The establishment of Investors’ & Exporters’ Forex Window by the Central Bank of Nigeria (CBN) in April has stabilised the naira and the economy. The Bureaux de Change (BDCs), which have been supporting the CBN’s development agenda, believe they should be able to access dollars from the window as seen in the International Money Transfer Operators (IMTOs) inflows. Association of Bureau De Change Operators of Nigeria (ABCON) President Aminu Gwadabe says such practice will boost dollar liquidity. He speaks with COLLINS NWEZE on the naira’s outlook in the New Year and the role of BDCs in national development.
Until the impact of Bureaux de Change (BDCs) operations in national development began to crystalise in the heat of the currency crisis, many thought the operators had nothing to offer. But those with such thoughts have since realised how wrong they were.
The BDCs have continuously supported the Central Bank of Nigeria (CBN) in its development and currency stability roles, Association of Bureaux De Change of Nigeria (ABCON) President Aminu Gwadabe said.
He also spoke on the role of BDCs in achieving foreign exchange stability. A BDC is defined by the CBN manual as a retail forex dealer carrying on the business of Personal Travel Allowance (PTA), Business Travel Allowance (BTA), medical and school fees, and also to carrying on inward and outward transfer.
Said Gwadabe: “So, a BDC is a licensed outfit, normally by the CBN. All over the world, BDC operators play different roles. For instance, the primary role of BDCs globally is to ensure forex availability to the critical retail sector of the forex market in terms of supply so as to bridge the gap between the official and the parallel market exchange rate. They have even gone, for instance, beyond convergence, beyond providing liquidity, to the achievement of the major policy of the Central Bank of Nigeria (CBN), which is exchange rate stability. Before BDCs were allowed in the official foreign exchange market, the CBN had over the years tried many methods to ensure there is convergence of the exchange rates, but that was not achieved.”
“ We have witnessed different auction system, Retail Dutch Auction, Wholesale Dutch Auction, all these did not deliver the desired result. But in 2006, when all the prescriptions of how to checkmate this problem of spikes (volability) in the forex market failed, the thought to allow BDCs come into the official market was considered, and they (CBN) allowed us. By then we had a gap of about N50 ranging to N60, but as soon as BDCs came into the official market, within one month, the rates converged to a difference of only 50 kobo between the parallel market and the official market,” he stated.
Role of BDCs
Gwadabe said that overtime, there have been arguments about the role of BDCs. He disclosed that some people even went to the extent of saying the BDCs are no longer relevant.
“If you remember the single exchange market that came in 2014, it did not even recognise the role of BDCs. However, that regime did not last because they did not consider the role of the BDCs. But after consistent agitation by the association, that there is need to acknowledge the role of the BDCs and include them, so that we can continue with what we have been helping the CBN and the economy to achieve, which is exchange rate stability, the CBN reviewed its stance by allowing us to come into the market, and also offered us what they call the International Money Transfer Operations (IMTO) proceeds, and since then there have been significant achievements. One, we have also disappointed the pundits that predicted that the dollar exchange rate will hit N1000 before December 2017,” he said.
The BDCs, he added, have also helped in eliminating the spike, volatility and uncertainty of the exchange rate.
“Before people could not plan, manufacturers were crying, but now the manufacturers are opting for the exchange rate above the inflation rate due to the stability being witnessed in the market. No more spike, people can plan, I think for the past six months, we have seen the dollar stable between N360 and N365 even at the parallel market. So this is a great achievement for the manufacturers, for economic planners. At least people can plan, people can order their inventory without much stress.
“That has been one of the important roles BDCs play, in eliminating the spike, and also the gap between the exchange rates, which created opportunities for rent seeking. There is no more rent seeking. Speculation which also used to be the order of the day in the forex market has also been eliminated. Also currency exportation, which is also an opportunity just because of the opportunities for rent seeking, is also not the order of the day.
“All these are great achievements that the BDCs have helped in ensuring that the economy is stable, to the point that we have even come out of recession. For an economy to grow, there must be some sectors doing the hard job. I can assure you that for this convergence that we have seen, the commendation should go to the BDCs, because it is their hard work that made it happen”.
Now, most of the BDCs because of the convergence, are not even in operations because the parallel market rate is even lower than that of our rate, so we have brought down the rate. Even below the parallel market rate, with difference of about N1 to N1.50, so there are a lot of achievements.
Also, in the process BDCs created employment, we are about 3,500 licensed BDCs now and each BDC have at least nothing less than six workers. So if you multiply six by 3,500, we are talking about 21,000 Nigerians that are dependent on the BDC subsector.
Dollar sales to BDCs
On the need for the CBN to continue selling dollars to BDCs to sustain stability in the market and convergence of exchange rates, he said 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 its currency. Now having said that, one of the determining factors of this currency stability is the buffer or the external reserve. And I want to congratulate the CBN, the buffers have been good, there is projection of $45 billion reserve by end of next year, so that will continue to generate positive outlook of the exchange rate. And I am happy that the CBN Governor, just last week said that the CBN has the ammunition to fight anybody that will joke with the 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; we can come in with other sources. Even the Investors and Exporters (I&E) window, as far as I am concerned should be another window for the BDCs to be buying money. The CBN, like what they are doing right now, coordinating the IMTO proceeds, should also begin to coordinate the proceeds of the (I&E) window so that we have enough of liquidity for the BDCs to ensure the stability is maintained”.
Gwadabe explained that: “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 CBN to continue to deepen the forex market, and statistics, experience has shown that the only reliable and efficient tool to achieving this convergence is the BDC subsector”.
Access to I&E Forex window
Gwadabe said the CBN should allow BDCs have access to funds from the I&E Forex Window. He said: “It is very workable. If you look at the International Money Transfer Operators (IMTOs) window now, the proceeds come to the banks, which is being coordinated by the CBN, and it is disbursed to BDCs operators. So the same concept or procedure can be adapted in the I&E window”.
“It was even our advocacy that made the CBN consider establishing the window as we disclosed the dwindling investors’ confidence in the market. Because we always meet with the investors and they always tell us their concerns and fears, and part of our recommendation to the CBN was to create a special window for investors and exporters.
“And you can see the impact, it is working very well. In fact, what we are even looking at is that there should be a Diaspora window like the I&E window, the modalities, the technicalities are the same. It is the same institutions that will be involved. The institutions over there that will generate these funds, the banks as correspondent banks, the CBN as regulators and BDCs as the operators. So it is the same players, it’s just coordinating them and making sure the same thing is applied and everybody is happy”.
Agitation for dollar sale margin increase
Gwadabe explained that right now, the BDCs are operating under the challenges of multiple exchange rates. “That has been a very key issue in terms of 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, but you see that has been posing a challenge because you see even the bank rate, the CBN is selling to them at N358 per dollar and we are buying N360 per dollar from the CBN”.
Tackling multiple exchange rates/ Naira’s outlook
He said it is possible to tackle multiple exchange rates “It is very possible. When you look at the 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, I am sure by now, the prediction of dollar should be N250 per dollar, it would have been feasible.
“My outlook for the naira, ceteris paribus, I see the naira going to say, N300 to the dollar. The basis for my outlook is that, one, we are going to have a robust external reserve buffer, two, we are cutting our food import, and we are diversifying our export, and then corporate governance. You see that in all we are doing now, everybody is imbibing the rules of corporate governance, Know Your Customers (KYC), Anti money laundering manual and what have you, to ensure that no more breaches”.
