Cries As CBN Moves To Sanitise Forex Market

THESE are not the best of times for the Nigerian economy. Private and public organisations are struggling for survival amid avalanche of economic disasters. The naira is on a freefall. Portfolio investors are leaving. And the Central Bank of Nigeria (CBN) is adopting panicky measures, while private companies are laying off staff in droves.

The word on the street is that the CBN may be incapacitated in its strategy to stabilise the Forex market, as it wages an all-out war against money launderers, round-trippers and rent-seekers. The country’s reserves are fast depleting, coupled with unending slide in prices of crude oil, which is Nigeria’s main source of foreign exchange earning. Amid this, the CBN is fighting locals, who are determined to keep doing business as usual in the forex market. Apparently, the apex bank has a bagful of tricks to play with.

In a new change of tactic, the CBN recently stopped selling dollars to Bureaux de Change (BDC) operators to reduce the unsavoury depletion of the country’s foreign reserves, claiming that the BDCs gulped a huge chunk of the reserves in recent years.

But the BDCs say they are not surprised by the latest move, claiming that people have been castigating their operations as if they were “criminals,” and that they are still waiting for clarifications on the new policy. They claim to have lost a turnover of about N360m since CBN stopped selling forex to them, as most of their offices have been shut and some staff suspended until things start looking up.

In a statement, the CBN governor, Godwin Emefiele, on the new directive, said despite the fact that Nigeria is the only country in the world where the Central Bank sells dollars directly to BDCs, operators in the segment have not reciprocated the Bank’s gesture to help maintain stability in the market.

Said he: “Whereas the Bank has continued to sell US dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates as high as N250 per dollar. Given this rent-seeking behaviour, it is not surprising that since the CBN began to sell foreign exchange to BDCs, the number of operators have risen from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applicants for BDC licences monthly.”

Noting there have been unintended outcomes of the activities of BDCs since they were granted licences in 2005, he said there is an avalanche of rent-seeking operators, who are only interested in widening margins and profits from the forex market, regardless of prevailing official and interbank rates.

He added that there was also potential financing of unauthorised transactions with foreign exchange procured from the CBN and gradual dollarisation of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative.

“There is prevailing ownership of several BDCs by the same promoters in order to illegally buy foreign currencies multiple times from the CBN.

More disturbing, is the financial burden being placed on the bank and our limited foreign exchange. The CBN sells $60,000 to each BDC per week. This amount translates to $167m per week, and about $8.6b per year. In order to curtail this reserve depletion, we have reduced the amount of weekly sales to $10, 000 per BDC, which translates into $28.4m per week and $1.4b per annum. This is a huge hemorrhage on our scarce foreign exchange reserves, and cannot continue, especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows.

People have been trying to castigate our operations, as if we are criminals. We take exception to that because it is not the truth. There are many players in the market and we make up just five per cent of activities there. So, I don’t think it is fair to accuse us of any abnormality in the market

“In view of the above, CBN management resolved to discontinue sales of foreign exchange to BDCs, and operators should get the dollar from autonomous sources. More resources would be deployed to monitor these sources to ensure that no operator is in violation of the anti-money laundering laws.”

But the President of the Association of Bureau de Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe, said they have been expecting the move for about three to four months, especially with the way the CBN has been rationalising forex among members. Insisting that they constitute only five percent of the forex market, he said the BDCs do not have what it takes to influence the price of the naira.

“People have been trying to castigate our operations, as if we are criminals. We take exception to that because it is not the truth. There are many players in the market and we make up just five per cent of activities there. So, I don’t think it is fair to accuse us of any abnormality in the market.

“Secondly, they may shut the window on us, but lack of clarity on the policy is a problem. We have sought for clarification from the CBN and we have been assured that they would make one available in a circular. We are still waiting for that clarification so that the market would be guided. If there were no clarification, rumours and speculations would be the order of the day. A financial market does not work well, if it is left to operate on rumours and without guidelines. The delay in that clarification is really creating havoc,” he said.

Noting that there have been slight changes in the market since the directive was announced, he said, “As at last week, when the CBN said the BDCs can now get funds from other sources, it has beaten down the price to about N290 to a dollar. But it appears the market is going back to where it was, that is N301 as against N291/N292 to a dollar. People are supposed to have the option of coming to us or going to the CBN. But that is yet to happen.

“Our participation in the market goes a long way to dictate the price in the parallel market. Once parallel market operators know that we are handicapped, they take every opportunity to maximise profit.”

Alleging that there is a conspiracy against their operations, Gwadabe said there are always a black sheep, whenever government wants to introduce a policy change and it is unfortunate that they are the victims in the exercise.

Said he: “One thing about this country is that anytime a policy is about to be introduced, some sectors would be painted black, so that some vested interests would get the opportunity to reap benefits. There is a rumour going on that there are some people that have $5b in the country and they want to bring it in, but they are waiting for the rates to go higher so that they would have more value in naira.

