Exchange rate stability is one of the key mandates of the Central Bank of Nigeria (CBN), which has enjoyed the support of the Bureaux De Change (BDCs) in realising the objective. For the Association of Bureaux De Change Operators of Nigeria (ABCON), the success of BDCs goes beyond favourable rates. They need access to multiple streams of forex, including becoming channels through which over $25 billion yearly Diaspora remittances enter the economy. This is expected to deepen the forex market and boost BDCs operations. COLLINS NWEZE reports
For years, there has been moves to diversify the country’s economy away from oil. Besides, crude oil has, for long, remained the mainstay of the economy. Although it accounts for over 80 per cent of Nigeria’s foreign exchange (forex) earnings, the unpredictability of oil prices raises the risk of relying solely on it for the country’s revenue.
That explains why the country needs multiple streams of forex earnings and the enlisting of more channels to attract Diaspora remittances and other foreign capital that will not only deepen the market but keep the naira stable.
Diaspora remittances to Nigeria, which was $25 billion in 2018, remain a reliable source of forex to the domestic economy and that is why over 4,500 Central Bank of Nigeria (CBN)-Licenced Bureaux de Change (BDCs) come to mind.
Concerned with the stagnant state of the economy marred with inconsistent forex earnings through oil export, the Association of Bureaux De Change Operators of Nigeria (ABCON) has called for BDCs to be one of the channels for receiving Diaspora remittances into the economy.
ABCON President, Alhaji Aminu Gwadabe, said the CBN forex policy has brought stability to the BDC industry and helped operators to embrace automation, which is the standard best practice globally and adding the BDCs to one of the channels through which the Diaspora remittance funds come into the country will be a good way to reduce the reliance of rate differentials to sustain operators’ businesses.
He said the BDCs remain at the centre of economic development and have the capacity to attract the needed capital for the development of the economy.
Findings have also shown that forex remittances from Nigerians in the Diaspora far exceeded the country’s earnings from crude oil export last year.
Since many transactions are unrecorded or take place through informal channels, the actual amount of remittance flows into the country is arguably higher.
The estimation is that migrant remittances to Nigeria could grow to $25.5 billion, $29.8 billion and $34.8 billion in 2019, 2021 and 2023.
For instance, the total oil earnings of the nation stood at $15 billion in 2018, while the total remittance from Nigerians in Diaspora amounted to $25 billion in the same year. Nigeria earned a total of N5.54 trillion ($15.4 billion) from oil revenue last year, according to the Central Bank of Nigeria (CBN).
Gwadabe said: “Diaspora remittances contribute to this economy more than what the oil sector is yielding. The Nigeria National Petroleum Corporation (NNPC) inflow in 2018 is about $15 billion while migrant remittances, Diaspora remittances are nothing less than $25 billion annually into this country’s economy, and this inflow is steady and adds to the country’s Gross Domestic Product (GDP).”
According to him, Diaspora remittances remain cheap source of fund, because it is not to be paid back with interest, but goes directly into the construction of houses, payment of school fees, medicals and a lot of things that are adding value to the weak economy.
The ABCON chief explained that Diaspora remittances represent household income from foreign economies arising mainly from the temporary or permanent movement of people to those economies.
The remittances, he said, are cash and non-cash items, that flow through formal channels, such as electronic wire, or through informal channels, such as money or goods carried across borders, adding that Nigeria can cover a large part of capital flow gaps through remittances from its citizens in diaspora using the BDCs.
“Nigerian BDCs operators have also identified with the immense opportunities presented by Diaspora remittances and want to play greater role in attracting more foreign capital into the economy.
The reason being that remittances are known to help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially, drive economic growth,” Gwadabe said.
He said Nigerian BDCs, like their counterparts in other emerging or developing economies, can deepen the forex market through remittances and collections.
“When that happens, it will not be the first time that BDCs were given the opportunity to turn the remittances market around for good.
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 Lebanese economy is highly dependent on the activities of BDCs in that country. Therefore, Nigeria can also achieve higher revenue through BDCs given the opportunities we seen in the remittances market,” he said.
He regretted that the cost of sending money from the Diaspora to Africa was rising. In the first quarter of 2018, the average cost of sending $200 was 7.1 per cent, and remittance services in Sub-Saharan Africa were the costliest in the world at an average cost of 9.4 per cent.
He insisted that renegotiating exclusive partnerships and letting new players operate through national post offices, banks, BDCs, and telecommunications companies would increase competition and lower remittance prices.
