How CBN, BDCs tackle speculations, other sharp practices in FX market

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, in this interview with MOTOLANI OSENI, speaks on disparities in the foreign exchange market, why rate convergence is required, in order to have a healthy competition that would achieve a stronger naira. He also called for the deepening of the BDC’s scope of operations by allowing them to involve in the SMEs FX window, among many other topical and Nigeria’s economy issues. Excerpts…

Since April 2017, each BDCs have started getting allocation of $40,000 on a weekly basis, how has this impacted on the foreign exchage market?
That in fact is phenomenal, because it has even defeated the pundit that predicted that dollar would be N1000 to a dollar before the end of 2017. That intervention by the Central Bank of Nigeria (CBN) through the BDC window as greatly impacted and influenced so many things. Such as; the exchange rate stability, removal of spike, hoarding, speculation and growth in the Nigerian economy. In fact, is one of the factors that helped the country from exiting recession.

How has stability in the forex market helped Nigeria’s economy exited Its worst recession in 2017?
First and formost , it has helped in meeting critical sector demand for foreign exchange. If you renembered the situation in the country last year January, parents were crying on how to source dollar for thier children abroad. While children who came for holidays cannot go back because there was no accessibility to the forex for them to go back. Secondly, companies were shutting down because they cannot get dollars and a lot of them were forced to go to neighbouring countries to operate.
Thirdly, the spike was also high, but currently no longer have scenarios such that the naira is 400 to a dollar today, tomorrow us 430 and moved to 480 next tomorrow. And you know, spikes, affect planning, hence, it had helped in ensuring that there is perfect planning for both the government, regulator and the manufacturers to ensure that the economy is on the path of growth.
And now, I think the manufacturers are even prefeering stable interest rate to show you how positive impacts that has done to the economy. And on our own sector, BDC, it is not even the CBN’S foreign reserves that we are accessing but the diaspora remittance and then that has also helped inflow of diaspora remittance and would also seen that impact on Investors & Exporters FX window as soon as it was opened, We realised almost over eight billion dollars, which has boosted zero confidence unlike when investors don’t even want to come. And you know, $8 billion is almost N7.3 trillion our estimated budget. However, if only one window can supply our entire budget, that is to say there is a consderable impacts in the market and also in spuring growth.

During the same period that I&E FX window was established in 2017, specifically, on April 10, over 3,000 BDCs Directors met in Lagos to discuss how to strenghten Naira, as at end of the year, how has ABCON under your leadership helped in fighting against speculation , so as to strenghten the Nigerian currency over the dollar and other major foreign currencies?
As an association, if you remembered in our last interface with the Business Editors in Lagos, wherby we came out to sensitized our members and launched a single exchage rate for the market, that the Naira should not be more than N400 to a dollar and this was one of the first thing we did as an association to checkmate the spike and the weaknesses of the naira .
Also, as stakeholder in the market, we have helped the Central Bank of Nigeria in ensuring that people have readily forex accessibility, like you said our number is about 3,500. None of the banks even have up to 1000 outlets in the entire country. But as an association and stakeholders , we are boasting of over 3500 Bureaux De Change in all the nooks and crannies of the country. In Lagos alone, we have about 1700 BDCs. So, we are all over the place ensuring liquidity.
Right now, the market is even shoked up, because the parallel market rate is below the rate we are buying from the central bank. We are currently buying at 358 to the dollar for working customers that come, some even 355 but we are going to the CBN window at 360 to a dollar. So,its even becoming impossible for people to go to CBN window and come out and sale to make margin because of the parallel market rate is even far below the selling rate of the central bank of Nigeria to the Bureaux De Change sub sector.

