Nigeria announces UAE-backed FX liquidity programme

Nigeria's president, Bola Tinubu has announced that the country is working on a joint foreign exchange (FX) liquidity programme with the United Arab Emirates (UAE).

Nigeria's president, Bola Tinubu has announced that the country is working on a joint foreign exchange (FX) liquidity programme with the United Arab Emirates (UAE). He disclosed this after a meeting with Mohamed bin Zayed Al Nahyan, UAE president, in Abu Dhabi, on Monday.

However, he did not state the scope of the programme. “Details...will be announced in the coming weeks,” Tinubu posted on X. Since his inauguration as president over 100 days ago, Tinubu has continued to roll out policies that will mitigate the foreign exchange crisis in the country.

In recent times, the Central Bank of Nigeria has played a major role in supplying dollars to the FX markets in the country—the Investors and Exporters window, the Bureau De Change (BDC) window, and the Small and Medium Enterprises window. This is due to the limited FX supply from exporters and foreign investors.

However, it has led to increased rates and has also impacted negatively on the country's external reserves.  “As reserves dwindled, foreign investors and local businesses could not access dollars easily. Thus, this FX scarcity placed a premium charge on windows with more straightforward access (i.e. BDC window). However, the challenge was that the BDCs could only serve a fraction of the total market,” writes Benjamin Dada and Joshua Ishola, a financial consultant and global markets associate.

A year ago, UAE's Emirates suspended all its flights in and out of Nigeria due to its inability to repatriate $85 million stuck in Nigeria—an impact of the FX crises. “Airlines can't be expected to fly if they can't realize revenue from ticket sales,” says the International Air Transport Association (IATA). “Loss of connectivity harms the economy, hurts investor confidence, and impacts jobs and people’s lives. The Government of Nigeria needs to prioritise the release of funds before more damage is done.”

In June, IATA said Nigeria owes $812.2 million out of $2.27 billion in trapped funds, making it the country with the highest trapped funds globally. 

Later in October 2022, the UAE imposed a visa ban on all Nigerian travellers. Although the reason for the ban was not disclosed, several commentators described it as part of sanctions for the trap funds.

Following Monday's meeting between Tinubu and Zayed Al Nahyan, the ban has been lifted and the suspended UAE-based airlines—Etihad Airlines and Emirates Airlines—will also resume operations in Nigeria. “As negotiated between the two Heads of State, this immediate restoration of flight activity, through these two airlines and between the two countries, does not involve any immediate payment [of trapped funds] by the Nigerian government,” according to Ajuri Ngelale, Tinubu's spokesperson.

This exemption is possibly part of the FX liquidity programme that is underway. While we await the details in the coming weeks, it is possible that the programme will be similar to the incident where the UAE, Qatar and Saudi Arabia gave $22 billion to Egypt to cover its account deficit.

The UAE government has agreed on a framework to “make investments worth several billions of U.S. dollars into the Nigerian economy...covering multiple sectors including defence and agriculture,” Tinubu said in a post on X.

Although a news report from Emirates News Agency, the UAE-state media, which was posted by the UAE Embassy in Nigeria did not corroborate Tinubu's and Ngelale's statements in detail, the report said: “The UAE President and Nigerian President explored opportunities for further bilateral collaboration in areas that serve both countries’ sustainable economic growth, including the economic, development, energy, and climate action fields.”

“The two sides also exchanged views on a number of regional and international developments of interest,” it added.

At the time of this report, flight schedules in and out of Nigeria via Emirates and Etihad, UAE national carrier, were unavailable.

This is a developing story, we will bring you more details as it unfolds.