In a significant policy shift aimed at bolstering foreign exchange liquidity and enhancing the formal channels of remittance inflows, the Central Bank of Nigeria (CBN) has granted eligible International Money Transfer Operators (IMTOs) the authority to sell foreign exchange (FX) in Nigeria’s official market.

This initiative, effective immediately, is part of the CBN’s efforts to ensure the efficient operation of the foreign exchange markets and improve the remittance process.

The latest directive, as outlined in a circular signed by Dr. W. J. Kanya, CBN’s Acting Director of the Trade & Exchange Department, introduces several measures designed to facilitate access to naira liquidity for diaspora remittances.

“As part of CBN’s commitment to the smooth functioning of the foreign exchange markets and enabling greater remittance flows through formal channels, the Bank has implemented measures that will enable eligible International Money Transfer Operators (IMTOS) access Naira (NGN) liquidity through the CBN,” the circular stated.

Under this new framework, IMTOs can directly access the CBN window or work through their Authorized Dealer Banks (ADBs) to carry out forex transactions. This policy intervention arrives at a critical juncture, with the official FX market struggling with liquidity issues.

Over the past month, the value of FX turnover on the NAFEM window has fluctuated between $83 million and $390 million, highlighting the pressing need for increased liquidity.

Operational Guidelines for IMTOs and ADBs

The CBN has provided clear guidelines to ensure that IMTOs and ADBs adhere to the new measures:

• Same-Day Settlement: Transactions executed and confirmed before noon on any trading day will qualify for same-day settlement, expediting liquidity for remittance beneficiaries.
• Transparent Pricing: The pricing for transactions with the CBN will be based on prevailing NAFEM rates, ensuring transparency and alignment with market standards.
• Daily Regulatory Returns: All participants are required to submit daily regulatory returns to the CBN, detailing the sources of funds to maintain accountability and transparency.
• Partner Bank Confirmation: IMTOs must confirm their partner banks and provide standard settlement instructions to ensure the smooth implementation of these measures.

Background and Recent Policy Changes

This initiative is part of a broader strategy by the CBN to enhance the efficiency of remittance inflows. In January 2024, the CBN removed the cap on exchange rates quoted by IMTOs, which previously had to be within a -2.5% to +2.5% range around the previous day’s closing rate of the Nigerian Foreign Exchange Market.

Further, the CBN revised its guidelines for IMTO operations, significantly raising the application fee for an IMTO license from N500,000 in 2014 to N10 million—a 1,900% increase. The CBN also established a minimum operating capital requirement for IMTOs at $1 million for foreign entities and an equivalent amount for local IMTOs.

Additionally, IMTOs were previously barred from purchasing foreign exchange from the domestic market to fulfill their obligations. This new circular effectively lifts that ban, allowing IMTOs to trade on the official market.

Collaborative Task Force

The CBN’s agreement with IMTOs to establish a Collaborative Task Force aimed at doubling remittance inflows into Nigeria is another key component of its strategy. This task force, reporting directly to CBN Governor Yemi Cardoso, is expected to play a pivotal role in achieving the bank’s remittance objectives. Last month, the CBN granted 14 new Approval-in-Principle (AIP) licenses to IMTOs, signaling the expanding landscape of money transfer operations in Nigeria.

Allowing IMTOs to sell foreign exchange on the official window is anticipated to significantly impact the official FX market. By enabling IMTOs to access naira liquidity directly through the CBN or via ADBs, the supply of foreign exchange in the official market is expected to increase. This, in turn, will reduce pressure on the parallel market and help stabilize exchange rates.

Despite the CBN’s proactive measures to enhance foreign exchange liquidity and stabilize the market, recent efforts to contain forex volatility have largely fallen short. The naira has continued to depreciate, trading around N1500/$1.

This underscores the challenges the CBN faces in its quest to stabilize the currency and the broader economic environment. The introduction of IMTOs into the official forex market is believed to be a bold step, but whether it will significantly change Nigeria’s FX market trajectory remains to be seen.

Oracle Corporation, a major player in the software and cloud infrastructure market, has acknowledged in its annual report that a potential U.S. ban on TikTok could significantly impact its business.

This disclosure comes amidst increasing regulatory pressure on TikTok’s Chinese parent company, ByteDance, due to national security concerns over user data.

In April, President Joe Biden signed a bill demanding that ByteDance sell TikTok within nine months, with the possibility of a one-year extension, to avoid a U.S. ban. The ownership structure of TikTok has been a contentious issue in the United States, fueled by fears that user data could be accessed by the Chinese government.

