Nigerian Foreign Exchange Market Developments and Private Equity Investment


By Folake Adebowale and Joseph Eimunjeze, Udo Udoma & Belo-Osagie

Nigeria’s economy is highly dependent on crude oil, which constitutes a major source of the country’s foreign exchange earnings and government revenue. As a result, the sharp decline in crude oil prices has adversely affected Nigeria’s foreign earnings and reserves, the value of the Naira against major world currencies, the availability of foreign exchange in Nigeria and contributed to widening of the disparity between the exchange rates in the official and the parallel foreign exchange markets.

In a bid to control the decline in the country’s foreign reserves, the Central Bank of Nigeria (CBN) has adopted a number of measures to manage access to the official foreign exchange market that has, traditionally, been subsidised by the federal government of Nigeria. These changes portend well for private equity and other investments as foreign investors, following the recent developments, can now convert any capital (brought into Nigeria for investment) into Naira at a market-determined rather than a fixed CBN determined exchange rate, which has been the subject of recent criticism.

The foreign exchange regime

Although significantly deregulated, foreign exchange restrictions remain in Nigeria. Foreign exchange laws and regulations generally empower the CBN to regulate foreign exchange dealings in Nigeria and provide that, except
where a transaction is prohibited by law, any transaction adequately supported by appropriate documentation
shall be an ‘eligible transaction’ for the purchase of foreign exchange in the Nigerian official foreign exchange
market, which, prior to 20th June, 2016, comprised of the autonomous foreign exchange market and the interbank
foreign exchange market. The autonomous foreign exchange market is the market in which authorised dealers
(that is, Nigerian banks that have been licensed by the CBN to deal in foreign exchange) and authorized buyers
(being corporate bodies approved by the CBN to buy foreign exchange), together with foreign exchange endusers
and the CBN itself are participants. The inter-bank foreign exchange market is the market in which end-users,
authorised dealers and authorised buyers participate Residents and non-residents alike may only access the
official foreign exchange market to purchase foreign exchange for qualifying eligible transactions.