The Central Bank of Nigeria Governor Godwin Emefiele, recently declared the discontinuation of Bureau de Change operators’ licensing in the country, as a clampdown on illegal activities being perpetrated by BDCs. Do you think BDCs play an essential role in the Nigerian foreign exchange landscape?
Bureau de Change is part of the outcome of financial sector deregulation and very essential as a channel in making foreign exchange available to the public. They are in many countries that run flexible exchange rate system, particularly in major cities like London, Paris, etc. So, in Nigeria, they play major roles in the foreign exchange market. Through them, foreign exchange becomes more available to the public.
Regarding the new Central Bank of Nigeria foreign exchange policy, do you think is it a move in the right direction?
I believe it is a move in the right direction. With such a directive, the BDC registration would decline, so long as the CBN is not selling forex to them anymore. They were many because of the easy way of getting forex. It is only in Nigeria that the apex bank is concerned with BDCs getting forex. Elsewhere, they fend for themselves.
Do you think the move would affect dollar availability? If yes, how and why?
Initially, it may affect dollar availability but when the policy becomes sustained, the dust will settle and forex will be available as the BDCs may hoard forex initially, but when they start seeing customers going to the bank and getting the same product with ease, they will bring out their own. Let us just hope the bank do the right thing because they too can offload the forex to the BDCs at some fees. So, what the CBN is trying to prevent may fail with the kind of unholy attitude of our banks. They like cheap money to be able to declare huge profit that has no relationship with production.
Also, is there a possibility that the value of the Naira would rise? Or is the CBN putting the naira at more risk like in 2016 when a similar policy was introduced, which led to the fall of the naira by 46 per cent?
The streamlining of the activities of the BDCs is only one of the ways of controlling the market and capital flow to prevent further depreciation. There is the need for other fiscal and monetary measures of capital movement control to improve the value of the naira. A situation where the CBN itself is talking of overvalued naira at the current rate of almost N450 to $1 in the official market is unhelpful. Deliberate devaluation of naira to meet political goal is dangerous. What is South Africa doing to keep its exchange rate between 11 to 14 rand in the last ten or more years or even other less endowed African countries? It is some capital control and we can always learn from others. We must think of improving domestic production and less reliance on imports, even for raw materials, borrow less and cut our coat according to the size of our cloth. We have to prioritise spending and spend less on political operators.
Will the ban on selling to BDC affect Nigeria’s foreign reserves in any way?
Ban on selling forex to BDC will make the CBN to conserve its foreign reserve for distribution to more productive use. Foreign reserve is derived from returns on exports of goods and services and has nothing to do with BDC but its distribution has.
Do you think banks would be able to meet up with the demand, especially since a number of them still struggle with attending to the increasing number of their customers, as indicated by the kind of queues common in many banks?
Banks should be able to meet up because the CBN used to share the forex available to it between banks and BDC, apart from official usage. The sharing now stops and the banks are the beneficiaries. So they will cope. Also, note that the CBN did not ban BDC, so they are still active in the forex market and can be patronised by customers just as banks. If they are more productive than banks in terms of generating their funds and lending, most customers will patronise them than banks. Initial pressure on banks will lessen in future when the forex market becomes more efficient.
The CBN urged the creation of an app for forex transactions. How feasible and effective is this considering that users still complain about how terrible certain banks’ apps have been? Also, what are the risks involved with using an app for forex?
Creation of an app for forex transaction is an innovation and there is no compulsion in it. It is going to be part of the new challenges and risks. Business is about taking risks. We cannot start condemning what has not been tried. Let us see how it works. Very innovative banks will take up the challenge and if they are successful, others will join.
Are there any positive implications of this policy beyond putting a stop to illegal activities of BDCs as the CBN mentioned?
There are positive implications of the policy. The CBN will be able to manage the forex better as the forex market becomes less chaotic in terms of management, particularly of the foreign reserves. The black market, which also serves as market to the BDC in the round-tripping exercise is likely to be tamed, though cannot be eliminated easily, given the ownership.
Should Nigerians be worried about this policy? And how do you think it would impact the life of the ordinary Nigerian on the street?
Nigerians should be worried on the grounds that the country is sadly an import, dependent economy. So, in the short run, inability to import at all or at lower exchange rate will affect industries production, output and prices. If we are serious country, the challenge will be to look inward. We have to start using raw materials available or obtainable in the country; we have to start consuming what we produce here rather than imported foods, clothes, etc. The raw material research outfit must see this as a challenge. The managers of the economy have to go back to the drawing board and see what can be done. Actually, solutions to these problems can be found the various conference proceedings of the Nigerian Economic Society; they can be gleaned from what many journalist and writers have been putting forward in newspapers and magazines, but it seems that leadership in Nigeria is about “we know it all”, and don’t need public opinion.
What advice do you have for the CBN regarding forex policies?
The CBN has taken this first step and a bold step. This is not the first or second time it would be taking such a step but make sure this time around it is not reversed due to pressure. It should ensure it follows up with other capital control measure on prevention of how much can be taken out by categories of people and organisation; how remittances get to the appropriate account, how payments are streamlined and how collaboration with the fiscal policy side work out effectively. More importantly, they should learn from other countries with the same economic level and programmes. ,,