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Further Liberalization & Development of The Foreign Exchange Market

FX Structure | FX Mgt Before Now. | FX Mkt | Debt Conversion | Exchange Rate Policy | Movement in Reserves | International Payments | Reserve Management

 Since the introduction of Whole Sale Dutch Auction System (WDAS) on February 20, 2006, the liberalized Foreign Exchange Market witnessed unprecedented stability most of which include the following:

  1. Unification of exchange rates between the Official and Inter-bank Markets and resolution of the multiple currency problems.
  2.  Facilitation of greater market determination of exchange rates for the Naira vis-a-vis other currencies

Achievements recorded since the introduction of WDAS included :

  •  Parallel market appreciation first time in 20 years.
  •  Convergence of official and inter-bank rates, thus unifying the two.
  • Revision of the Foreign Exchange Manual
  • Sale of Foreign Exchange to Bureaux-de-Change operators in an effort to increase access of foreign exchange to small end-users, bridge the supply gap and develop the local Bureaux-de-Change (BDCs)

The Process of Selling Foreign Exchange to Bureaux-de-Change Operators:

The liberalization opened the market for the operations of private BDCs and Authorised Dealer BDCs. The operations of these BDCs with CBN window is basically cash operation.

The following explains the process:

Private BDCs

  •   Each licensed BDC was required, to open a Naira Current Account with an Authorized Dealer of its choice, for the purpose of buying forex.
  •  A Bureau-de-Change is allowed to purchase forex from the CBN through a presentation of the CBN cheque issued by their banks twice a week (Tuesdays and Thursdays).
  • The Bureau-de-Change purchase equivalent amount of forex from the CBN up to a maximum limit of US$200,000.00 twice a week.

Authorized Dealer BDCs

  • The Authorized Dealer applies to CBN through the WDAS window on Mondays and Wednesdays for a maximum of US$2.0 million.
  • The forex purchased by the Authorized Dealers is disbursed in cash and the BDCs in turn sell to end-users for eligible transactions only, such eligible transactions include:
    • BTA at $5,000 per quarter and $20,000 per annum;
    •  PTA at $4,000 per quarter and $16,000 per annum; and others include:
      • Mortgage monthly payment;
      • School fees abroad;
      • Medical fees abroad;
      • Credit Card payment;
      • Utility bills; and
      • Life Assurance premium payment.

On the Trade Transactions, there was further liberalization of export proceeds in the ordinary domiciliary account. The account holder has unfettered access to the repatriated funds.

In an effort to ensure that liberalization get to the small end-users, in April 2006; the CBN operates sales of forex (cash) to BDCs in all the 37 branches across the country.

Export Trade

The Trade & Exchange Department captures non-oil exports statistics in the form of shipments and proceeds repatriated into the export proceeds domiciliary accounts of the exporters, maintained with the deposit money banks.

The liberalization of the proceeds of export in the domiciliary account has afforded exporters unfettered access to the funds.

In October 2004, there was the reintroduction of pre-shipment inspection of exports which was suspended in March, 1999.  

The re-introduction of the scheme was part of the Federal Government economic reform programme aimed at diversifying the export base of the country and a measure to ensure that only goods with acceptable quality were exported from Nigeria. 

Consequently, the Federal Government of Nigeria appointed Messrs Cobalt International Services Limited as the Pre-Shipment Inspection Agent for non-oil exports in October 2004. In January 2007, the Government enlarged the scope of the exports pre-shipment inspection scheme to include crude oil and gas. Since the scheme came into operation on October 2004, the company charged with the responsibility for exports Pre-shipment inspection has opened a number of offices across the country.

From January – December 2006, a total of 7,720.00 Clean Certificates of Inspection with corresponding FOB value of US$957,305,374 were issued by the Inspection Agent, compared to the 7,642 CCIs with the corresponding FOB value of US$749,472,220.00 issued in 2005, respectively. During January to October, 2007, a total of Clean Certificate of Inspection CCIs issued was 8,133 valued US$1,145,109,938.13.

