By Amechi Ogbonna
Nigeria’s currency has indeed witnessed a bumpy ride over the last two years in its race with other convertible currencies. This was even as the drop in crude oil prices and foreign reserves has further weakened the local currency at both official and parallel markets. As expected, the Central Bank of Nigeria (CBN) has since thrown in some ice to soften the ground, but this seem to have failed to stem the tide. But as part of the effort to stabilise the naira, the Association of Bureaux De Change Operators of Nigeria (ABCON) at a media forum in Lagos, launched a Uniform Weekly Exchange Rate for Licensed Bureaux De Change to enforce same-rate for operators. Even as this move is being tested, many believe ABCON’s role of complementing the CBN’s policies and ongoing plans to boost public confidence in registered BDCs would help the naira firm up slightly.
It is the known practice all over the world that foreign exchange (forex) market is driven by information flow and investors’ sentiments. This 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.
ABCON, which is the umbrella body for all CBN licensed Bureaux de Change (BDCs), on Tuesday, launched the Uniform Weekly Exchange Rate for Licensed Bureaux De Change Portal. This innovation is 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 forum of Business Editors of Print, Electronic Media and Wire Services in Lagos, said it will enhance exchange rate convergence, eradicate currency speculation and ensure speedy recovery for the naira against the dollar. He said such feats are in line with CBN Governor, Godwin Emefiele’s plan to stabilise the naira and boost investors’ confidence in the economy.
According to Gwadabe, the purpose for launching the BDCs Weekly Rate is to make it a reference point for realistic rates in the market that will boost foreign investment inflows and displacing the damaging effect of foreign media platform like Abokifx.com to the economy.
Gwadabe was confident that with the gradual recovery in crude oil prices, enhanced commitment of the CBN to economy diversification, leading 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 will be realised.
He urged the media to adopt a single rate in their reporting, by always quoting 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, urging 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 nationwide 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.
Gwadabe said that CBN implements between N500,000 and N2 million fines against BDCs that violate regulatory policies, while such operators may also face license suspension.
The ABCON chieftain solicited the media support to enable it determine and highlight positive rates development in the market through the BDCs Weekly Rate for media coverage, which was launched at the event. “We also seek your support and partnership to assist the CBN and government to eliminate or reduce to the barest minimum, activities of parallel market operators. We also want to, through our partnership with you, give visibility to registered BDCs in the market and create more awareness on the role of operators in selling forex to the retail end of the market,” he stated.
The ABCON boss also restated the 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 will post an exchange rate every Monday on its website from January 16 to “highlight positive rate development in the market” to 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 tightened 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.
He called on stakeholders to disregard the parallel market rates as they are not recognised by law, while raising hope that exchange rate will continue to improve in the course of the year despite the challenges facing operators in the forex market.
ABCON gets commendation
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 cordinated, it will bring orderliness to the market. It is really a good initiative that will reduce the level of uncertainty in the market,” he said.
Similarly, Associate Researcher, 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.
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.
He argued that 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 the 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 asides from oil receipts, the development of the agricultural sector will 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.
There are over 3,150 registered BDCs in Nigeria.
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 said: “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.
He said: “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 CBN’s plan to achieve single exchange rate,” he said.
He said ABCON is 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 N400 to a dollar even as speculation is hurting the local currency. He wants the CBN to stop banks from selling Personal Travel Allowances (PTAs) and Business Travel Allowances (BTAs) to travellers and assign the role to BDCs.
Building economic buffers to save naira
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 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 of BDCs in Nigeria.”
He said there is a big difference between a parallel market operator and a BDC operator, saying, “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’s BDCs in building the economy,” he said.
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 said, 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 said BDCs are also advocating being the sole handlers of PTAs and BTAs. He said the BDCs are 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 will continue to work together and find sustainable solutions that can 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.