Why do you think the CBN should merged the BDCs and commercial bank rates?
The CBN should marge the commercial bank and the BDCs rate because they are selling to commercial banks at 358, and sell to us at 360 while we can buy from the parallel market at 358. But what we are saying is that they should merge the two rares. If they can do lower is better but they said, when you want equity you should go with clean hands. So, we are not asking for what is not practicable, because already there is window of 358 that goes to the bank, what we are asking is give us the same rate because we have the same market, we have the same buyer and doing the same product. What they are selling is personal travel allowance and business travel allowance which is the same thing we are selling. And they even have a dipper product lines than the BDCS because they do letter of credit, they do bills for collectionm among others. While we are only limited to about four lines. In fact, what we a even writing to the CBN now is to deepen our product lines, diversify our product lines.
For instance, if your child get admission to study abroad and the school fees is $25,000 and may be the tuition is $15,000, both the banks and the BDCs can only sell the tuition while such customers will have to patronize the parallel market operators for the upkeep of that child. I think the CBN can give the BDCs to ensure that people that need upkeep of thier children the BDC and do thier transactions legally instead of patronising the parallel markets.
On Thursday, January 4, only 580 Bureaux De Change accessed the CBN bidding out of about 1700 in Lagos, just because the margin has completely been eroded. Also, because there are no many product lines. And more reason why BDCs are patronising the parallel market because it is cheaper and not at a lost.
For instance, who you do CBN window at 360 will you sell it at 360 again or the 358 that the parallel market is doing?

What is the update on your recommendation that the BDCs be involved in the SMEs forex window, requesting for transactions between $5,000 &$10,000?
The SMEs forex window is another product line that the BDCs should be involved, because if you want to buy Laptop, ipad for businesses, phones and television, and other $5000 to $10,000 transactions like that should be allowed to be carried out by the BDCs, with customers providing thier invoices. I actually, don’t know why the SMEs window was given to the banks? Because that is what is applicable in other countries like UAE. And now, the association has even position the BDCs. We just launched our logo and we are going to implement it on this 2018. Great ever bureux de change will have thier on logo, which will serve as some of the identifiers for you to know that you are dealing with a genuine bureux de change. But in terms productivity and competitiveness, we are automated and already on the space with our consultant which has enabled bureux de change to now transact online and almost 2500 BDCs have already registered on that our online platform.
It would also, enable the BDCs to send thier returns from the comfort of thier office not using the old way if doing that. And even the CBN, from the comfort of thier office plan go into that platform to check and get information about BDCs such as,office address, directors, and thier transactions. Even across the world, people can easily look at it. We are currently waiting for the CBN approval because on our part we have perfected everything through our cosultant and only waiting g for them because they said each bureaux de change will be given a token, which will be ysed by BDCs to be transmtting information and people too can use it to get information about you. So, that is what we are waiting for and as soon as that is ready, we are good to go.

In 2017, ABCON on several occasions warned its members against speculation and other forex malpractices, we would like to know how many of ur members found guilty for unethical practices and what were the sanctions against them?
We have even introduced what is called “Utilisation documents ” to our members which the central bank supported. Every week each BDCS would bring physical documents to us and to the CBN on how you have utilised the amount of money that has been given to you and still operational. So, through that, we are able to checkmate utilisation and also if there is diversion and that has really compelled our people and discouraging them to be involved in either speculation, hoarding or any illegal activities in the market. But you know, we are all human beings, hence, I cannot say such activities of illegalities are not taken place but from the part of our members but because there are different markets; you have licensed Bureaux De Change and the parallel market operators. And also, have the banks in the market but from our own part as an association and as a self regulatory organisation, we have been talking to our members because we have a WhatsApp platform off all the 3500 members whereby on a daily basis we sensitize them and update them about the dangers of such activities.
Sometimes, if you look at those parpetrators, they may be the owners of a Bureaux De Change but they don’t even parpetrate that fraud using the name of their bureux de change. But they use it on thier own personal name, and once you are caught not using a BDC it will be very difficult for us to say it is a Bureaux De Change that parpetrated such fraud, but the association is guiding its members while showing them the implications of yhay. And anyone that is found guilty of any especially on the utilisation documents, by not giving genuine or correct information, such person name will be sent to the CBN that it should not be allowed to be. We did that in 2017 to stopped so many BDCs that thier documents were found doubtful I nature. So, that is what we have been doing to ensure that there is sanity in the market, and at the same time about the automation that we just launched which to ensure that all our members activities busineses can be seen.

