Forward contracts are financial agreements where two parties agree to exchange a specified amount of one currency for another currency at a predetermined future date and exchange rate.

The Central Bank of Nigeria (CBN) initiated agreements with Nigerian businesses to sell forward contracts, which essentially promised the businesses a fixed amount of dollars at a predetermined price in the future. These contracts allowed the businesses to open Letters of Credit (LCs), which are a form of payment guarantee issued by banks on behalf of the importers.

With the assurance of receiving the promised dollars from the CBN, the businesses utilized these LCs to import goods from foreign suppliers. The expectation was that when the goods arrived, the CBN would release the dollars to the importers, allowing them to fulfill their payment obligations to the suppliers. This system ensured a smooth flow of imports and facilitated international trade for Nigerian businesses.

However, since February 2023, the CBN has been unable to fulfill its promises and has not provided the businesses with the dollars they were allocated under the forward contracts. As a result, there is now a significant backlog of approximately $3 billion owed to these businesses. This means that the businesses are unable to fulfil their obligations to their foreign suppliers, leading to disruption in the supply chain and potentially damaging their relationships with international partners.

The consequences of the CBN’s failure to meet its commitments are not limited to domestic businesses alone. Foreign investors also have a substantial backlog of approximately $10 billion owed to them by the CBN. This impacts the confidence and trust of foreign investors in the Nigerian economy, potentially deterring future investments and harming economic growth.

Moreover, the shortage of foreign exchange liquidity resulting from this failure has forced the CBN to suspend various transactions. These include payments for school fees and Personal Travel Allowance (PTA) applications, causing inconvenience and financial difficulties for individuals who rely on these services.

Overall, the CBN’s failure to fulfil its promises has had significant financial consequences for the businesses involved, leading to a backlog of owed payments and disruptions in international trade relationships. This has also negatively impacted the broader economy’s stability, with suspended transactions and a potential decrease in foreign investor confidence. Resolving this issue and restoring trust in the CBN’s ability to honour its commitments will be crucial for the recovery and growth of the Nigerian economy.

To address this huge Forex backlog, President Bola Tinubu at the 29th edition of the Nigeria Economic Summit Group (NESG) announced that “consistent with our commitment to enshrining fairness and the rule of law in our country, this government will uphold the sanctity of every legitimate contract.

He said: “Specifically, as it relates to foreign exchange obligations of the government, all forward contracts that the government has entered will be honoured and a framework has been put in place to ensure that these obligations are met in due course.”

Tinubu also disclosed that a framework has been established to ensure that the government meets its foreign exchange obligations as stipulated in the contracts.

An official of the Central Bank of Nigeria (CBN) who was at the event said, “This framework will likely include policies, procedures, and financial resources to ensure the obligations are met as agreed upon.”

The president in his address to the NESG, said there must be consumer credit, adding that the scheme would have to come to effect as soon as possible.

He said: “I task my team and my colleagues to build this programme and develop it now. We cannot talk about anti-corruption when you have to look for cash to buy a car when there’s no mortgage for homeownership.

“Where do you expect a civil servant to have N3 million or N5 million for housing without corruption? If you don’t change and plan the welfare of your judiciary and you ask them to be fair, render justice with mercy, with a hungry stomach.

Tinubu noted that Nigeria aims to achieve a $1 trillion economy by 2026 and $3 trillion within this decade through sustainable and competitive growth.

He said the private sector is crucial to achieving this goal, and that the government is seeking collaboration and support from industry leaders to realize this vision.

He said public-private partnerships and successful models from the past will be utilized to ensure a prosperous Nigeria for all.

Tinubu said: “The private sector is encouraged to bring their ideas, leadership, and capital to build a hopeful future. I am confident that by working closely with all of you in the private sector, financing our $3 trillion National Infrastructure Stock can be achieved in 10 years and not in 300 years.

“Building megacities in every geopolitical zone of the size and scale of Lagos must not take us another six decades. We can do it in one decade. A fully networked and connected Nigeria by rail, gas, fibre optics and road network can be constructed in less than 20 years. Establishing thriving Industrial zones in every part of Nigeria is possible before 2030.”

Speaking about the need to stimulate the economy, President Bola Ahmed Tinubu disclosed that “by January 2024, the new student loan programme and consumer credit schemes will have come into effect. New and affordable homes will also be built at a record pace. We have all felt the pain of these reforms; soon, we shall begin to reap the rewards. It is my hope that this Summit will deliberate and proffer yet more solutions to complement the programmes mentioned above.

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The infusion was in keeping with its determination to increase liquidity in the foreign exchange market.

With these initiatives, the Naira has appreciated at the parallel market in spite of the rise in the nation’s foreign reserves, exchanging at N440 on Monday after closing at N495 last Friday. It also appreciated against both the Pound Sterling and the Euro by exchanging at N560 and N480 respectively as against N615 and N530 traded earlier.

Isaac Okorafor, CBN’s spokesperson said in a statement that the apex bank would do “everything possible” to ensure the steady supply of forex to the market in line with its commitment to providing enough forex for legitimate business remaining unshaken.

It will be recalled that efforts by the CBN in making available large amounts of forex to the market has led to the appreciation of the Naira by over N85 in less than one week.

There are fears in the market that the local currency may well be on a permanent journey to its natural value put by some analysts at less than N300 to the dollar.

The CBN had maintained that much of the dollar demand had been a bubble created by speculators and hoarders of the greenback.

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This is contained in a statement in Lagos signed by W.D Gotring, the Acting Director, Trade and Exchange Department of CBN.

The statement also directed authorised dealers not to sell foreign exchange to any BDC more than a maximum of 30, 000 dollars per week.

According to the statement, a BDC shall nominate its preferred dealer or a bank to procure the said amount from only that bank in a week.

It also said that the selling rate by the dealer to BDCs should be the buying rate from International Money Transfer Operators (IMTO) plus a margin not exceeding 1.5 per cent.

“Foreign exchange cash purchased by BDCs shall be sold to foreign exchange end-users at a rate not exceeding two per cent margin above the buying rate.

“The two per cent margin above shall be applicable to all funds to be retailed by the BDCs regardless of sources of funds,” CBN said.

The statement mandated BDCs to render weakly report of purchases from authorised to its trade and exchange department.

It said that funds purchased by BDCs should be eligible for Business Travel Allowance, Personal Travel Allowance, Oversees School Fees and Oversees Medical Fees.

The statement warned that any BDC which violated the above directives would be punished accordingly.

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