Stakeholders groan as CBN place restriction on $450m foreign airlines revenue
…Situation reflects acute forex liquidity crisis in Nigerian economy — Muda Yusuf
…CBN should open an aviation forex domiciliary account for foreign airlines
By Seun Ibiyemi and Ogaga Arieimu
Stakeholders in the Aviation sector have reacted to the restrictions placed on estimated $450 million revenue belonging to foreign airlines by the Federal Government through the Central Bank of Nigeria (CBN).
Data released by IATA in May 2022 indicated Nigeria restricted funds rose to 12.5% month on month. This amount represents the total amount of foreign airlines’ revenues that cannot be repatriated by the airlines.
In a report first published by Reuters, IATA claims airlines are owed about $1 billion globally in revenues held by countries suggesting that Nigeria alone accounts for 45% of the total share.
Reacting to the development, CEO of Centre for the Promotion of Private Enterprise (CPPE) and former Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, Economic Analyst, Group Captain, (Rtd), John Ojikutu, Olumide Ohunayo and Boniface Chizea said such action would make Nigeria less attractive to foreign companies, calling for domiciliary account for the aviation sector.
Situation reflects acute dollar scarcity, forex liquidity crisis in Nigerian economy.
On his part, Dr. Muda disclosed that the situation reflects the acute dollar scarcity, forex liquidity crisis in Nigerian Economy.
According to him, “The foreign airlines are part of the many victims of this crisis. The Backlog of remittances by foreign investors are in billions of dollars. This is bad for our reputation, perception by foreign investors, country risk profile and image as a country.
“Factors responsible for this regrettable development are both external and internal.
“The external Factors are the macroeconomic shocks inflicted by the pandemic and the disruptions caused by the Russian invasion of Ukraine.
“The domestic Factors are the disruptive foreign exchange policy and the structural constraints bedevilling the Nigerian economy.
“Whereas the external factors are exogenous, the internal factors are endogenous.The implication is that an appropriate framing of domestic policies could make a whole lot of difference in mitigating the current forex crisis.The foreign exchange challenge is a systemic problem, not just an aviation sector crisis,” he said.
CBN should open an aviation forex domiciliary account for foreign airlines
Similarly, John Ojikutu corroborated the position of Dr. Muda, advising that CBN should open an aviation forex domiciliary account for foreign airlines where all earnings can be deposited.
In his words, “First, the CBN is wrong to keep the airlines earnings, sure this does affect their earnings.
“My advice severally is to open an aviation forex domiciliary account with the CBN where all such earnings are kept and the dollar equivalent given to the depositors, when need in the account arises, the naira is returned and the dollar given with the necessary authority approvals.
“There is hardly any service provider in international commercial aviation that does not earn dollars for the services they provide for international flights. So, also do our own airlines that fly international flights earn dollars.
“Our own airlines that go out like British airways that make dollars outside, they should bring it back and put it to that account. All our operators starting with FAAN, including the fuel marketers that are selling fuel in foreign exchange, their money should go into that account. It is from that account the CBN will pay maybe a certain percentage and give to this airline to take back home.
“There can be nothing less than a billion dollar earnings on the FAAN and NAMA services; NAHCO and SAHCOL services; fuel marketers and catering services etc,” he said.
Also, Chizea Boniface said, “Obviously the action makes our destination as a Country less attractive.These airlines affected over this ban also have foreign exchange related expenses to bear besides the fact that returns to their shareholders cannot be paid.
“But the reality is that there is an acute shortage of dollars for many other requirements besides that of airlines and many other sectors are groaning under the pains of this excruciating scarcity.
“Unfortunately there are no low hanging fruits in this regard except if Dangote Refinery comes on stream to save the humongous fx used for the importation of PMS.
Also why we cannot leverage on technology to at least reduce the diversion of crude by militants,” he stated.
Olumide Ohunayo on his part said, “It gives the country a poor credit rating and this can affect financial activities if our airlines want to do business outside there, this will affect their rating and make it more expensive.
“Therefore for the foreign airline itself, it increases the general cost of educating, because the alliance partners too put their passengers on some of the airlines that come into Nigeria, so they will also want to make their gains andl increase the fare for routes of those traveling to Nigeria.
“Recall that Nigeria restricted the funds to allow for foreign currency to be used for imports of essential goods and services as well as for investors looking to repatriate dividends.”
According to Reuters, the IATA official, Kamal Al Awadhi described the negotiations with central bank officials as a ‘hectic ride’ suggesting that it can be frustrating to get the country officials to release funds. He also expressed fears that the situation could ‘damage’ Nigeria’s aviation sector down the road as airlines seek options to protect their revenues.
“The International Air Transport Association’s Vice President for Africa and the Middle East, Kamal Al Awadhi, described talks with Nigerian officials to release the funds as a ‘hectic ride.’ “We keep chipping away and hoping that it clicks that this is to damage the country down the road.”
Kamal Al Awadhi Awadhi also explained that CBN officials were ‘not responsive’ to releasing any funds or even paying down some of them.
Some airlines already charge higher ticket fares when it is booked from Nigeria compared to when it is booked from abroad where forex is already paid for.
Nigeria has been going through a major currency crisis as the exchange rate disparity between the official rates and the black market spike to an all-time high.
The exchange rate disparity has forced companies with forex inflows to stash their money abroad to avoid risking the need to declare locally and forced to exchange at official rates when they can make a bigger spread on the black market.
Airlines, on the other hand, charge ticket fees in local currency even though airfares are converted to local currency using the prevailing CBN Nafex exchange rate.
Nigeria’s oil revenues have also failed to plug the revenue gap as output remains lower than expected.