Can we say the CBN is not tackling corruption considering the gap in the foreign exchange market?
I think the CBN are trying to some extend is to bridge the gap but it is a combination of many areas. Nigerians, stakeholders and government should discourage foreign exchange abuse. It is not the role of CBN to ensure physical disciple in governance. We are talking of even enforcement agencies, national assembly and presidency- all of them are involved.
This is 2018 and it a period we expect hot money in circulation. Once there is hot money in circulation, I can assure you that likelihood of hurting the Naira is high. The current rate of N363 is a question of time.

What is the level of illegality in foreign exchange transactions in our boarders?
It is no more profitable because the security agencies have arrested so many people involved. There is no more gap in the foreign exchange market. Fraudsters were doing it because of the gap. The gap had influenced illegal exportation of dollar. Why were they supplying dollar to UAE and bring it back to Nigeria?
It is because of the gap at the parallel market was wide then but now, we are having no margins. The parallel market rate is N358 while the CBN rate is N360. Illegal transactions have reduced drastically and it is one of the reasons that have stabilised the Naira.

How has the BDC operators supported the CBN in rate convergence?
I think there are no any tools that have helped the CBN achieving market stability than the BDC operators. Prior to 2006, a lot of measures were put in place by the CBN. The entire introduced windows by CBN were not effective in stabilizing the foreign exchange market. As soon as there was a window for BDCs in 2006, that was when we beginning to achieve convergence and stability.
Anytime the CBN does not recognised the licensed BDC in the foreign exchange market structure, the market begin to depreciate. Look at 2014 when they introduced a single exchange rate. The BDC were exempted in the paper. That was one of the reasons it was not achieved. BDC operators negotiated with CBN and we told them the market will suffer because BDC operation is critical tool that CBN needs to achieve stability.
Yes, we understood there was a dwindling foreign reserve but then, we do not need to go through foreign reserves. Why not encourage diaspora remittance. Let us be buying from almost the same rate they are selling from the black market. it is important for CBN to work with BDC operators.

The Nigeria’s foreign reserves have improved in two years. Can we conclude we have enough foreign exchange buffers?
It is the size of our economy that matters. The current rate is in a comfort zone though we need more. Our infrastructure demand is about N38 trillion. How much is that to the foreign reserves?
How can CBN create enabling playing field for operators in foreign exchange market to competitive?
The only way is adopting a single foreign exchange rate. Without a single foreign exchange rate, there cannot be competitiveness and fairness in the market.

What is your foreign exchange prediction in 2018?
It might move N400 by 2018 because we are in election year. If government and CBN can maintain discipline, we may not have any shock in the market. We use to have scenarios in the past but security level has improved. Our food import bill is also improving. Once you have strong buffers, those that want to speculate might have no reason for doing so.
Once the spike is curtailed, people may not be encouraged to do illegal activities that may hurt the Naira.

How can we increase foreign exchange inflow into the country?
We have started on a better note by addressing infrastructure because it addresses investment. If Nigeria can have improved infrastructure, surely the economy will benefit.
Whether we like it or not, our saving grace is foreign investment. If we can generate more foreign direct investment, it will boost our economy.
I always maintain discipline across key foreign exchange stakeholders. Also, agriculture has seen improvement and must be maintained. Fg and state government should invest more in solid minerals. God has blessed this country with solid minerals and it is time government investment in them to increase foreign exchange inflow into the country.
Lastly, the Dangote refinery will go a long way to boost liquidity in the foreign exchange marke..
We (BDC operators) are already thinking on how to partner with Dangote to deepen the market. We want to be single outlet that provides foreign exchange to Dangote refinery so that we can make liquidity available for every Nigerians.
With inflow from Dangote refinery to BDC, I can assure you Dollar can be traded at N250 before the end of 2018. If CBN can fine-tune a mechanism between Dangote refinery and BDC operators, we will crash the market before 2018.
The positive side effects are inflation will slow further, new jobs will be created and there will be more inflow to the nation’s economy.