Research
Last month, the Central Bank of Nigeria (CBN) launched the e-Invoice and e-Valuator to replace hard copy invoices used in foreign trade transactions. The new policy was announced on January 21, 2022, and it was scheduled to go into effect on February 1, 2022. Stakeholders' reactions to its introduction were mixed, with some positive and some negative. The average Nigerian is well aware of the country's limited foreign exchange earnings, which have resulted in low reserves and a weaker naira. As part of its efforts to efficiently allocate its limited stock, the CBN implemented e-Invoicing for a more transparent and efficient foreign trade system. This initiative was also launched to determine the exact value of imports and exports.
This new policy will apply to all foreign trade transactions exceeding $10,000, with most of such transactions falling in this category, only a few will be exempted. Exemptions also apply to imports and exports by security agencies, international organizations, and government donations. Meanwhile, transactions are to be recorded in a database known as the Trade Monitoring System (TRMS), for which a $350 annual subscription fee is charged. Aside from the subscription fees, the database could help the CBN by providing a reliable data source for FX projections and monitoring. It could also help with the detection of fraudulent leaks and the digitization of manual processes. However, the policy could hinder negotiation off-prevailing market price, which may be advantageous to the exporter.
As part of its transaction guidelines, the CBN will use a verified global checkmate price that will be established at the time of invoicing. All exporters and importers must adhere to the pricing guidelines, which require invoice values to be within a + or -2.5% range of the benchmark price. Otherwise, the associated Form M or NXP will be rejected. With the CBN's goal of increasing the value of our currency in mind, this pricing system may benefit exporters more than importers, as the former may benefit from higher export prices while the latter may be forced to import goods at a higher price. However, we must not rule out the possibility that exporters may wish to offer discounts in order to increase sales. As a result, negotiated prices may fall outside of the CBN's price benchmark bandwidth. This could imply that importers will have to import at higher prices in order to meet the CBN's benchmark, raising the cost of imported goods and exacerbating inflationary pressures.
In conclusion, while the e-invoice may aid in the prudent use of scarce forex reserves, we must not overlook the underlying cause of the invoicing disparity that encourages leaks. We attribute this to the arbitrage advantage in the FX market. Many exporters avoid using official channels to repatriate funds because the black-market exchange rate is higher. The spread between the I&E window rate and black-market rate is over ₦100. As a result, the CBN is plagued with difficulty in incentivising exporters to repatriate funds via the official channel. However, initiatives such as the Naira 4 Dollar policy and the recently introduced RT200 are being implemented to boost dollar remittances into the country. Overall, while we note the potential benefits of this system, we also recognise the drawbacks that could arise. The goal should be a system that supports a transparent foreign trade system while also facilitating trade transactions. Hence, there is a need for collaboration with stakeholders and pilot testing so that loopholes can be quickly identified and addressed.