In a recent circular, the Central Bank of Nigeria (CBN) clarified the terms of divesting and repatriating foreign investments as outlined in several sections of the Foreign Exchange Manual, addressing both authorized dealer banks and the general public.
The circular, which deals with the conditions for the divestiture and repatriation of foreign investments connected to Certificates of Capital Importation (CCI), is signed by W. J. Kanya, acting director of the trade and exchange department.
Memorandum 20, section 2(vi) of the Foreign Exchange Manual is clarified, emphasizing that all CCI-related transactions, including divestitures, are subject to the requirements.
The circular states that proof of an electronic Certificate of Capital Importation (CCI) and proof of redemption of investment in local currency assets, such as money market instruments, debt securities, or stocks, are required to be included with any divestment or repatriation of foreign investment, whether it be prior to liquidation or upon maturity.
All parties involved are encouraged by the CBN to take note of these demands and make sure they are met. The purpose of the circular is to give investors and financial institutions involved in foreign exchange operations pertaining to capital importation some clarity and direction.
The CBN is taking this action as part of its continuous efforts to protect regulatory standards and preserve openness in Nigeria’s financial markets.
Foreign Investment Divestment and Repatriation
Divestment
Selling off an asset or investment is referred to as a divestment. When a foreign investor chooses to sell shares, bonds, real estate, or other assets they have invested in a nation, it is known as divestment in the context of foreign investments. Divestment may be done with the intention of reallocating capital to other alternatives, reducing exposure to a certain market, or liquidating the investment for cash.
Repatriation
Repatriation is the process of returning funds or other assets to the investor’s nation of origin. An investor may decide to repatriate the proceeds after selling their foreign investment. This entails moving the money back to the investor’s home nation after translating the earnings from the local currency into their own. Capital from sold assets, dividends, and profits may all be repatriated.
Within the framework of the CBN circular, these expressions allude to the protocols and records necessary when an overseas investor divests their holdings in Nigeria and returns the money to their nation of origin (repatriation). The circular emphasizes that appropriate paperwork is necessary for these transactions, including proof of the Certificate of Capital Importation and evidence that the investment was redeemed for local assets.
Effects on the economy of foreign investment divestment and repatriation
The economy of a nation may be significantly impacted by the divestment and repatriation of foreign capital.
A capital outflow occurs when overseas investors sell their holdings and return the money they have made. The amount of foreign money in the domestic economy may decrease as a result of this outflow, which could cause the value of the local currency to decline. A depreciating currency can raise import costs, fuel inflation, and reduce consumers’ purchasing power.
Foreign investors’ withdrawals from the market may drive down the value of stocks, bonds, and real estate. A reduction in market confidence may result in a large number of investors choosing to divest at the same time, which would lower the value of regional businesses and financial instruments. The financial markets may become more volatile as a result of this.
Foreign investors convert their proceeds into foreign currency upon repatriation, which might lower the nation’s foreign exchange reserves in terms of external reserves. The central bank’s capacity to sustain import payments, interfere in the foreign exchange market and stabilize the currency may be restricted if these reserves decline.