Oracle has been providing cloud infrastructure services to TikTok, which boasts over 170 million users in the U.S. These users rely on the app for various purposes, including business, news, entertainment, and social connection.

In its annual report for the fiscal year ended May 31, Oracle stated, “If we are unable to provide those services to TikTok, and if we cannot redeploy that capacity in a timely manner, our revenues and profits would be adversely impacted.”

Concerns over TikTok’s ownership and data security are not new. In 2020, then-President Donald Trump pushed for the sale or divestiture of TikTok’s U.S. assets, which led to negotiations with Microsoft and ultimately resulted in Oracle being selected as a key cloud services provider.

ByteDance’s proposal to the U.S. Treasury Department included Oracle’s involvement to ensure TikTok’s continued operation in the U.S. under the initiative known as Project Texas. This initiative aimed to safeguard user data by housing TikTok’s U.S. operations on Oracle’s cloud infrastructure within the country. Additionally, Oracle was tasked with compiling the app and delivering it to third-party app stores.

Oracle CEO Safra Catz highlighted the positive relationship with TikTok in a 2022 conference call with analysts, saying, “The one thing I can tell you is we have an excellent relationship with the folks at TikTok.”

Oracle has not disclosed specific financial details regarding its relationship with TikTok. However, analysts from Evercore estimated in April that TikTok could be generating annual U.S. sales of $16 billion, potentially spending 3% to 5% of its revenue on cloud infrastructure. This translates to an estimated $480 million to $800 million in revenue for Oracle.

For the fiscal year, Oracle’s cloud infrastructure revenue totaled $6.9 billion, indicating that the potential loss of TikTok as a client would be a substantial blow.

Advocacy and Opposition to the Ban

The potential ban on TikTok has sparked significant opposition from both institutions and individual users. Over 170 million Americans use TikTok not just for entertainment but as a crucial tool for business and information dissemination. Small business owners, influencers, educators, and journalists rely on the platform to reach audiences and generate income. Some users have sued the government while others have mobilized to advocate against the ban, highlighting TikTok’s role in fostering economic opportunities and community engagement.

Advocacy efforts include petitions, social media campaigns, and lobbying efforts aimed at convincing lawmakers to allow TikTok to continue operating in the U.S. Critics of the ban argue that it infringes on free speech and disrupts the livelihoods of millions of Americans.

Elon Musk, the owner of microblogging social media platform X, formerly Twitter, said in April that the move is “contrary to freedom of speech and expression,” adding he is against the proposed TikTok controls “even though such a ban may benefit the X platform.”

TikTok’s Efforts to Remain Operational in the US

In response to the mounting pressure, TikTok has made several efforts to address security concerns and remain operational in the U.S. The company has invested in Project Texas, an initiative designed to keep TikTok services for U.S. users running on Oracle’s cloud infrastructure located inside the country. TikTok said Oracle would also be responsible for compiling the app and delivering it to third-party app stores, enhancing data security.

Furthermore, TikTok said it has been transparent about its data handling practices and has implemented measures to prevent unauthorized access to user data. Recently, the company said it moved to create an independent algorithm for its US users. Despite these efforts, the U.S. government remains firm on its stance, with bipartisan legislation targeting TikTok and President Biden’s signing of the bill mandating its sale.

The U.S. government has taken substantial steps toward potentially banning TikTok. The new legislation requires ByteDance to sell TikTok within a specified timeframe or face a ban. In addition to legislative actions, there have been ongoing investigations and hearings scrutinizing TikTok’s data practices and its ties to China.

TikTok has filed a lawsuit arguing that the law mandating its sale violates First Amendment free speech protections. The legal battle is expected to be prolonged, with significant implications for both TikTok and Oracle.

I shared an opinion on a national AI roadmap, and asked everyone in the committee: how do you plan to power this AI roadmap in [that country]?

Good People, the challenge Africa has on AI is not really the technical component. The real issue is electricity. If you do not have electricity to power an electric bulb in Ovim, how do you think you will have energy to power that AI future?

There are things which cannot be leapfrogged and one of those is electricity.  Indeed, there is no way we can touch that AI future UNLESS we can do the basic things. Electricity is a component of those “basic things”.

So, as governments launch AI roadmaps in Africa, do not forget to challenge them, and remind them that our AI today is electricity. If we do not understand that, it does mean that we will be scaling AI consumerism, instead of AI production.

Image credit: Barchart – Global Data Centers now consume more electricity than most countries