FALLOUTS FROM SUSPENSION OF BUREAU DE CHANGE

Boniface Chizea writes that the banks must be monitored closely to ensure they comply with the rules

Bureau de change (BDC) operators are trending in the news since the Central Bank of Nigeria, following its bimonthly Monetary Policy Committee meeting, dropped the bomb shell that it would no longer sell weekly foreign exchange to BDCs.

The CBN served notice in the same breadth that it would discontinue with further issuance of new licences and would abruptly terminate processing of applications already in hand. It has already promised to refund the mandatory deposits of N35 million as well as the processing fees of one million as the case might be. It is good for us to observe upfront that Nigeria is probably the only country in the world that has an arrangement whereby official forex is sold to BDC. In other jurisdictions they are expected to operate autonomously of government by sourcing the forex they sell.

The CBN will for now return retail customers to the commercial banks that it has mandated to designate reserved tellers for such transactions to facilitate matters. And assured that it would provide a toll-free line for customers’ complaints, warning the banks to expect heavy sanctions should they be found wanting or in anyway constitute themselves as clogs in the wheel.

The CBN explained that the BDCs have departed from the original reason for their establishment which is to deal at the retail end of the market to enable small users circumvent redtape and the inevitable associated delays to become large scale dealers in foreign exchange perpetrating in the process illegal financial flows as well as facilitating graft and money laundering.

It also accused foreign companies operating in Nigeria, embassies, development finance institutions as being complicit as they patronized the BDC to obtain funding for their domestic expenses and threatened to report them to appropriate authorities in their respective countries.

Not to leave anyone in doubt of how lucrative BDC transactions have become, their numbers grew from 74 in 2014 to over 5,500 today! With the allocation made by CBN to operators standing at a whopping 5.7 billion dollars per annum!

Would the CBN be able to withstand the pressure that will most certainly be unleashed on it to reverse itself on this decision? I have my doubts because there is hardly any important player in the Nigerian economy today who does not own and operate a BDC! And the fact is that most of those involved have multiple licences! But no doubt the CBN does not need us to inform it that policy flip-flop does untold damage to the image of the country amongst the international community and as a follow up undermines the attractiveness of the economy for foreign direct investments.

It is on record that the sale of official foreign exchange to BDC had been stopped before in 2016 when a soft oil market caused a drought in dollar inflows. There was also a temporary stoppage in March, 2020 as a result of the pandemic to control the large gathering of customers looking for forex to avoid a breach of distancing requirements occasioned by the COVID protocols. But sale was resumed shortly afterwards in August 1, 2020. Therefore, what has just happened with the ban is familiar territory for the CBN and we must give the bank the benefit of the doubt that it must be up to the task to anticipate and handle the likely fallouts.

But what are these likely fallouts? What is certain is that despite CBN best efforts, access to forex for retail users will be impeded. In spite of the requirements for the establishment of dedicated tellers, there is no way the speed of transactions will favourably compare with dealing with BDC operators.

It is also certain that there will be an additional costs by way of commission charges which inevitably the banks must impose in order to recoup related overheads.

There is bound to be an initial knee-jerk fall in the rate of exchange of the naira. This is no brainer as supply must be negatively affected at the outset. But what has been reported so far is that while the naira has suffered the inevitable fall in rate at the parallel market, it has been reported that Nafex (The Exporter/Importer) window witnessed an appreciation.

There might be downsizing amongst the BDC operators as they right size in response to inevitable reduction in the level of activities. In this pandemic environment of lack of productivity and therefore rising unemployment, this is bad news.

Nigerians are acknowledged genius in circumventing policy thrusts that impact on them negatively. The CBN must be prepared to monitor closely the banks so that there will be no sabotage. What if the banks discover a loophole that would enable them sell the Fx inflow for customers instead to BDC operators for rent seeking purposes! Would the CBN be able to plug in advance this potential loophole? This to my mind will be an acid test that will determine the ability to achieve desired results. It has been reported that some unpatriotic elements who had access to official forex hitherto simply round tripped to make a killing as they smiled to their banks.

The difficulties which abound as administrative measures are initiated explain why some Economists root for the enthronement of market forces. But is there any market in the true sense for Fx in the Nigerian economy with only one dominant supplier?

To say the obvious these are rather uncertain and difficult times as we monitor for trends to manifest. The rate of exchange was under N200 to the dollar in 2016 when this administration came on board. Today at the official window it exchanges for close to N420, more than 100% depreciation due largely to lack of productivity in the Nigerian economy. And this development has accounted for a massive spike in prices of goods and services such as has never been witnessed in recent memory.

But as we groan and complain, it is incumbent upon us to rise, smell the coffee and be accountable. We must imbibe the patriotic mindset to make whatever little contributions we can make in our little corners to contribute to a solution even if it is only a little orientation in our consumption habits for a preference for made in Nigeria. We must accept that all hands must be on deck for us to achieve the desired result of a stable rate of exchange.

Dr. Chizea wrote from Lagos