Following the completion of the banking sector consolidation exercise in January 2006, 13 banks were designated to collect NESS fees were reduced to 12. However, 2 more banks, Ecobank and Spring Bank were appointed on the 26/1/2007 by the Government, bringing the total to 14 banks. The current list of the banks designated for the collection of NESS fees includes the following:

  1. Afribank Nigeria Plc
  2. Diamond Bank Plc
  3.  Fidelity Bank Plc
  4.  First Bank Nigeria Plc
  5.  First Inland Bank Plc
  6.  Guaranty Trust Bank Plc
  7.  Oceanic Bank Plc
  8.  Skye Bank Plc
  9.  United Bank for Africa Plc
  10.  Union Bank Nigeria Plc
  11.  Wema Bank Plc
  12.  Zenith Bank Plc
  13.  Spring Bank Plc
  14.  EcoBank Plc

Under the Nigerian Export Supervision Scheme (NESS), all exports from Nigeria are subject to inspection by the Inspection Agents prior to their shipment; with the exception of the following:

  • Personal effects
  •  Used motor vehicles
  •  Day old poultry
  •  Human parts for transplant purpose
  •  Human remains
  •  Vaccines
  •  Yeast
  •  Periodicals / magazines
  • - Non-commercial exports, such as gifts, trade samples/printed business matter, machinery and equipment for repairs abroad and return to Nigeria, machinery and equipment for replacement, return of machinery and equipment after execution of a specific contract, re-exports and trans- shipments.
  •  Supplies to diplomatic consular missions and international organizations for their own use.

In order to avoid multiple examinations and minimise delays during inspections, all the relevant agencies (e.g. Nigeria Customs Service, National Agency for Food and Drugs Administration and Control, Standards Organisation of Nigeria, Nigerian Drug Law Enforcement Agency, Department of Petroleum Resources, Weights and Measures Department of Federal Ministry of Commerce, etc) are encouraged to simultaneously work with the Inspection Agent in order to ensure that the quantity, quality and prices of Nigerian exports conform to the International standard.


Import Trade Transactions in Nigeria

Inspection of Goods:

After several years of Pre-shipment Three (3) Service Providers were appointed with one service provider on the interface of the DI and ouster data. Inspection spanning over two decades, Government re-introduced Destination Inspection (DI) Scheme with effect from January 2006. The Destination Inspection Scheme is anchored on a 7-year Build-Own-Operate and Transfer ( BOOT ) arrangement involving three Scanning and Risk Service Providers (SRSP); while a fourth company provides an interface between the service providers and the Customs, based on the United Nations Conference on Trade and Development(UNCTAD) software, known as Automated System of Customs Data Analysis (ASYCUDA) ++.

The Scanning and Risk Service Providers (SRSP) are listed below:

  • Cotecna Destination Inspection Services Ltd
  •  Societele Generale De Surveillance(SGS) Ltd
  •  Globascan Nig. Ltd
  •  Webb Fontaine Nig. Ltd(providing an interface between the Customs and the DI Service Providers)

Allocation of Sea Ports to the DI Service Providers:

The ports were allocated to the DI Agents in the following order:

Cotecna Destination Inspection Services Ltd










Tin-Can Island




Societe Generale De Surveillance(SGS) Ltd







Port Harcourt Airport



Port Harcourt




Global Scansystem Ltd







Murtala Muhammed Int.l Airport Cargo

Seme Border






Grimaldi Concession Terminal was added to lot three with effect from December 2006.

Risk Assessment Reports (RAR) is issued on the basis of inspections carried out on imports.

Update on ASYCUDA Implementation

The Customs processes in some major Nigerian ports have been automated by the deployment of the ASYCUDA software e.g. Apapa , Tin-Can and Murtala Mohammed International Airport , Lagos .

Import procedures:

Import procedures have been simplified to facilitate trade. Any person intending to import physical goods into the country shall in the first instance process Form ‘M' through an Authorised Dealer Bank irrespective of the value and whether or not payment is involved.

The Form M for general merchandise has an initial validity period of six months for all imports except plants and machinery which has a validity of one year. Initial revalidation of the Form M shall be handled by the Authorized Dealer Bank without recourse to the Central Bank.

Appropriate import duties are paid in respect of imports to the Bank that established the Form ‘M'.

Further details on documentation for importation into Nigeria shall be obtained from the Authorised Dealer Banks.

Structure of Nigeria's Foreign Exchange Market

We have witnessed a remarkable improvement in the exchange rate of Naira over other exchangeable foreign currencies of the world. Since 1986 following the introduction of Structural Adjustment Programme (SAP) to date, the exchange rate has moved from regulated, guided deregulation and deregulation. This is because the world has globalised where best practices are being adhered to.

Before the reintroduction of Dutch Auction System (DAS) on July 19, 2002, the objective of which includes:

  1. the determination of the exchange rate of the Naira through interplay of demand and supply;
  2. conserve external reserve position;
  3. reduce to the barest minimum the premium between official rate and that of the parallel market and or the bureaux de change (BDCs);
  4. iv. ensure stability of the naira exchange rate.

