Gwadabe: CBN Must Deepen Forex Market

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The President of the Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, in this interview urges the Central Bank of Nigeria to create more sources of foreign exchange for operators in the market. Obinna Chima presents the excerpts:

Is there need for the CBN to continue to sell dollars to BDCs?

You see the sovereignty of any currency is the sovereignty of that nation. No nation will just fold its arm and allow others dictate the exchange rate of its currency. Every nation protects their currency. Now having said that, one of the determining factor of this currency stability is the buffer or the external reserve. And I want to congratulate the CBN. The buffers have been good and there is projection of $45 billion reserve by the end of next year. So that will continue to generate positive outlook for the exchange rate. And I am happy that the CBN Governorrecently said the central bank has the ammunition to fight anybody that will joke with its exchange rate regime. So, the sustainability of CBN intervention in ensuring continues growth, continuous stabilisation of the exchange rate is just too important.

Now, for the BDCs, for the past one year, we have not been relying on the CBN sources. Our sources have been diversified from the CBN sources to IMTO sources. So, all that the CBN needs to do is to see, in conjunction with the association how we can deepen the market. It is all about deepening the forex market. We can come in with other products or other sources of supply.

Even the Investors’ and Exporters’ (I&E) window, as far as I am concerned should be another window for the BDCs to be buying dollars. The CBN, like what they are doing right now, coordinating the IMTO proceeds; they should also begin to coordinate the proceeds of I&E window so that we have enough of liquidity for the BDCs to ensure the stability is maintained. Even the Diaspora remittances, you see the association is working on a lot of automation projects to enhance standards, to enhance competition, global competitiveness, in terms of our visibility even for the world to see that there is honesty and transparency in our system. So, we are building confidence and we are working with the Nigeria Interbank Settlement System (NIBSS) to ensure that most of our operations, most of our systems are being transparent and very soon our members will start doing online real-time rendition of their returns. We have perfected that with the CBN, we are only waiting for the tokens to be provided. So our members will not need to go to CBN branches to submit their returns, they will now be doing it from the comfort of their office. So, it is germane for the CBN to continue to deepen the forex market. Statistics and experience have shown that the only reliable and efficient tool to achieving this convergence is the BDC sub-sector.

Why are your members agitating forincreased margin and are thereother challenges your members are facing?

Right now, the BDCs are operating under what I call the challenge of multiple exchange rates. That has been a very key issue in terms of also continued transparency and stability of the forex market. However I am also not unaware of the fact that the sovereignty of the currency is the sovereignty of that nation. So, the CBN is having two or three different exchange rates to ensure liquidity. Butyou see that has been posing a challenge because even the bank rateis at N358 per dollar and we are buying N360 per dollar from the CBN. So, it is a very big challenge for our members to operate. So that has been making the business very unprofitable. It is very unprofitable to the extent thatsome members are not able to meet up with their overhead cost, salaries. Each BDC has about six staff and another challenge is the bank charges. What the banks are charging on BDC transactions is usually high, and these are some of the potent challenges we are facing.

The CBN should allow a level-playing field and competitive rates among the various operators in the forex market. A situation where banks are buying dollars from CBN at N358 per dollar and sell the same dollars to BDCs at N360 does not represents a level-playing field or fair competition given the fact that we operate in the same market segment.

But we have hope because you will see the CBN also review the exchange rate rules. I am sure they are working now on inflation, once they can achieve single digit inflation, then they will begin also to ensure that the exchange rate is headed south-wards to ensure growth, increased output and more employment.

That is because up till now, despite the fact that inflation has dropped to15.9 per cent, it is still higher than the MPC rate. Remember that the MPC rate is 14 per cent, and we are talking about inflation rate about 16 percent. So by next year, with projections and a lot of revenue coming in, from increased oil prices, from recovery of assets, I am sure we will have a lot of buffers to ensure that the major sectors are working perfectly. More especially the manufacturing sector. So, we expect a positive outlook by next year.

But do you think it is possible not to have multiple exchange rates?

It is very possible. When you look at determination of the exchange rate now, we have what we call managed float. And if you look at even where the exchange rate should go, if not the inflation rate that is higher than the MPC rate, am sure by now, the prediction of dollar should be N250 per dollar. It is feasible.

What is your outlook for the naira in 2018?
My outlook for the naira is that I see the naira going to about N300 to the dollar. The basis for my outlook is that we are going to have robust external reserves next year; we have cut down our food import and we are diversifying our exports. You will alsosee that in all we are doing now, everybody is imbibing the rules of corporate governance, Know Your Customers (KYC), Anti-money laundering rules, among others.

The third quarter GDP report showed that except for the oil and gas and agric sectors, all other sectors contracted. This prompted some analysts to argue that the economy is still in recession. From the BDC industry perspective, what is yourtake on this?

I think economics have already provided the answer to the issue of recession. We cannot start redefining what a recession is. Recession as defined by economists is two consecutive quarters of negative growth, and if there are statistics that indicates otherwise that we had positive GDP growth then I also want to agree with that statistic. However, I agree that it’s like a single sector driven positive GDP growth, where it is only the oil and gas sector that is contributing most of the growth we are having. But I think it is not a bad analysis, it is also something that can keep us in our comfort zone, that we are doing well. However, in terms of the BDC sub-sector contribution, we have contributed billions of naira in turnovers. Because each BDC is doing a minimum of N15 million transactions per week, multiply that by 3,500 BDCs.

So, this is the turnover we contribute to the economy. In fact, I don’t think the oil sector has the kind of turnover we are having. And with our automation drive, we believe inflow from investors as a result of the confidence so far established on the stability of the exchange rate, will double or tripple. And with the continued determination of the government to ensure peace, the diaspora remittances and estimated at $35 billion, we also predict, will go up to between $45- $50 billion. So, these are other sources that will empower the CBN with more ammunition to use the BDCs and ensure that the exchange rate continues to stabilise, and the rates continue to converge, and the spikes is no more in the market.

You said that the CBN should allow BDCs access dollars from the I&E window. How workable is this?

Yes, it is very workable. If you look at the IMTO window now, the proceeds come to the banks, which is been coordinated by the CBN, and it is disbursed to BDCs operators. So, the same concept or procedure can be adopted in I&E window. In fact what we are even looking at is that there should be a Diaspora window like I&E window. The modalities, the technicalities are the same. It is the same institutions that will be involved. So, it is the same players, it’s just coordinating them and make sure the same thing is applied and everybody is happy.