ABCON’s position on N305/$ exchange rate
The ABCON has also defended CBN policy on foreign exchange allocation to BDCs, which it believes has stabilised the naira against the dollar.
Gwadabe faulted the petition against the CBN Governor, Godwin Emefiele and its management team over the deployment of dual exchange rate regime in forex allocation.
He also faulted the N305/$ rate to BDCs as proposed by the petitioner, saying it is not a transactional rate but that is used for settling government obligations.
Senate Committee on Finance had invited CBN Governor Emefiele to appear before it on February 7, 2020, following a petition by human rights activist, J. U. Ayogu, who accused the CBN Governor and its management team of compromise in the allocation of foreign exchange.
“There is a case against the CBN Governor and his management team written by J.U. Ayogu. A petition before the Senate laid on the Senate on the December 12, 2019, where J. U. Ayogu, Esq, on behalf of the Bureaux De Change Operators of Nigeria wrote against the CBN over its dual exchange rate forex policy that enriches few Nigerians and its top management staff to the detriment of many lawful Nigerians.
It is frustrating the present administration to eradicate poverty and unemployment from all the nooks and crannies of Nigeria,” Member, Senate Committee on Finance, Senator Ayo Akinyelure (PDP, Ondo Central), said.
The petitioner had pleaded with the Senate to compel Emefiele to review the policy of dual exchange rate without delay to keep BDC operators in business.
But ABCON management said the CBN forex policy has brought stability to the BDC industry and helped operators to embrace automation which is the standard best practice globally.
“This is the hand work of unknown faces not ABCON. It is confrontational and lack credible evidence. The N305/$ is not a transactional rate but it is one for settling government obligations. ABCON submission to the National Assembly is on Value Added Tax (VAT) exemption and review of licence fee renewal downward submitted to the CBN. The petitioner was never at any time appointed to speak on behalf of BDCs,” Gwadabe said.
He disclosed that no BDC or service provider gets forex at N305 to dollar and that the petitioner’s claim is completely false.
VAT consultant steps in
Gwadabe said ABCON has appointed Mike Akinfolarin & Associates as its consultant/tax attorneys on VAT, which is a bigger problem confronting operators as a large part of their income go into paying taxes, adding that in other economies, forex rate control by government is VAT exempt. “That the law firm of Mike Akinfolarin &Associates (Tax Attorneys) made a representation on behalf of ABCON before the National Assembly public hearing, House Committee on Finance Bill on November 25, 2019 in Abuja. And that remains the position of ABCON,” he said.
He commended the CBN management for its progressive policies and achieving stable exchange rate that aligns with its price stability mandate and reducing unemployment in the country.
Also, the West African Institute for Financial and Economic Management (WAIFEM) Director-General, Dr. Baba Musa, explained that in economics, Diaspora remittances are called non-debt creating flow, which comes in like Foreign Direct Investment (FDI).
He said Diaspora remittances remain crucial in economic development, but there was need to look at how they are coming in. He said the source of many of the funds is never known, hence the need to broaden the remittance channels.
Connecting BDCs to remittance business
Financial pundits have continued to give reasons BDCs should be brought into the Diaspora remittance business. For instance, financial institutions’ long procedures, complicated forms, and history of poor service quality means BDCs are needed to deepen the market. The BDCs segment of the market operates in a simple manner while remaining closer to the people needing the remittance funds.
“BDCs buy foreign currency from remittance recipients and sell it to Nigerians who want to travel abroad. The reason for establishing these institutions in 1989 was to broaden the forex market and improve accessibility to hard currency.
The CBN supervises and issues operational guidelines for BDCs. In March 2006, Nigeria licensed 293 BDCs, which have risen to over 4,500 operators today. This development means that BDCs are willing and ready to do the remittance business,” Gwadabe said.
He explained that money senders want their beneficiaries to get a favorable exchange rate and more value in the local currency and such can only be achieved in a competitive market where recipients have several options including BDCs.
Gwadabe said a coherent policy framework to harness remittances into generating capital for productive investments for the growth and development of small and micro-enterprises, which will in turn, create employment was required. In addition, remittances can be deployed toward philanthropic activities which can serve as solutions for specific deficiencies in the local infrastructure such as schools, hospitals and roads.
For him, remittances are on track to become the largest source of external financing in developing countries and Nigeria cannot be left behind.