A review of DAS performance from July 19, 2002 to February 17, 2006 as it relates to the objectives, showed that it has achieved substantial aspect of the objectives as follows:

  1. Premium between the CBN rate and that of bureaux de change (BDCs) and the parallel market was N16.8199/$1 and N16.3505/$1 respectively in early 2002. The situation improved to N7.3471/$1 and N6.8741/$1 by December, 2004.
  2. From a reserve position of US$8.0 billion in 2002, the country has as at end January, 2006 the sum of US$30.0 billion in the reserve- over 300% increase and about 30months of import level.
  3. The exchange rate has been stable since the commencement of DAS particularly in the year 2004. Year 2004 opened with a rate of N137.00/$1 and closed with an exchange rate of N132.85/$1, indicating an appreciation of N4.15 (or 3.03%). There was further improvement in 2005 as the naira appreciated by 2% from N132.00/$1 to N129/$1 as at end December, 2005.
  4. The Dutch Auction System (DAS) has succeeded in checking and reversing the pressure on the external reserve position since genuine demands were met.
  5. DAS succeeded in encouraging professionalism and transparency in foreign exchange transactions. This is because there is discipline among the end-users as they pay according to their bids. They are more careful and realistic in their bids, thereby encouraging stability and discourage speculation in the market.

The achievements recorded under DAS regime could be attributed to the following

  1. improvement in the external reserves position of about US$20.0 billion as at December, 2004 which has increased to US$30.0 billion at the end of January, 2006.
  2. Greater autonomy of the CBN and its increased discretion in deployment of instruments of monetary control to support DAS.
  3. emergence of an inter-bank market for foreign exchange which stabilized supply gaps between auctions.
  4. Reduction in inflationary pressures, for instance, as at the end of December, 2004, inflation rate was about 9.5% as against 23.8% recorded at end period 2003.
  5. Disciplined fiscal operation particularly in year 2004.

During the year 2005, there were special auctions offered in the market.

The special auctions were done to fast track the implementation of Wholesale Dutch Auction in which the offers were sold to the Authorized dealers on their accounts. The special auctions which started during August 2005 succeeded in revaluing the Naira exchange rate.

Wholesale Dutch Auction System (WDAS) was introduced on the February 20, 2006 replacing the retail DAS. The difference between the retail DAS and WDAS are as follows:

  1. under the retail DAS, end-users were allowed to bid through their banks.
  2. under the WDAS, Authorised Dealer banks, bid on their accounts and the successful banks would then sell to their customers.
  3. As a result of successful consolidation of bank, the number of banks have reduced from 89 to 25 banks. That means only successful banks among the 25 banks would buy up the foreign exchange offered to the market.
  4. The exchange rate under the new WDAS has stabilised and continued to improve the operations of the foreign exchange market. As at Monday March 20, 2006 the exchange was N128/$1.

Export Trade

The department ensures that non oil exports are encouraged. The value of export proceeds repatriation is captured. The repatriation and its utilization in the domiciliary account has been liberalized with reference to Circular on Modification of Export Domiciliary Account Operations and Transport Mode for Exports dated January 19, 2006, empowers Account holders to appropriate in any way he/she deems fit. This arrangement is to enhance foreign exchange supply to small-end users This is in line with government economic reforms.

Import Trade Transactions

Another development is the newly introduced Destination Inspection Scheme which is to replace the old arrangement of Pre-shipment Inspection Scheme (PIS). With effect from January 1, 2006, the Federal Government introduced Destination Inspection to replace the Pre-shipment Inspection which had been in operation for over 25 years.

Under the Pre-shipment Inspection (PI), Pre-shipment Inspection Agents (PIAs) under take the inspection of goods imported into the country. The designated inspection agents were:

  1. SGS
  2. Swede Control Intertek and
  3. Cotecna.

The Pre-shipment Inspection Agents were contracted by the Federal Government of Nigeria to examine the quality, quantity and value of goods imported into the country.

The economic reform embarked upon by the Federal Government informed the new transition to Destination Inspection Scheme (DI).

Under the Destination Inspection Scheme (DI) Scanning Companies (SC) have been appointed to replace the Pre-shipment Inspection Agents (PIAs). The three (3) companies are:

  1. Cotecna
  2. SGS; and
  3. Globascan.

The Scanning Companies generate Risk Assessment Report (RAR), which evaluates the level of risk involved vis-a-vis the importer, exporter, types of goods, country of supply etc and then determines the level of inspection required. The RAR is an input document to the actual inspection process.

Nigeria Customs Service (NCS) analyses the RAR and takes a final decision on level of inspection required - (a) inspection is then carried out where required and the Assessment Notice (AN) is printed; (b) importer collects a copy of the (AN), which is used to pay for import duty and other taxes.

The functions of the Department is dynamic, as most of the operations impact on the economy at large.


Facts : 1/1/1967
PHYSICAL EXPANSION:Benin Branch was opened.
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