How CBN Prevented $3Billion Loss To Capital Flight

EMEFIELE-G

Godwin Emefiele, CBN Governor

THE Central Bank of Nigeria (CBN) may have conserved for the country $3b that could have been lost to capital flight in the last few years, with the directive on commercial banks to always confirm the reasonableness of forex request for freight component of their international transactions.

Authoritative sources said the apex bank had since issued a directive to all commercial banks that forex request for the purpose of freight and other related charges in international business should not be honoured until they are investigated to authenticate and ascertain their reasonableness.

The directive was as a result of discoveries that many businessmen were using freight component of their transactions to transfer money in hard currency out of the country, especially business profit, by inflating cost of freight that is always in Dollar denomination.

The CBN, in this regard, is collaborating with relevant government agencies with specialisatiion in freight to curb the nefarious behaviour, which sources said had contributed to the present pressure on the country’s external reserve and the depreciation of the Naira.

To put an end to capital flight in this area, the CBN had since directed commercial banks to forward Dollar request from individuals and corporate organisations to the Nigerian Shippers Council to verify the reasonableness of the rate before granting all request for freight.

The Executive Secretary of the council, Hassan Bello, who confirmed last week said the apex bank, was collaborating with the council to end capital flight, by directing banks to refer forex request for freight component of the international transaction to it for verification.

“We are in working agreement with the Central BANK of Nigeria in order to ascertain the reasonableness of freight and other related charges in their forex demand. The CBN is doing this to stop capital flight from Nigeria. If you stop capital flight, you are conserving foreign exchange and strengthening the Naira. You are also stopping leakages and financial hemorrhage in the nation’s revenue system. With our appointment by the CBN, compliance level among international businessmen is now very high as no fewer than three cases are referred to us every day for verification, because we have the international rate. Since we have been doing this job for the CBN, we have helped to save $3b because we have been insisting on rate applicable at international level to reduce what the bank could have given without the verification exercise.

“So since they know that they will be referred to us and we will ask the banks to do the right thing, they now make accurate declaration when applying for foreign exchange for their transactions. We have been able to do this because the CBN issued a circular to all banks to direct all request for forex for the purposes of freight in their international transactions to the council for verification.”

Financial experts have given reasons for capital flight and ways to control it for the benefit of the economy. They said there is need to provide adequate security to guarantee investments and a very friendly business environment.

Dele Oguntebi, a financial and management consultant and the Chief Executive Officer of Consolidated Management Consultants ltd, said, “the CBN has started well by regulating the use of ‎electronic banking outside the country. It placed a ceiling on the amount that can be expended with the use of ATM outside the country. This has been a major source of capital flight. The introduction of the BVN will further help the CBN to check those that might open multiple accounts with various banks to beat the regulation.”

On measures to be taken as a nation to end capital flight, he said, “CBN must aid the government to trace and recover proceeds of corruption, particularly in oil, gas and maritime sectors. It must work with other relevant government agencies to put in place effective and efficient structures‎ that ensure transparency in business processes and statutory collections. It must also work with the Presidency to ensure that bailout is directed to productive sector. “

Dele Balogun, a financial consultant, said capital flight could be unhealthy for the country if the trend is sustained. It occurs as a result of round tripping tactics of Nigerian co-owners of foreign companies. This is also a form of capital flight in the sense that it may appear that those companies may have made profit. When they make profit, we know they will declare dividends. It is the duty of that country to allow investors to repatriate their profit.”

Continuing, he said, “Sometimes, they may not just be repatriating the profit or dividend that had been shared, they may even be repatriating much more than what they put in originally, which is also a source of capital flight.”

On the negative effect of capital flight to an economy, he said, “Capital flight generally has an adverse effect in the sense that it promotes under development as foreigners might divest in your country if there is political instability or insecurity. Implication of that is that it tends to undermine the domestic capacity for production, as divestment could replace domestic initiatives for industrialization.

“It makes a country more dependent on foreign goods than it should have been. If we have to towed the path of industrialization, like China did when they shut their doors to foreign goods, and stressed essentially that goods consumed within their shores should be indigenous products, capital flight would be reduced. Capital flight also presurises the value of the Naira, when you do not generate enough foreign currency and you depend on imported goods.”



4 Comments
  • bobo

    That’s not true. I was a witness to $1m been requested on a Friday evening in the first quarter of this year by a politician, and it was a done deal within a few minutes. The bank managers don’t comply when they’re getting their 4 or 5 percent fee.

    • Imea

      Where are all those who are shouting that change has come with this present administration. Does a leopard change its skin. Well here is an eye witness. When is this politician going to be investigated?. It is all a question the pot calling the kettle black.

    • emmanuel kalu

      well the policy is good, however what we continue to deal with in nigeria is the enforcement and implementation of policy. policies and rule on paper are no good if not enforced.

  • emmanuel kalu

    we would generate more progress if most MDA continue to work with the central bank to push policies that benefit the nation. The ban on forex for those 41 item is good. This is also a good policy. however all this policy if not well implemented and supported by other policies, would only just do harm. our MDA need to start working as one.

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