The Central Bank of Nigeria (CBN) has stopped the sale of dollars (forex) from any official source to the 2,786 Bureau De Change (BDC) operators in the country, making the BDCs source for foreign currencies on their own for their operations.
The apex bank also lifted the ban placed on depositing of foreign currencies in domiciliary accounts in local banks, thus permitting commercial banks to begin accepting cash deposits of foreign exchange from their customers.
CBN Governor Godwin Emefiele, who announced the new measures Monday, said the new policies, which take immediate effect, would help conserve the scarce foreign reserves which had declined drastically following the over 70 per cent crash in crude oil prices, Nigeria’s major foreign exchange earner.
Speaking in Abuja, Emefiele said: “The bank (CBN) would henceforth discontinue its sale of foreign exchange to BDCs (bureaux de change). Operators in this segment of the market would now need to source their foreign exchange from autonomous sources.”
The immediate impact of the measure was that Nigeria’s currency, the naira, was quoted at a record low of 282 per dollar on the unofficial market.
The currency, which is pegged at around N198 to the dollar on the official interbank market, was quoted at 277 in early trades Monday before the apex bank’s announcement.
The unofficial market accounts for less than five per cent of total dollar trade in Nigeria.
Emefiele, however, apologised to Nigerians for the pain they are going through as a result of these measures, but said they have to bear it in view of the current realities.
He explained that Nigeria has been dealing with the effects of three serious and simultaneous global shocks, which began around the third quarter of 2014.
They are the over 70 per cent drop in the price of crude oil, which contributes the largest share of the nation’s Foreign Exchange Reserves; geopolitical tensions along critical trading routes in the world, including between Russia and Western Powers, Saudi Arabia and Iran, etc., and the normalisation of Monetary Policy by the United States’ Federal Reserve Bank.
Emefiele noted that following the drop in crude price from a peak of $114/barrel in July 2014 to as low as $33/barrel in January 2016, the country’s reserves have suffered great pressure from speculative attacks, round tripping and front loading activities by actors in the foreign exchange market.
“This fall in oil prices also implies that the CBN’s monthly foreign earnings have fallen from as high as $3.2 billion to current levels of as low as $1 billion. Yet, the demand for foreign exchange by mostly domestic importers has risen significantly.
“For example, the last we had oil price at about $50 per barrel for an extended period of time was in 2005. At that time, our average import bill was N148.3 billion per month.
“In stark contrast, our average import bill for the first nine months of 2015 is N917.6 billion per month, even though oil prices are now less than $35 per barrel.
“The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of foreign exchange reserves stood at about $37.3 billion but has declined to around $28.0 billion as of today.”
He noted that in total disregard of the difficulties that the Bank is facing in meeting its mandate of “maintaining the country’s foreign exchange reserves to safeguard the value of the Naira,” BDC operators have abandoned the original objective of their establishment, which was to serve retail end users who need $5,000 or less.
“Instead, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction. Thereafter, they use fake documentations like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.”
The governor also said that while the CBN sells 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 of 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,” adding that the CBN receives close to 150 new applications for BDC licences every month.
Emefiele lamented the financial burden being placed on CBN and its limited foreign exchange.
“The CBN sells $60,000 to each BDC per week. This amount translates to $167 million per week, and about $8.6 billion 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 $28.4 million depletion of the foreign reserve per week and $1.476 billion per annum. This is a huge haemorrhage 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.”
He, however, said that the CBN had not stopped the sale of foreign exchange for the payments of medical bills, school fees, basic and personal travel allowances, among others.
Also, reacting to reports that parents could not access foreign exchange to pay school fees abroad, the governor said that between June and December 2015, CBN allocated $285 million to banks for payment of school fees and $180 million for BTAs and PTAs.
In a swift reaction, BDC operators have warned that the latest move by the apex bank will see the value of the naira plummetting further to N300 to the dollar before the end of the week, even as the jobs of an estimated 12,000 are at stake.
Reacting to CBN’s announcement, the acting President of the Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe in a telephone interview said if CBN’s decision is not well managed, “I see the dollar reaching N300 before the end of the week.”
He noted that this would in turn lead to “cost-pull inflation” as the country is an import-dependent economy, importing almost all its needs. Asides, he said many BDCs will be forced out of business leading to job losses in the sector.”
On the average, he said, each BDC employs four persons; therefore about 12,000 jobs could be lost.
He also explained that BDCs have limited sources of foreign exchange and had to rely on the CBN window.
“In other climes, BDCs don’t have access to the central bank window because they have other sources of forex to them, which includes banks, but in Nigeria banks are being restricted from selling to BDCs. Exporters can also patronise BDCs in other country’s but here it is being restricted. These are some of the issues.”
He then urged the CBN to review downwards the N35 million cautionary deposit made mandatory for BDCs as, according to him, “this has tied down the capital of many BDCs and, to get other source of foreign exchange, we need capital.”
Gwadabe also said that CBN’s move will further encourage the activities of street hawkers and illegal foreign exchange operators “because most people will say, why do I have licence since I don’t have access to the CBN window? So I better operate as an illegal operator.”
This, he said, will make it impossible for the apex bank to monitor the outflow and inflow of forex into the country and what the forex is used for.
Meanwhile, he said that BDC operators will this week hold a meeting to deliberate on the CBN policy and decide the way forward.
It would be recalled that Senate President Bukola Saraki last week during the visit of the IMF Managing Director Christine Lagarde, called on CBN to lift the restrictions on forex deposits in banks in the country following the outcry by Nigerians.
Switzerland set to return another $300m Abacha loot
The Switzerland government has said it is prepared to transfer to Nigerian government another $300 million recovered from the family of former Head of State, the late Gen. Sani Abacha, Foreign Affairs minister Geoffrey Onyeama has said.
According to Onyeama, the money is part of an estimated $5 billion stashed in foreign accounts by the late dictator.
A national daily had reported that the Federal Government had uncovered “a fresh N3.2 trillion Abacha loot” was stashed away in foreign bank accounts by the late military dictator, Gen. Sani Abacha and the total may far exceed the already established $5 billion.
According to the report, a Special Investigation Panel (SIP) tracing the loot stumbled on fresh clues indicating that the funds still trapped in offshore accounts stand at over N3.2 trillion.
Estimates of the funds stashed abroad by Gen. Abacha during the period of his reign from 1993 to 1998 vary from at least $4.3 billion to as huge as $7 billion.
According to the World Bank, Abacha’s loot is too huge to handle and it would take a lot of time to give a comprehensive response on how the late Sani Abacha’s loot was disbursed by the previous Nigerian government.