“I think the CBN and other government agencies should really look into this so that they wouldn’t give these rent-seekers the opportunity to bastardise the naira. Is it the BDC that is given $10, 000 that is a rent-seeker or a speculator? With $10,000 per week, how would a firm be able to speculate and determine the value of the naira? We should look at where the problem is coming from.”

On the likely autonomous sources from which they are to get forex, he said, “The CBN has assured that it would buy dollars from International Oil Companies (IOCs) and the Nigeria National Petroleum Corporation (NNPC) on our behalf. They would also allow the banks to sell to BDCs. He has even asked them to start selling, but some of the banks said they don’t have cash dollar. He said he has given them approval to sell cash dollar. We can also go to exporters and buy.

“Our capacity sometimes does not give us the flexibility to go to the NNPC, which does not sell $10, 000, $20, 000 or $100, 000; rather, it sells in millions of dollars. And there are intricacies associated with it. We need to have a corresponding bank abroad, which a BDC is not allowed to have. All these are some of the shortcomings of the policy.”

He stated that the BDCs have been recording losses since the CBN issued the directive and that many of them have closed shop because of little or no activity.

“For two weeks that we have been out of the market, we have lost a turnover of about $20, 000, that is, the $10, 000 we ought to have gotten each week. Last week, we didn’t do anything. Two weeks have gone and we are still shut. At 3.5 per cent, an average BDC has lost nothing less than N120, 000. And when this is spread across board, we should be talking of about N360m. Some of us have started suspending our staff. They are on suspension pending when a clarification would come.”

Former President of the Chartered Institute of Bankers of Nigeria (CIBN), Ralph Osayameh, supported the CBN’s policy, noting that the directive is the only logical decision that can be taken at this stage because there is an alarming scarcity of foreign exchange.

According to him, “What the CBN has been doing is to continue to try different ways of ensuring that the minimal foreign exchange is available to a lot of people. The BDCs were very useful in those days, when we had a large quantum of foreign exchange. But with what we have now, I think it is very difficult for them to compete with the banks.

“In most societies, where they do exist, BDCs only do transactions of only small amount, not the kind we hear these days. What some of them do run into millions of dollars. It is not too healthy for a fragile foreign exchange situation. Manufacturers are complaining that they are not getting foreign exchange and they cannot be doing that through the BDCs.”

He argued that the economy may improve a little for the time being, but in the long run, the exchange rate would further depreciate until Nigeria gets the proper pricing of foreign exchange.

“It is an unfortunate paradox that the CBN asked these firms to recapitalise and now they are being shut out from the CBN window. The CBN has found that it is not easy to manage the little quantum of foreign exchange that we have. This is even worse, when compared against the dwindling flow of earnings from petroleum. Iran is going to start selling oil soon; the United States is also going to do the same, even though they still import in trickles. The market is going to be flooded; there is going to be an avalanche of supply. Nigeria is going to find it difficult to survive, if oil sells at $25 per barrel within the next two to three months. We cannot throw that forex away to the huge number of BDCs around the country,” he said.

It is an unfortunate paradox that the CBN asked these firms to recapitalise and now they are being shut out from the CBN window. The CBN has found that it is not easy to manage the little quantum of foreign exchange that we have. This is even worse, when compared against the dwindling flow of earnings from petroleum

A human rights group, Civil Liberties Organisation (CLO), also threw its weight behind the CBN, noting that the move was the best decision in the face of dwindling government earnings.

The president of the group, Comrade Igho Akeregha, said that with the state of Nigeria’s foreign reserves, it would be “foolhardy to continue with a system that is clearly profligate and counter-productive, and rewards indolence and a few well-connected individuals within the sector.”

Noting that the battles in the foreign exchange market is alarming, especially as it concerns the BDCs and the CBN, he accused
some cabals of taking stranglehold on the operations of the market.

“These cabals, masquerading as BDC operators, have become blood-sucking merchants, heartless capitalists, whose eyes are primed at exterminating the common man, and are currently feeding fat on the misery and destruction of the entire nation, as the naira is continuously destabilised.”

He said the CLO is constrained to alert Nigerians and other stakeholders of this present danger for necessary actions to be taken so as to mitigate an impending national disaster.

“It is in the midst of this burgeoning hopelessness that the feud between Bureau De Change (BDC) operators and the Central Bank of Nigeria (CBN) rages intensely. All these are based on the recent decline in the international prices of crude oil from the heights of over $120bpd to its present value that is below $30bpd and trending downwards with no hope of abating in the near future. Our revenue base has increasingly, therefore, become eroded, if not almost wiped out, as a result.

“What may, therefore, be available for this government today from crude export on daily basis may be less than $30m to run the affairs of the nation.”