Following the dip in oil prices over the last 20 months, Nigerians are in a major foreign exchange impasse. The Central Bank of Nigeria (CBN) reports that its monthly forex earnings have dipped by 69% in this period, and US dollar reserves are fast depleting while Nigeria’s import bill stays high.
To forestall further depletion of its forex reserves, the CBN has brought in strict restrictions to limit supply. They include blocking the use of debit cards overseas and also restricting over-the-counter deposits of foreign exchange in Nigerian banks (a move that took effect in January 2016).
There was wide criticism of these moves by industry watchers. Christine Lagarde during a visit to Nigeria in January was quick to support the critics of this move as well. These restrictions have forced Nigerians to buy the greenback from neighbouring countries (Ghana, Benin Republic and Togo, among others) to allow them to pay overseas tuition fees.
The authorities have also removed 41 items from the authorized schedule of items earmarked for forex. Some banks (for instance, GT Bank) still reeling with the shortage of USD to meet customer demands have utterly shut deposits of foreign exchange into domiciliary accounts, while others (like Zenith Bank) have halted international transactions on Naira cards, thereby urging its customers to avail themselves of Zenith Bank’s dollar-denominated cards.
The Way Out
The good news for everyone is that the CBN is now relaxing some of its restriction i.e. Nigerians can now carryout foreign exchange deposits at local banks and can also use their debit cards overseas (although daily month and annual spending limits have been cut). So you can finance your trading account in a modest way with a debit card.
Bureaus de change (BDC) are able to provide the forex necessary for trading activities. However, they currently face stiff restrictions from the CBN, which has disqualified them from buying forex from commercial lenders. More than this, it requires them to sell the U.S. dollar within a band of 3.5% of what they paid for during the weekly auctions supervised by the apex bank. And at the end of November, the amount of forex made available to each BDC has also been cut severely.
Money transfer services such as Western Union (WU) have outbound remittance facilities that enables anyone to send funds via WU globally. This service is limited to $5,000 per transaction, so as to put a lid on money-laundering. Senders can take along the Naira equivalent of the amount of foreign currency needed for the transaction to any of the over 5000 Western Union points in the country.
Traders must verify from their broker if they accept WU as a funding option and also double check on their minimum deposit for this option. Once this is verified, you can either take USD (or other accepted foreign currency) or its Naira equivalent based on WU conversion.
An alternative to WU is the MoneyGram Outbound Service (which took off in October 2014), and falls in the same category as WU. They are both classified as International Money Transfer Service Operators (IMTOs) by the CBN.
Another interesting financing option is the use of e-currencies, which was popular in the early 2000’s, but has dipped in popularity following negative experiences Nigeriens suffered in the hands of companies like Egold, Liberty Reserve, and others. Nigerians are returning to such services as a result of recent financing realities and e-currency providers such as Skrill (formerly Moneybookers) are being used.