With the drop in crude oil prices and foreign reserves comes the depreciation of the naira at both official and parallel markets. To achieve fair pricing and stability for the naira, the Association of Bureaux De Change Operators of Nigeria (ABCON) launched a Uniform Weekly Exchange Rate for Licensed Bureaux De Change portal to enforce same rate for operators. James Emejo reports
The foreign exchange (forex) market is driven by information flow and investors’ sentiments. The type of information available to local and international investors helps to swing rates. It therefore follows that positive information flow translates to better pricing for the naira and vice versa.
Having recognised these facts, the Association of Bureaux De Change Operators of Nigeria (ABCON), which is the umbrella body for all Central Bank of Nigeria (CBN) licensed Bureaux de Change (BDCs) last Tuesday, launched the Uniform Weekly Exchange Rate for Licensed Bureaux De Change Portal. The portal was meant to enable BDCs achieve same exchange rate for the naira against the dollar across all licensed operators.
The ABCON President, Alhaji Aminu Gwadabe, who launched the portal at the maiden meeting with business editors last Tuesday in Lagos, said it would bring exchange rate convergence, eradicate currency speculation and ensure speedy recovery of the naira against the dollar. He said such feats were in line with Central Bank of Nigeria (CBN) Governor, Godwin Emefiele’s plan to stabilise the naira and boost investor confidence in the economy.
According to Gwadabe, the purpose of the BDCs Weekly Rate was to make it a reference point for realistic rates in the market that would boost foreign investment inflows and displace the damaging effect of foreign media platform to the economy.
Gwadabe was confident that with the gradual recovery in crude oil prices, enhanced commitment of the CBN to economy diversification, which has led to rising production of local rice and drop in import bills, as well as political will of President Muhammadu Buhari to implement key economic reforms, the task of achieving a single determined exchange rate would be realised.
He urged the media to adopt a single rate in their reporting, and always quote rate on the ABCON website- www.abcong.ng for consistency and uniformity of reporting.
The ABCON chief reiterated the need for the public to deal with CBN-licensed BDCs only, and urged the public to report errant operators for necessary sanction. “ABCON wishes to reiterate its willingness to embark on a comprehensive media campaign on the roles, activities and location of members nation-wide so as to provide a guide to the public in dealing with only CBN-licensed BDCs and for the public to report any errant operator for necessary sanction,” he said.
The ABCON boss said there was need for the CBN and Federal Government to harmonise the multiple official exchange rates in the country and adopt a unified rate for transactions.
Calling for the adoption of a single forex market rate system, he said licensed BDCs would post an exchange rate each Monday on its website from January 16 to “highlight positive rate development in the market” and counter domains such as Abokifx.com, which publishes ‘high’ unofficial prices daily.
Trading in the parallel market became more regular since 2014 after the CBN strengthened capital controls as crude oil prices dropped. Dollar trades for about N490, compared with the official rate of about N315. The BDCs will initially quote a rate of N399, Gwadabe said.
Stakeholders React
Former Executive Director, Keystone Bank, Richard Obire, said that ABCON implementing unified rate across all CBN- registered BDCs will bring sanity to the forex market. “I do not know how the group wants to achieve this but if well implemented, it will bring orderliness to the market. It is easier to achieve such feats as Personal Travel Allowance and Business Travel Allowance transactions. It is really a good initiative that will reduce the level of uncertainty in the market,” he said.
Associate – Research, Eczellon Capital Limited, Mustapha Suberu, said there was need to allow a transparent price discovery in the market, which he believed would stimulate dollar inflows into the economy and subsequently, lead to local currency stability.
He called for more transparent forex market that would allow foreign investors to invest in the economy, and bring about positive market-determined rate.
Besides, Managing Director, Afrinvest West Africa, Ike Chioke, believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy and revive the naira.
To him, the persistent pressure on the naira could have been minimised if a counter-fiscal policy had been developed, as the CBN cannot continue to defend the naira with foreign reserves.
“To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods”, he said.
He explained that apart from oil receipts, the development of the agricultural sector would in the short term reduce the forex burden of food imports and on the long run, enhance foreign receipts if its comparative advantage in the sector is efficiently deployed.
In his analysis, economist and former acting Managing Director, Unity Bank Plc, Dr. Muhammad Rislanudeen, described the collaboration between BDCs and the CBN as crucial bringing stability to the naira.
But he added it was still not enough to put a peg on FX in the long run.
According to him, “It is a good proactive move by CBN to have stakeholder engagement in finding solution to the volatility in the foreign exchange market. However we can only have stable, predictable exchange rate if there is market stability, where market determine rates. Naira is certainly undervalued in the BDC market even as it is overvalued in the official market where the foreign currency is scarce.
