Micro, Small, and Medium scale enterprises (MSMEs) in Nigeria are left at the mercy of black market operators to access dollars for transactions even after the Central bank pulled the plug on supply to the operators and challenged supply to commercial banks.
Currently, it costs N415 to get one dollar at the official rate, while it costs no less than N550 in the parallel market giving a difference of at least N135 per dollar.
Although the black market is much more expensive, it is a faster and less cumbersome process and at the end of the day, the dollar is always available with them, unlike commercial banks which do not have enough to go around.
Nigeria has 39.6 million MSMEs, 58.6 percent (23.23 million) of these businesses are involved in wholesale and retail trade, buying products abroad, receiving them, and eventually selling the products in Nigeria.
Access to foreign exchange, credit availability, and regulatory policies have topped the challenges charts of MSMEs in Nigeria and have become multidimensional and even more intense than previous years to the point where it is almost defying efforts to manage it.
Most MSMEs deal in the sale of clothes, household kits, shoes, electronics, among other things primarily sourcing the products from China, Turkey, Dubai, the United States, etc. where the dollar serves as the dominantly accepted currency.
Consequently, the unfavorable exchange rate and restricted access to dollars continue to affect these businesses as they are forced to pay more for purchases which erode their profits.
The containment efforts of the CBN through various policies and directives also seem to have widened the gap and worsened the situation even though that was not the aim.
For instance, in August 2020, the CBN issued a directive that restricted third parties or middlemen from accessing the FX window through the form M, this further tightened access to FX for SMEs.
Yet since the directive, dollar availability from banks has not improved while the customers of black market operators have increased along with the orders.
Ibrahim Danjuma, a black market operator said the market functions differently, at times it may be very busy and other times activities will be slow.
“Currently the market is not performing optimally however orders are still coming in although in little quantities, although since the ban customers have increased particularly during the boom period,” he said.
BusinessDay found out that even top-tier banks do not have sufficient dollars to give out, hence they ask their customers to reach out to black market operators for dollars.
Oluwole Adelana, financial director at a manufacturing firm, told BusinessDay that when he wants to process international transactions and is not pressed for time, he reaches out to the bank with the invoice from the supplier and other necessary documentation.
“When I apply for Dollars, I fill the form M and submit all the necessary documents then I wait for the request to be processed which may take weeks or months, once it is done my supplier is credited while the naira equivalent at CBN’s rates and bank charges are deducted from the account,” he explained.
He added that although the banks use CBN’s rates, the process is quite slow and cumbersome with so much accreditation and confirmation involved.
A bank staff who pleaded anonymity said for MSMEs to access dollars from the bank, the business needs to have a corporate account and request form Q, along with a proforma invoice, financial statement, registration document, and some other documents which will be used to apply. If the application is successful, the bank credits the supplier but will not hand the dollars over to the entrepreneur.
“Although there is no minimum amount that can be requested, businesses are only entitled to $20,000 per quarter,” the source said.
Akhuewu Jennifer, who owns Bliss & Bloom Nigeria said even if the customer has a domiciliary account with the bank, you cannot make a deposit with naira equivalent, it has to be dollars, hence the bank will refer you to BDC operators.
“I make payments using the Naira debit card, WeChat, and other mobile applications where you can reach agents and suppliers directly, due to the exchange rate, before making payment I compare the available rates of different suppliers and go with the most suitable one,” she said.
Asking if she tried using banks to pay directly she said “In 2021 I tried getting $2500 from my bank directly so I can travel with it and sort out payments, it took them almost 10days to even process it and I still did not get it despite presenting different documents, I had to go back to my agents to buy even though it was much more expensive.”
Wholesale and retail traders are not the only ones caught in the FX drawback. As of 2016, 54 manufacturing firms under the MSME cadre shut down operations simply because of the inability to get FX as well as the unfavorable exchange rate.
Many more have followed since then with manufacturers saying they get two to 10 percent of their dollar needs from the market even after waiting for 30-90 days.