Mixed Feelings Trail CBN’s New Forex Policy

Godwin Emefiele, CBN governor


Mixed reactions trail the Central Bank of Nigeria’s new policy stopping the sale of foreign exchange to bureau de change operators with some lauding it while others doubt that it will not be sustained because of some unintended social consequences

By Maureen Chigbo  |  Jan 25, 2016 @ 01:00 GMT  |

THE new foreign exchange policy of the Central Bank of Nigeria is eliciting mixed reactions from the Nigerian populace. While some financial experts and economists are lauding the Central Back of Nigeria, CBN, for taking an action long over to check the draining of the scarce foreign exchange, some people think that it is not sustainable.  There are also others who flay it because it is bound to have some unintended consequence (unemployment) on the social fabric of the nation.

The CBN on Monday, January 11, stopped the sale of foreign exchange, FOREX, to operators of the bureau de change, who reap huge profit by reselling what they got from the bank at hiked unofficial price. Some economists and bankers, who talked to Realnews, said that the action of the Central Bank was necessary to stop the dollarisation of the economy and a regime of round tripping prevailing in the market.

They are of the view that the Central Bank should back up its new policy by making sure that banks sell only travellers cheque instead of raw dollars to people who want to travel abroad for whatever reason. They also suggest that CBN should engage Travellex to return to the era of printing travellers cheque instead of importing raw dollars into the country at the instance of the apex bank. The idea of importing raw dollars into the country is creating room for people to exploit the situation and awakens the urge to dollarise Nigeria’s economy by unscrupulous people.

“I am very happy about the policy on BDCs. Is there any country in the world that sell Dollar to BDCs? It is the indiscipline in the country that is causing all this. Government gives order, sells dollar to BDCs and ask them to sell at a particular price, yet the flout the order and hike the price at which the sell to make maximum profit. It is still the same crop of people who go around criticising government,” the managing director of a micro finance bank in Lagos, who wishes anonymity, said.

There are other Nigerians who believe that the CBN’s action is just reactionary because of the dwindling revenue from the sale of crude oil from where it generates foreign exchange. “The policy won’t last long. They are reacting to developments in market. They don’t have much choice. We are just trying anything that works. The situation now has just passed economics. The future is bleak. I am not happy this is happening. A year ago when the oil money was flowing, CBN would not have taken this action to check people who don’t add much value to the economy. This is a problem we brought on ourselves. We depended on oil for too long. If we ever get out of this we will learn to save. We are in a precarious situation,” a former official of a multinational institution who is now retired, told Realnews.

Stating that the BDCs are meant to cater for small users who are going to get hurt, he added that the new forex policy was a spontaneous action by CBN to curtail the speculation going on in the market which is not sustainable. “It is not everybody who needs forex that will go to the bank. There must be legal sources for small people to buy. They started by asking the BDCs to get bank verification number, BVN, to catch the thieves but it was not successful. The new policy will affect small users which they banks cannot cater for. The CBN has moved to the banks again which were guilty of round tripping. If that will solve the problem, I don’t know. I think it is only a stop gap measure,” he said, adding that the social problems the policy will throw up like those who will be out of work will have to be dealt with too.”

This new policy is not the first time the apex bank has tried to curtail the activities of the bureau the change operators. Over the years, different Central Bank governors have come up with policies to manage the BDCs which were later reversed. Realnews learnt that the sale of dollar to BDCs escalated during the era of Lamido Sanusi, former Central Bank governor, in a bid to stop the banks from round tripping.

Prior to this, banks were procuring all sorts of document to get the dollar cheaply from the CBN under the guise of funding importation only to move such funds abroad and re-import it into the country to make huge profits. In order to dilute the process, the CBN started selling directly to BDCs. The business became so lucrative as many people made easy money prompting many more people including even the officials of CBN, legislatures and prominent Nigerians to allegedly obtain licences to own BDCs under cover. Through this they were milking the country blind through forex rent without adding any value to the economy.

The situation worsened now that the revenue from the sale of crude oil dwindled drastically thus weakening the foreign exchange reserve of the country which is $28 billion. For instance, 90 percent of dollar inflows into the CBN come from proceeds from the crude oil sales. But oil prices have fallen from $116 per barrel in June 2014 to $33 per barrel in January 2016, representing a decline of 70 percent. When oil prices were high, the CBN got about $3.2 billion inflow every month. Today, the bank receives less than $1 billion monthly. Yet Nigeria’s import bill which used to be N148 billion per month in 2005, (last year, it had $50 per barrel of crude oil), is now about $920 billion,

Given this difficult scenario, the CBN had no choice but to prioritise the allocation of forex to various groups/goods/services. The new policy is significant because it has stopped Nigeria from being the only country in the world where the Central Bank sells forex directly to BDCs.

“Despite the benevolence of the CBN, greedy BDCs bought at the N197 but sold at N270. Hence, the intended “subsidy” was not reaching Nigerians as is the case with the fuel subsidy. This arbitrage opportunity attracted many unscrupulous persons into the BDC business. Before CBN started selling forex to BDCs there were only 74 in 2005. In 10 years, the number is now 2,800 with 150 applications for licenses every month,” a source close to CBN told Realnews.

Realnews gathered that what happened in the forex market could be likened to what happened in the oil and gas sector when the number of oil marketers rose sharply from under 20 to almost 150 in the height of the subsidy scam. At its height, the bank used to allocate $8.6billion to the BDCs per annum. This potential savings is reallocated to fund raw materials, plants, equipment, fuel imports, BTA/PT etc. “Indeed, why should a business enterprise be established only on the basis that the government must supply its goods or raw materials, especially when the government does not make these products. How can someone open a tomato shop and insist that government must supply the tomatoes for him or her to sell? Why can’t the trader source the goods,” the source asked.

According of him, “the new policy on BDCs is right and must be supported. Everyone must be encouraged to make money, not trade money.”


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