The Central Bank of Nigeria (CBN) recently issued a circular referenced TED/FEM/FPC/GEN/001/008 dated October 6, 2020 with the subject: compliance with export procedures In Nigeria. This circular is aimed at ensuring that every item exported from Nigeria is registered on the Non-Oil Export Proceeds (NXP) processing platform called the Trade Monitoring System (TRMS). This is not the first time such a circular had been issued with no compliance on the part of the stakeholders. CBN issued a similar circular sometimes in June 2017 and this had remained unsuccessful. I think it will be an effort in futility if CBN just simply issue this circular again and expect the stakeholders to comply. It will be like doing the same thing the same way and be expecting a different result.
As a matter of fact, I spoke to an airport forwarding agent that pleaded anonymity on this issue and show him the new circular and the response was “Not compulsory compliance as at this morning. It’s just another avenue for port agencies to extort more money from exporters. It’s not going to work” if this is the response of a stakeholder, then this circular will go the way of the former one if it is not followed with action. If you engage an agent today and you said you want to export through the seaport they will ask you do you want the shipment to be done with or without NXP and they will give you different rates for the service with the fees for shipment without NXP being as high as N50,000 extra payment per container.
It is also important to note that undocumented export is driven by foreigners who come to source commodities in Nigeria. These foreigners, who came into Nigeria with visiting Visa, do not have companies registered in Nigeria, they simply partner with a Nigerian to bring in the foreign exchange, convert it to Naira and use it to purchase commodities that are exported to their parent companies abroad. The second set of people are exporters who want to profit from the large variance between parallel market rate and official rate. Another group of people who export without documentation are importers who export commodities in order to source for foreign exchange to fund the importation of their goods into the country. The last set of culprits that are engaged in this illegal act of exporting without documentation are those doing those doing trade-based money laundering.
The new CBN circular was aimed at ensuring that all export from Nigeria is done via NXP in order to be able to track the expected export proceeds and follow up on the exporters in order to ensure that the export proceeds are repatriated. In order to ensure that this is done, all Shipping lines and Airlines (who are the carriers) are expected to state the NXP number respectively on Billing of Lading and Air Waybill that they issue to the exporters. When this circular was initially issued in 2017, the exporters are the ones to make the NXP numbers available to the carriers and that means they can give them a fake NXP number without the carriers being able to validate the authenticity of the NXP numbers. Now that the NXP processing has been automated via the TRMS, the carriers must have access to the TRMS to be able to pick up the NXP by themselves for every Bill of Lading or Air Waybill that they issue for exporters.
However, even with this automation and the carrier having access to the TRMS, the issue of illegal export via seaport or airport without the processing of NXP will not stop until the CBN address the four major factors that are causing the issue of undocumented export to continue to increase in the country. This is because these are fundamental issues that are driving the illegal act of exporting out of the country without documentation. These factors are Collaboration, Competitiveness, Chastisement and Corruption. If the first three of these factors are addressed by the CBN, it will reduce the impact of the last one which is corruption, on the rising level of undocumented export out of the country. However, if these factors are not address, the problem is going to remain even if ten circulars are issued by the CBN. Also, if CBN is going about to punish exporters who processed NXP without repatriating the proceeds, this will make them to either join other exporters who are doing undocumented exportation or do their export through the neighbouring countries like some of them have already started doing. Which means, they source for goods in Nigeria, ship it through the land border to Benin Republic and then ship it out from there through their seaport.
The first factor is Collaboration, and this is the first issue that CBN must address in order to stop the menace of undocumented exportation. CBN needs to collaborate with exporters, carriers and the regulators of the carriers like the Nigerian Shippers Council, Nigerian Port Authority, Nigerian Civil Aviation Authority, Federal Airport Authority etc. CBN must have a regular engagement or forum with these stakeholders in order to be able to investigate the reason for undocumented export and also educated them on the effect of this act on the national economy which indirectly impact on the cost of living of the people of Nigeria of which they are one. Such a forum should also be used to get some suggested solutions regarding what CBN needs to do in order to stop this from happening again. What CBN must stop doing is to issue circular and just expect the other stakeholders, particularly the regulators to comply. Even if it means that CBN will use part of the NESS fee paid by exporters to pay a monitoring fees to these regulators in order to implement the circular then that has to be done.
Competitiveness is another challenge for the rising level of undocumented export. What CBN did not realise is that as the exchange rate of Naira to dollar is rising, the local market price for the products are also rising but the export market price remain stable or even decline from the impact of COVID-19. So someone that is exporting Hibiscus flower that use to export a tonne at about N380,000 when exchange rate was N360 to a dollar now has to pay about N445,000 per tonne to export the same products due to increase in cost of products and logistics while the export market has largely remain stable. This means that the only way to break-even is to leverage on the exchange rate differential. However, a situation where the exporter is forced to sell at 380 via the I&E window will mean a loss to the exporter and this will be a disincentive to use NXP or the bank in their export process. So in summary, CBN is making Nigerian exporters to be uncompetitive in the export market by forcing them to sell the export proceeds at a rate that is much lower than what is obtainable in the parallel market. CBN must liaise with exporter to find a balance that works for both the exporters and the government.
Chastisement or punitive measures is the third factor that must be introduced, and this is the whole essence of the proposed collaboration. CBN should have a solid arrangement with the regulators of the carriers to fine the carrier that fails to input a valid NXP number on the transport documents (Bill of Lading or Air Waybill) being issued by the carriers. This means that there must be a monthly audit of the transport documents being issued for exportation by all the carriers operating in Nigeria to ascertain that all the documents have NXP number and that the NXP numbers are validly issued via TRMS to the company stated on each of the documents. If CBN is ready to pay for this monitoring by these regulatory agencies, that might be an incentive for them to hire a staff that will be doing the audit and reconciliation with CBN staff at the end of every month. This way the erring carriers can be identified and sanctioned appropriately. This will consequently force all exporters to process NXP for their export transactions.
Corruption is another factor that must not be ignored in the enforcement of compliance to the export procedures. However, if the three factors discussed above are addressed, then the impact of corruption on the rising level of undocumented export in Nigeria can be significantly reduced. What is empowering corruption at the port regarding exportation without NXP is policies of government that does not carry along the stakeholders and also does not factor in the profitability of the main actors in the export business, that is the exporters themselves.
Finally, if the CBN wants the enforce compliance with the new export procedures, then it must collaborate with the stakeholders to get their buy in, allow exchange rate regime for exporters that boost competitiveness, work with the regulators of the carriers to penalise the erring airlines and shipping line and all these have the tendency to reduce the corruption that empowers the continuous shipment of undocumented goods out of Nigeria through all the major seaports and airports in the country.
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