By Kelechi Mgboji
Assistant Business Editor
On January 28, 2015, the Central Bank of Nigeria (CBN) increased weekly supply of dollars to bureau de change (BDC) operators from $15,000 to $30,000 per BDC but stopped it completely a week ago.
Before now, there was a ban on the use of Automated Teller Machine (ATM) abroad. The apex bank had also reduced weekly supply to BDCs to $10,000.
It is one of the ways the CBN tries to calm strong volatility in the forex market as well as save the naira from persistent depreciation.
Coupled with the earlier ban of 41 imported items from the foreign exchange (forex) market, stakeholders had thought that at least, the apex bank would meet dollar demand for legitimate items even in the official forex market.
But continuous slide in crude oil prices with attendant sharp decline in dollar revenue has led to the inability of the CBN to meet forex demand for legitimate items.
The consequence is a free fall in the value of the naira to N305 for $1 at the parallel market as of last week.
BDCs are believed to control about 5 per cent of the forex market while other stakeholders, including commercial banks, multinationals, and oil companies exporting crude oil control the remaining 95 per cent.
Operators accuse the apex bank of plotting to position a foreign company to take over the business of retailing forex to end users, saying the decision to stop dollar sales to BDCs would only worsen the situation.
But the CBN insists it would no longer hold dollar auctions on a daily basis. The move came four days after it halted dollar sales to retail currency outlets in a bid to conserve its dwindling foreign reserves.
According to CBN, the BDCs operators have done more harm to the naira than good by indulging in unbridled arbitrage.
The apex bank argues that there is no justification for BDC operators to sell dollar at a profit of over N100 per dollar whereas Travelex allows only about N4 spread between the official widow price and parallel market rate.
In other words, whereas Travelex sells dollar (at about N204 to the dollar) with a profit of about N4 per dollar, BDCs sell at a profit of over N100 per dollar.
The question is why the huge gap between N198 official rate and N305 parallel or black market rate?
Financial experts and other stakeholders have put forward their views; some are sympathetic to the plight of the CBN, while others insist that more bans have great implications.
Tochukwu Nwachukwu, an economic analyst, believes that instead of resorting to more bans and dollar demand management, the CBN and the federal government ought to device strategies to increase the supply of scarce hard currency.
“Increased supply of dollar and not demand management is the way to go. Resorting to more bans will jeopardise some sectors of the economy and investment inflows,” Nwachukwu said on a local television programme.
But another financial analyst, Chris Ekeigwe, explains that the distortion in the forex market is too much for the economy to cope if drastic action such as CBN ban on BDCs is not taken.
Citing some instances where even landlords require house rent to be paid in dollars, he says for the country to actualise its development goals, citizens must shun some actions that are detrimental to its economy and the domestic currency.
He argues that people must make sacrifices to help grow the economy.
He adds: “I heard that some landlords even want house rent paid in dollars. The distortion is too much and we are only helping to destroy the economy and the future of the country.
“No country that wants to grow its economy allows every businessman to take unnecessary advantage of its economy and the domestic currency.
“The action of the CBN is quite in order; it must not allow the naira to be controlled by unbridled forex market operators. And the citizens should be patriotic enough not to let personal interest over run the economy.”
Ban and its implications
Acting President of Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, wants the CBN to review the policy, alleging that it intends to adopt a foreign company, Travelex, as sole operator of BDC business.
“We believe the main reason is to make Travelex the only official outlet for retailing foreign exchange transactions in the country,” Gwadabe says.
According to ABCON, handing over retail transactions to Travelex portends great danger not only for the forex market but the economy as a whole. It alleges that as a foreign company, the intention of Travelex is to dominate the retail forex segment in Nigeria.
He warns that much of the profit of Travelex will be repatriated abroad, which will undermine Nigeria’s foreign exchange dynamics.
Travelex is a global foreign currency exchange specialist, best known for supplying foreign currency online, in major airports, cities, financial institutions, shopping malls and tourist areas.
Registered in Hong Kong, Travelex also offers Airport Express tickets, Disneyland Park tickets, travel insurance, phone cards, Western Union Money Transfer, MasterCard CHIP + PIN Cash Passport and CUP Cash Passport.
Gwadabe also alleges that Travelex has been found to contravene forex regulations. He recalls that Travelex BDC was said to be one of the BDCs suspended for not submitting the Bank Verification Numbers (BVNs) of its directors as required by the CBN (apparently because four out of its five directors are Britons).
ABCON says previous attempts by Travelex to hijack retail forex through direct sale of travellers’ cheque to the public was fraught with malpractice which led to the sack of 150 of its staff, and the suspension of the scheme by the CBN.
“That is the company that CBN Governor, Godwin Emefiele, wants to hand over billions of the nation’s scarce foreign exchange resources,” Gwadabe says.
“Given the import dependency of the country and the inability of importers to access dollars in the official market, the increased exchange rate would aggravate the inflationary pressure in the economy, as prices of goods and services will rise in response to the continued depreciation of the naira.
“For the BDC subsector, the decision might lead to mass retrenchment as some BDCs find it difficult to generate enough revenue to meet their running costs.
“In addition, the depreciation of the naira in the last two years translates to 50 per cent loss in the value of the N35 million the CBN collected from each BDC as caution deposit.”
Senior Associate and Head, Investment Research, Afrinvest West Africa, Ayodeji Ebo, notes that the CBN’s unfriendly restrictive policies on forex to prevent depletion of external reserves is compounded by depletion of the reserves.
According to him, the CBN should clarify forex trading because the Nigerian economy and financial market have taken a turn for the worse in the new year.
Regardless, the Senate has thrown its weight behind Emefiele and his policy regarding the forex and the effort CBN is making to control the Naira.
External reserves shed 0.7 per cent last week to close at $28.7 billion against $28.9 billion the week before.
“The result has been the widening gap between demand and supply for the greenback,” Ebo says, leaving the CBN with no option but to try several measures.