This article was published in The Guardian Newspaper on 23 September 2020. Below is an excerpt from the article.
The Central Bank of Nigeria (CBN) recently directed all Authorized Dealers to discontinue the process of opening a Form M1 for Nigerian purchasers, if payments for the purchases are routed through a buying company, buying agent or any other third party (all together referred to as Sourcing Agents) assigned to facilitate such purchase transactions.
The CBN also directed all Authorized Dealers to use a newly introduced product price verification mechanism to verify prices quoted by offshore suppliers before Form Ms are opened. Following this directive, Authorized Dealers are only allowed to open Form Ms in favour of the original manufacturer of the product, after prices have been verified.
There are many reasons cited by the CBN for issuing this directive. First and perhaps the central objective is the need to ensure prudent use of Nigeria’s foreign exchange reserves, which have been
impacted by COVID-19 induced crude oil price fluctuations.
It is an established fact that Nigeria is largely dependent on crude oil sales for its foreign exchange earnings. Therefore, until Nigeria improves on its economic diversification policy, and
reduces its extensive reliance on imports, fluctuating crude oil prices will continue to be a major determinant of the size of the country’s foreign exchange reserves. Besides, there are reported instances of inefficient allocation and utilization of foreign exchange reserves, for which the CBN must and has taken the necessary action.