt.
On money market instruments
Purchase abroad by residentsWhile documented investments are permitted, the transfer to external accounts is not.
Controls on derivatives and other instrumentsNo.
Controls on credit operations
Commercial credits
By residents to nonresidentsPermission of the FMF is not required for nonresident individuals or companies (other than banks) registered in Nigeria that are controlled directly or indirectly from outside Nigeria. However, to enable companies to meet temporary shortages of funds, licensed banks in Nigeria may grant loans or permit overdrafts for periods of up to 14 days, or may increase the amount of any advance or overdraft by the amount of loan interest or bank charges payable thereon. General permission is also given for any loan, bank overdraft, or other credit facility to be arranged to finance Nigerian imports or exports of goods.
To residents from nonresidentsApproval is not required from the FMF for any individual, firm, company, or branch resident in Nigeria to borrow abroad. However, official agencies and state-controlled corporations need the prior approval of the FMF for any foreign borrowing. The contracting of suppliers’ credits abroad by state-controlled corporations or agencies is also subject to approval from the FMF.
Controls on direct investment
Inward direct investmentThere are no ceilings for foreign capital participation in the equity capital of enterprises in various sectors of the economy. The Nigerian Investment Promotion Commission (NIPC) deals with all matters relating to registration and the prescription of applicable incentives for direct capital investment in priority areas. ADs must issue a Certificate of Capital Importation within 24 hours of the receipt of capital. Nonresident investors are required to register their investment with the NIPC for statistical purposes.
Controls on liquidation of direct investmentApproval of the FMF is not needed. Capital proceeds arising from the subsequent disposal of investments made under the DCP may only be repatriated 10 years after the effective investment of the proceeds, and are limited to 20% a year.
Controls on real estate transactionsNo.
Controls on personal capital transactions
To residents from nonresidentsYes.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsResidents may make cash gifts not exceeding the equivalent of $500 to charitable organizations and $200 to individuals a year, subject to documentation requirements.
To residents from nonresidentsYes.
Settlement of debts abroad by immigrantsYes.
Transfer of assets
Transfer abroad by emigrantsYes.
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsGambling is prohibited.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadYes.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeYes.
Purchase of locally issued securities denominated in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsReserve requirements are not applied on foreign exchange deposits.
Liquid asset requirementsLiquid asset requirements are not applied on foreign exchange deposits.
Investment regulations
Abroad by banksCBN approval is required.
In banks by nonresidentsThe inflow of funds is subject to the provisions of the Money Laundering Decree.
Open foreign exchange position limits
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2004
Exchange arrangementJanuary 1. Nigeria joined the W-ERM II of the WAMZ but the margins of ±15% around the central rate have not yet been implemented.
Exports and export proceedsOctober 11. Preshipment inspection and a service charge of 1% of f.o.b. value apply.
Changes During 2005
Exchange arrangementFebruary 1. The Monetary, Credit, Foreign Trade, and Exchange Rate Policy Guidelines for 2004/2005 specified a policy band of ±3% around the central rate.

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