Short on time? Here are the highlights:
- Nigeria has introduced foreign exchange controls in a bid to prop up its currency
- These limits on foreign currency use have been expanded over the past year, and now include a ban on the use of Nigerian bank cards for payments or withdrawals overseas
- Earlier this month, Nigerian President Muhammadu Buhari confirmed for the first time that the Central Bank of Nigeria would no longer allow foreign exchange transactions for payments for study abroad
- This means that parents who need to acquire foreign funds to support their students abroad must now do so outside of official channels, at a much higher exchange rate, or via foreign currency accounts held abroad
The Nigerian government has added study abroad to a growing list of expenditures for which it will no longer provide foreign exchange from the Central Bank. This means that Nigerian parents can no longer purchase foreign currency through official bank channels in Nigeria in order to pay foreign school fees. In practice, it also means that parents who need to acquire foreign funds to support their students abroad must now do so in the open market, at a much higher exchange rate, or via foreign currency accounts held abroad.
The Central Bank of Nigeria (CBN) has been expanding currency controls since June 2015, when it published a list of 40 types of transactions (rice, cement, and many others) that would no longer be eligible to access foreign exchange in the official Nigerian forex market. Later in the year, it curtailed the use of foreign currency-denominated Nigerian bank cards. And, in December 2015, the CBN also moved to completely ban the use of naira-denominated Nigerian bank debit cards for overseas transactions or withdrawals. The Financial Times describes the illustrative case of Uwanma Odefa, a 34-year-old radio talk-show host in Lagos, who had to forego a planned shopping trip in London recently when her bank cards were rejected.
Ms Odefa is still supportive of the policy to limit foreign currency use but, according to the FT report, nevertheless argues that, “People carrying out ‘legitimate business transactions’ abroad — such as shopping or paying fees for private schools in the UK or the US — should not be swept up in the generalised clampdown. She intends to enrol in a Masters programme in London later this year, but worries about the logistics of paying fees. Unlike some super-rich Nigerians, or those more established abroad, she doesn’t have a foreign bank account.”
Nigeria is limiting the use of foreign currency in a bid to fight off downward pressure on the naira. The collapse in world oil prices has led to a steep decline in foreign currency revenues coming in to the country, and to a corresponding erosion in Nigeria’s foreign currency reserves. The CBN appears to be moving to protect its remaining forex reserves, in part so that those funds can be used to prop up the naira.
In response to the mounting downward pressure on the naira, the CBN has officially devalued the currency twice over the past year or so, first from N160 to N176 to the US dollar in November 2014 and then again in February 2015 when it set a new official rate of about N196 to the dollar. As of 23 March 2016, this remains the official exchange but the currency is much weaker outside of this CBN rating.
In informal markets, the exchange rate was reportedly running as high as N385–N400 per US dollar as of late-February 2016. This gap sets up a stark contrast between official and “unofficial” exchange channels where Nigerians can expect to spend twice as much for forex outside of CNB-sanctioned transactions. The CBN intervenes from time to time to make forex available at the official interbank rate but it is nowhere close to keeping up with demand.
No forex for study abroad
Nigerian President Muhammadu Buhari announced the government’s decision to limit forex for study abroad in an interview with Al Jazeera earlier this month. “Those who can afford foreign education for their children can afford it but Nigeria cannot allocate foreign exchange for those who decide to train their children outside the country,” said the President. “We just can’t afford it. That is the true situation we are in.”
The President’s firm position speaks to the commitment of the government to protect the value of the naira as much as possible. There are mounting calls from economists, including the International Monetary Fund, and multinational firms and investors to relax foreign exchange controls and devalue the naira. The CBN is clearly reluctant to do so, however, and not in the least because of the country’s heavy reliance on imports. The concern – given that, as the President says, Nigeria “virtually imports everything, from rice to toothpicks” – is that a devaluation of the currency would cause additional hardship for Nigerians by causing prices to rise. Other observers point out, however, that day-to-day living costs are already going up anyway, with inflation of 9.6% in January and 11.4% in February alone.
Most recently, in a 21 March 2016 speech in Abuja, the President said that he sees the limits on foreign currency as a “a temporary phase which we shall try to overcome.” In a related report, Bloomberg noted that, “Governor Godwin Emefiele said on Tuesday the central bank is committed to currency stability, though it noted concerns about foreign-exchange shortages. The central bank [is] in consultations with stakeholders on ways to improve foreign exchange supplies.”
However the story unfolds with respect to currency controls, there are more and more indications that the studies of Nigerian students already abroad are being disrupted. University World News reported recently on an update from a Nigerian newspaper: “Last week, the Nigerian tabloid Daily Trust published a survey indicating that Nigerian students were stranded across the world because of the foreign exchange crisis…The paper’s correspondents found many Nigerian students abroad suffering serious financial difficulties and contemplating returning home because of lack of funds for tuition fees and other essentials.
Some students complained that their parents could only source forex at very high exchange rates on the ‘parallel’ market because commercial banks charged black market rates when students made withdrawals with ATM cards…Before [President] Buhari halted Central Bank assistance to students abroad, devaluation of the naira had negatively affected their living conditions. Now there are fears that [the President’s] directive to the Central Bank could translate into a mass exodus of Nigerian students from their host countries.”
As this suggests, the weakening Nigerian economy is having a drastic effect on the plans of individual students and families. At a macro level, there is a profound significance to the deteriorating value of the naira as well in that Nigeria is one of world’s most important emerging markets for education. Demand for higher education in Nigeria greatly outstrips supply and tens of thousands of Nigerians – both privately funded and those with scholarship support – go abroad to study every year. Given the scale of outbound mobility in Nigeria today, as well as its projected significance in international education markets over the next decade and more, the progress of the Nigerian economy will no doubt remain a subject of keen interest for many international educators.
For additional background on this key market, please see our recent report, “Falling oil prices put Nigerian scholarship funding in doubt.”