“A situation where we have multiple exchange rates will not support foreign direct and portfolio investments as well as diaspora inflows. BDC market operate based on dictates of market forces and because of lack of liquidity in the official sources, there is pressure on the BDC market. Improved transparency in the market, avoidance of potential speculative demand and round tripping is what is needed to stabilise the foreign exchange market thereby having liquidity improved and allowing the market to correct itself.
“In so doing, we will begin to see improvement in the capital importation, improved performance of manufacturing sector in GDP growth, reduced unemployment rate and also easing up of imported and cost push inflation. Beyond that, export income diversification as well as reduction in imports of basic needs like food will, in long term, ease pressure on the forex market.”
Diaspora Remittances
Nigerians in Diaspora had in 2015, sent home $21 billion which boosted the local forex market in 2016, figures released by Senior Special Assistant to the President on Foreign Affairs and Diaspora Matters, Abike Dabiri-Erewa, showed.
Dabiri-Erewa noted: “In 2016 they remitted $35 billion which is higher than what was remitted in 2015. This remittance by Nigerians living abroad is the highest in Africa and the third largest in the world.”
But Gwadabe disclosed that less than five per cent of the 2016 Diaspora funds were captured officially by the CBN because of exchange rate divergence, which discouraged Nigerians in Diaspora from sending their funds home through official channels. He said that harmonisation of the multiple exchange rates in the country, will make the rate for Diaspora remittances attractive to Nigerians in Diaspora.
“The single forex rate has succeeded in Egypt. Nigeria should block all forex leakages to make it work in the country. Forex market is an information-driven market. The type of information you release helps to swing rates and would also help the CBN’s plan to achieve single exchange rate,” he said.
He said ABCON was working very hard to build public confidence in registered BDCs because the forex market is driven by perception adding that the ideal rate for the naira is $400 to the dollar even as speculation is hurting the local currency. He wants the CBN to stop banks from selling Personal Travel Allowances and Business Travel Allowances to travellers and assign the role to BDCs.
Building Economic Buffers
Gwadabe urged Nigeria to build strong buffers, so its currency can withstand headwinds that come during economic crisis. For instance, the United Arab Emirates has over $400 billion in their reserves, and that is a very big buffer for them as it protects their local currency at any given time.
“But the Federal Government and the CBN have stood their ground for a very long time by not allowing naira to float freely. The advantage of the flexible forex regime is that the volatility you see, whereby naira everyday is getting weaker, once it goes up, another thing will bring it down,” he said.
Continuing, he said: “The fact is that when you talk of BDCs, there are parallel market operators and black market operators. The parallel market is the opposite of official market. So, the BDCs are not parallel market operators. There are over one million parallel market operators in this country and they have been here even before the coming of the CBN. They have been here even before the CBN licensing the BDCs in Nigeria”.
He said, “there is a big difference between a parallel market operator and a BDC operator. And if you look at it, last year, we were branded the black sheep in the industry. In India, the BDCs generate over $30 billion from the Diaspora remittances. In United Arab Emirates, the entire banking needs of banks are met by the BDCs. The working of the Lebanon economy is highly dependent on the activities of BDCs in that country. I want stakeholders to support Nigeria BDCs in building the economy.”
Automation of BDCs’ Operations
Gwadabe said there was ongoing automation of BDCs’ operations, which will help online real-time operations and enhancement of compliance among operators. These, he pointed out, would boost transparency of operations, ease of public accessibility of BDCs’ procedures, returns rendition and regulatory supervision.
“We want to introduce certification for registered BDCs. The ABCON is also coming up with schools that will train and retrain members and encourage record keeping. We believe that once we are able to introduce measures that make the operations of parallel market irrelevant, they will be eradicated,” he said.
He disclosed that the BDCs were also advocating being the sole handler of Personal Travel Allowances and Business Travel Allowances. He said the BDCs were also raising their operational modalities to ensure that operators become agents of International Money Transfer Operators (IMTOs).
The ABCON boss believes that despite the challenges facing the economy, the CBN and BDCs would continue to work together and find sustainable solutions that could help the country wriggle out of the ongoing forex crisis and achieve full economic recovery.
“We have continuously assured the CBN and taken appropriate measures to ensure that purchased funds are disbursed to end users and for eligible transactions only. We also render weekly returns on purchases from the banks to Trade and Exchange Department of the apex bank. We also ensure strict compliance to the provisions of the anti-money laundering laws observance of appropriate Know-Your-Customer principles in the handling of forex transactions,” he said.
