Wednesday, September 20, 2017

The Menace of Form Q and The Future of Nigerian Economy

What is Form Q

In April 12, 2007, the Central Bank of Nigeria (CBN) introduced a new document and terminology into the Import sub-sector of the Nigerian trade environment. Before this time we only know Form M (application form for Import station in Nigeria, now called e-form m because the process has been automated), NXP form (application form for commercial export), NCX form (application form for non-commercial export) and Form A (application form for invisible trade like payment for offshore services). The newly introduced document has be christened Form Q. This new import process for SMEs portraits a danger to the economy and will also engender corrupt practices.

The CBN in its circular dated TED/FEM/FPC/GEN/01/003 and dated April 18, 2017 with the subject: Foreign Exchange Payment for Small Scale Importation. It stated that "the CBN hereby introduces the use of Form Q by Small and Medium Scale Enterprises (SMEs) as part of its effort to improve access to foreign exchange by SMEs. The form has been designed to ease the documentation requirements by these sector." This directive has caused a major confusion in the banking sector, the Customs does not even know how to handle the form and the banks are being penalised for not utilising the funds (as reported in some national dailies).

Let me first summarise the Import process in Nigeria to enable you understand the challenges that this Form  Q is currently posing to the operators in the sector. To legally Import any item into Nigeria, the importer need to apply online by submitting a pre Import documentations through an Authorised Dealer Bank. This documentations include e-Form, Proforma Invoice, Marine Insurance Certificate and the relevant permit (this depends on the agency of government that regulates the product). The filling of the form is done online ( and all the relevant documents are attached before submission. This application must be approved before an importer can go ahead to ship the goods into the country.

After shipment, the importer will present the original through the sellers bank abroad to the same bank that process e-Form M for approval. The bank will then use these documents to process the Pre-Arrival Assessment Report (PAAR). It is Important to state that these shipping documents include Bill of lading, Invoice, Packing list etc and they must all contain the Form M number. The PAAR and shipping documents are then released to the importer by the bank to enable him clear the goods upon arrival at the port. The PAAR is a document that contains the summary of the shipment and including the duty payable by the Importer.

Now that I have given you an idea of how the Import process in Nigeria works, let me go ahead to state the way Form Q works and the challenges it poses on the Nigerian economy. The SME customer approach the bank with the filled Form Q, BVN number, Pro-forma Invoice and a letter of request for fund ($20,000 per quarter) transfer abroad to pay for the items to be imported. The bank uses these documents to process the transfer of the requested funds to buyer abroad. The seller abroad ships the goods and send the shipping documents directly to the importer (SME customer). This means that:

-    There will be no trace of this shipment on the Nigeria Single Window for trade. This therefore makes the import data generated on this platform to become unreliable because of other transactions done outside the trade window

-    The shipping documents will not go to the banks which means they can process the PAAR (an objective assessment report of document presented for duty payment)

-    The importer will most likely be paying incorrect duty since PAAR is not used but rather through an assessment done by customs at the port. This thus encourage corrupt practices that could result in leakage of income due to the government.

-    The importer can use his different companies in the same bank and even in different banks to transfer more that the allowed $20,000 per quarter 

-    The importer can use his friend's companies in the same bank and also in different banks to transfer more that the allowed $20,000 per quarter

-    The importer might effect this transfer and not ship any product into Nigeria and thus having an easy avenue for money laundering

The implications of all these on the economy include but not limited to the following: increased and easy avenues for corrupt practices, increased and easy avenue for money laundering, depletion and unproductive use of the scarce resources in our foreign reserves and increase avenues for the leakage of the income due to the federal government.

In as much as the CBN is doing this with a good intention for the economy, I think that the process was not well thought out. I think CBN is doing this to reduce the pressure exerted by the demand of these categories of importers for foreign exchange (FX) in the parallel market and thereby reducing the rate in the parallel market and bringing some sanity to the FX markets in general. This question is for how long can the CBN do this to defend the Naira? I am of the opinion that the trade-off of this process will be too much for the nation to bear in the long run.

I will therefore like to recommend that the CBN take a critical look at this process again and find a way to integrate the Form Q process with the e-Form process on the single window platform. Also, the shipping documents that evidenced that the goods has been shipped should be routed through the banks for PAAR processing before releasing them to the importer. With this, I think the CBN will still be able to reasonably achieve its objectives while protecting the country from economic vultures

Bamidele Ayemibo

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