Following the disclosure that demand for foreign exchange to pay tuition fees constitutes a huge chunk of forex demand on Deposit Money Banks, Olaseni Durojaiye takes a look at the issues

Besides the decision to devalue or not, one of the fallouts of the increasing pressure on the naira owing to the speculative activities in the nation’s foreign exchange (forex) market and the increasing demand for the United States Dollars (USD) as against a shrinking supply side, appear to be the revelation that demand for forex for tuition fee was huge among forex demand on Deposit Money Banks (DMBs). The indication first emerged when some DMBs published lists of their forex transactions in the dailies.

The second indication came with the announcement by the Bankers’ Committee after its last meeting during a post-meeting press briefing.

Sources familiar with goings on in the banking system told THISDAY that, “forex demand for tuition fees is significant” and reasoned that “for Bankers Committee to have called it out while addressing the press speaks a lot; it means it is significant and has attracted their attention,” he stated.

A note from Afrinvest Research obtained by THISDAY corroborated same. The note stated that “Following the Bankers’ Committee meeting that took place last week it was reported that international School Fees payments and Health demands constitute the bulk of foreign exchange utilisation demands on Deposit Money Banks (DMBs), speculations concerning the currency have grown considerably.”

The report also stated that, “our view is that the uncertainty surrounding the outlook of the naira is more worrying as this amplifies speculative attacks and round tripping by speculators who bet on higher margin between the interbank market rate and the BDC/parallel rate.”

Unsurprisingly, the trend has spurred concerns among analysts. While some worry that the trend hold bad omen for the country’s educational system, others insist that it is a reflection of the craze for everything foreign among Nigerian. Other still fear that tuition may be a disguised conduit for the infamous round tripping. Opinions are however divided on the claim that a percentage of foreign exchange purchased supposedly to pay tuition fee abroad ends up in the parallel market.

A banker with a leading second generation bank who craved anonymity told THISDAY that, “this is the first time I am hearing such allegation. Not even in our zonal meetings have I heard anything like that so I don’t want to believe that some of the forex bids end up being sold at the parallel market.”

However, an economist and research analyst with a Lagos-based economic advocacy group, Rotimi Oyelere, opined that the disclosure by the banks amounted to “a moral overhang playing out” adding that “it has come to their notice that Nigerians are becoming aware of how Nigerian banks are aiding and abetting illicit transactions and encouraging round tripping.

“The Bankers’ Committee is on a face-saving mission. It has come to their notice that Nigerians are becoming aware of how Nigerian banks are aiding and abetting … encouraging round tripping and even funding the parallel market. I think the moral overhang is playing out here. Allocation disclosure would not create jobs, support local industries nor expand national output when genuine manufacturers are not funded.

The banker’s committee just wants to justify its forex distributions. The pertinent question that needs to be addressed is what proportion of allocated forex is actually used to support local capacity? What is the importance of skewed distribution to favour tuition fees payment and other frivolous expenditure when manufacturers that need machinery, inputs and technical expertise cannot access it?”

In response to queries whether the trend may lead to forex demand for the purposes of medical tourism and tuition being barred from assessing forex from the official market, Oyelere responded thus: “If National/ CBN earnings from exports of oil and non-oil continue to cascade, the apex bank would be compelled to exclude tuition fees forex demand from the official window as it continue to tighten its vault and save the nation’s reserves from total erosion.”

On his part, Executive Director, Corporate Finance, BGL Capital Limited, Femi Ademola, told THISDAY that, “the use of foreign exchange is usually reported in some periodic reports published by the CBN, some in aggregates and others in more details. However, the information does not reach the critical mass of the public that now needs to be enlightened. In my opinion, the publication by the different banks about the use of the foreign exchange is to inform Nigerians on the source of demand for the FX, reorient them on the need to focus on the use of FX for productive use and more importantly, to obtain public support for the government on the handling of the economy, especially the foreign exchange issue as it affects the general public.

Continuing, Ademola added that, “it can be inferred from the publication that the sale of FX at official rate for tuition fees is equivalent to subsidising the exchange rate for the elites who use them for non-productive uses. Now, that is a very strong weapon to garner public support for government policies.”

However, responding to a question on the likelihood of excluding tuition fees from list of needs that are allowed to source forex at the official market is a possibility arguing that many of the CBN policies were products of deliberations and recommendations of the Bankers’ Committee.

According to him, “most policies of the Central Bank of Nigeria (CBN) originate from a decision and then recommendation by the Bankers Committee, a committee of all Nigerian Banks MD including the CBN. The Bankers Committee has recommended that the payment of tuition fees be added to the list of products and services prohibited from seeking foreign exchange from the interbank/official market. However, the CBN has not adopted the recommendation yet but it may be adopted in the future. It is therefore necessary for us to start looking for alternatives to accessing foreign exchange from the banks for the payment of tuition fees.”

However, Ademola added that, “again, I don’t think that this method is sustainable in the long run. We may have to make the entire foreign exchange market to be a single one by floating the currency and I think the current situation is a good preparation towards that exchange rate mechanism,” he stated.

Way Forward

Going by THISDAY findings among respondents, the likelihood of the CBN excluding tuition fees from the official forex is high especially if the current pressure on the naira against the greenback continues unabated. However, a decision in that regard may wait until after the next quarterly meeting of the Monetary Committee Meeting of the CBN which comes up in April.

Oyelere told THISDAY that decision may be taken in the second quarter of the year. “The apprehension contributed to the recent demand pressure witnessed at the parallel market segment of the forex market. This is the bottom line, the nation’s spending is higher than its receipts and in a bid to achieve equilibrium there would be continue exclusion of less important items on the preference list,” he argued.

Though maintaining anonymity, the banker with the leading second generation bank aligned, saying, “It is a possibility. Tuition fees may be excluded from the official forex market if things continue like this.”