THE decision of the Central Bank of Nigeria (CBN) to enable airline operators in Nigeria have access to foreign exchange is commendable. This special arrangement known as Secondary Market Intervention Retail Sales, is the outcome of weeks of negotiations between the authorities of the Ministry of Transportation, led by the Minister of State(Aviation)Sen. Hadi Sirika and the Governor of the CBN, Godwin Emefiele.
Last week, the Senate warned that the sector faces imminent collapse unless the Federal Government intervened swiftly. Though this special intervention measure ought to have come earlier than now ,nevertheless, it will engender market confidence by enabling domestic airlines which have long been reeling from turbulent forex constraints to settle their obligations and sustain the integrity of the Nigeria inter-bank forex market. Indeed, the scarcity of forex has resulted in many of the airlines suspending their operations. It has also hit hard on their profitability margins as many of them have also laid off staff.
Under the special forex intervention, about $600 million is expected to be made available to the airlines monthly under the aegis of Airlines Operators of Nigeria (AOP) through the official exchange rate. The fund will also help the airlines carry out the mandatory safety checks on aircraft. Also, many of the airlines are insolvent.
One of the key components of this peculiar arrangement, according to the CBN, “is that it will not apply the relevant provisions under clause 2.4.3(1)of its Revised Guidelines for the operation of the Nigerian inter-bank FX.” This clause provides specifically that all Secondary Market intervention Retail Sale bids shall be submitted through the FXPDs. CBN also said it will henceforth receive bids from all the authorised dealers in foreign currency before the particular end-user will receive any allocation.
In other words, CBN will not apply the prevailing provisions that require that spot forex sold to a particular end-user shall not exceed one percent of the overall available funds on offer at each secondary market intervention sales session. In addition, the apex bank says that whereas bids are on spot FX basis, the Authorised Dealers (that is, the airlines) will be debited in full for the naira equivalent of the dollar bid amount.
Thereafter, CBN will settle the bids through ‘forward settlement’ of two months. Simply, this arrangement will ensure access to FX and boost confidence in the inter-bank forex system.
Although some experts in the aviation sector have expressed strong reservations about the intervention by the CBN, arguing that it will not provide the solution to the present forex scarcity that has hit the operations of many sectors of the economy, including the aviation industry, all the same, it is the oxygen that could sustain the sector currently beset with many challenges. The latest intervention by the CBN underscores the funding challenges facing the Nigerian aviation sector. Early this year, a bailout of $476m was made available to the local aviation industry, even as the sector is said to have accumulated so much debts. While the present financial straits facing the sector have resulted in suspension of operations, and only a few airlines have resumed flight operations, some stakeholders favour government’s continued involvement in the activities of the sector.
Our position remains that in spite of this, the critical role of the sector is such that government’s intervention has become necessary. There could be more problems for the sector if the current one is not addressed. This is in addition to long-standing problems that include Jet A-one fuel, obsolete equipment, dilapidated infrastructure and security issues.
Moreover, the recent exit of many foreign airlines from Nigeria, citing trapped revenues in the country and four other countries does not help matters. According to the International Air Transport Association (IATA), Nigeria is said to be owing foreign airlines about $591million.
Altogether, Nigeria needs a robust air connectivity in the present effort to diversify the economy. But that could be hampered by the difficulties of airlines to source forex. The inability to resolve the disturbing developments in the Nigerian Aviation industry will affect the economy and Nigeria’s national image. It may possibly lead to the collapse of the aviation industry.
While we urge the airline operators to judiciously use the intervention funds, settling the current forex scarcity and other challenges in the aviation sector will greatly improve the Ease of Doing Business in Nigeria.