Nigerians losing confidence in naira, prefer to keep dollar – ABCON President
May 24, 2022
In this interview with NIKE POPOOLA, the President, Association of Bureaux de Change Operators of Nigeria, Alhaji Aminu Gwadabe, speaks on foreign exchange challenges and solutions, among other issues
Naira value has fallen significantly at the official and parallel markets. What is responsible for this?
You know, in every operation in each market, there is a season. So, this is a season of naira attrition in retrospect. Election year comes with pressure on that naira, which is why we have seen that premium exists between the official and the unofficial markets. On a fundamental basis, you know, this is just like a symptom, not the cause. But partly, you know in Nigeria, there are very many factors that really put structural disequilibrium in the foreign exchange market. Nigeria is a monoculture economy. It is a one-product economy, where the productive activity is very, very low. This is coupled with poor infrastructure and capabilities. This impacts the currency, the foreign reserves too. When you have a source of foreign reserves that is not diversified, tell me how the reserves will not fall? How will they be so strong to actually stand any pressure on the naira? In terms of oil revenue, oil is going up but why should our local currency be this way?
The reason is that we are import-dependent. So, as we gain inflows of dollars, we lose in outflows of naira. You see, at the end of the day, we are back to square one. That is why we are not seeing any impact. So, this is a very fundamental crisis. There is the argument that it is already a boom or a doom. We are not making any development out of it. It just gives room for stealing or corruption. That is just what it has resulted in. It has not resulted in any meaningful development.
What can be done to boost forex inflows?
We have put agriculture on the back-end. This is the economy that was surviving on agriculture during the colonial masters. Most of the bridges built in Lagos were from the proceeds of agriculture. We have lost that focus; we have lost that trajectory. So, it is very, very difficult for the naira to be strong. The quality of our export is very poor. Our balance of payments is in trade deficit. Our export commodities are low quality; our earnings are from one source. So, tell me, which currency will be stronger in this? All the parameters that will make it stronger are negative. Are the reserves so big to accommodate any shock? They are not. So, the market is being monopolised by just a constituency. There are many ways we can generate this dollar revenue if we can liberalise. So, that is about why we are seeing this pressure on the naira. Anything we use in this country is imported.
What is the effect of speculators’ activities on the naira value?
Once speculators know that you don’t have that arsenal to defend the local currency, they will continue to speculate. So, this is where speculation will also come in, and speculation is not a good behaviour on the strength of the naira. Because of this fundamental disequilibrium, there is a wider premium. There is no patriotism in capitalism. You cannot tell me to sell my money at N416 when somebody will buy from me at N600, even if you put a fence. So, this is the thing. The economy is suffering. People are hoarding. Confidence is being lost. People are losing confidence on the value of the naira because of depreciation, nobody wants to keep naira. Before you know it, inflation is about 16.5 per cent and the naira is losing value. So, the best thing any rational human being will do is to do currency subscription. We are seeing speculation; we are seeing hoarding. You don’t need money now, but you are scared that if you don’t buy now, in the next six months, it may be N800. So, this is the issue.
And the regulation too, there are a lot of inhibitive regulatory policies. In Nigeria now, for you to say you have a licence to operate as International Money Transfer Operator, the capitalisation is N2bn as a local company. A foreign company comes in and gets a licence at $1m. How much is $1m compared to N2bn or N600m? This is for a foreign company that wants a licence of IMTO, but for a citizen, you have to cough out N2bn? So, it is not encouraging small players.
What is the impact of the different exchange rates on foreign exchange inflows?
The foreign exchange market is like any other market determined by market forces, demand and supply. Investors’ inflows -both the direct and the portfolio investors – are not coming. Why? This is because of the existence of official and flexible exchange rates. No investor will want to come and say, “I want to give my money because I am patriotic,” when Nigerians are not selling their money at the official rate. Do you expect a foreigner to sell his/her money at official rate? The same thing is applicable to diaspora remittances. Recently, the World Bank did repeat that Nigeria has the largest chunk of diaspora remittances out of $49bn that came last year. Bloomberg statistics says ours is about N34bn. So, where are all these monies? When you ask, they will say the money is coming in cars, clothes, and all that. That is not true. The money the NGOs are bringing into the local economy is far less than the money they are taking abroad. We want to help our people anywhere we are. Go abroad, Nigerians still send money to Nigeria. But because of the multiplicity of exchange rate, you cannot see that money officially.
The CBN made some allegations of forex infractions against some BDCs before it stopped selling forex to your members. What have you done to address this image problem?
The overwhelming regulation and the overwhelming criminalisation are not the best. Out of 6,000 players, maybe you have 100 that are involved in one infraction or the other and you say all of them are criminals. There is a great concern, and it is lack of understanding between the licensed BDC and the unlicensed BDC. The security agencies and even the regulator that it is giving licences see the activity as the same. If you go on the streets now and there is a ‘mallam’ that was arrested, the next day, the headline in the news will classify the person as a BDC. The business is about perception. When you lose that perception, you lose everything. So, I don’t think it is the right angle. The right angle is to automate our process which we have done. Automation, to a large extent, has reduced unwanted behaviour because everything is transparent and accurate. As an association, we have embraced technology. We have transformed our operations. We have four different platforms to automate our system, and we are calling for the urgency for allocation of diaspora remittances.
Since the CBN stopped selling forex to your members, where have the BDCs been getting forex?
It is illegal for my members to do a lot of things. Number one, it is illegal for me to buy forex from export proceeds. It is illegal for me to buy from oil companies; it is illegal for me to buy from a diasporan. These are sources that if I’m allowed, I can go to your company and market them. I can go to an exporter and market them. We are not permitted to do these. From the beginning, the business model only restricts us, so all these other sources, we are not allowed to get forex from them. This is the situation that we find ourselves. That is the truth of the matter.
So, does it mean your members no longer sell forex?
Honestly speaking, even if there are members that sell forex, I believe that they are very few. When I say my members, I mean licensed members. Those that are surviving are, maybe, those that were lucky to have their offices at the airports. That’s just it. If you are outside the airport, it is very difficult. Except you want to do the illegal transaction and you may not do it under your name because if the regulator or security knows, there will be problems. Now, you can’t come and say you are buying money from diaspora remittances or from the domiciliary accounts. You can’t, except you are putting a veil on it. So, tell me, where is the source? No source. So that’s why we’re making a call for supply shift from that cash base model to a model that is practicable in other climes that other BDCs are doing business.
Do the BDCs have the structure to do Diaspora remittance business?
We want to be involved in the foreign remittances channel because the market is huge. Because of the monopoly, it has been an exclusive preserve of banks. They should break that monopoly. We are not even saying, “stop the banks,” but out of the 100 per cent they are doing, even if we have 25 per cent for a start, the automation that we have in place has taken care of the security and structure needed. Our process has been automated and we are easily accessible to the public. In other climes, banks don’t really do some transactions. If you want to send $200 to your family, they will show you the BDC to go to. But now, banks run after $200 customer. The association of the BDCs is no longer where people think we are mallams. We are a group of professionals. We can collaborate, we can give advice, most of us are even coming from the banking industry. We are lawyers, we are engineers. The BDCs should be allowed to access dollars or diaspora remittances through the autonomous forex windows that enable operators to receive IMTO proceeds, among others. This is the time to break the current industry monopoly that puts the remittances market in the hands of few players depriving others from tapping into the plan.
ABCON unveiled a roadmap to save naira value. Can you explain this road map?
Like I’ve said, we are stakeholders. We are operators and we are professionals. If you are a mechanic, if you are doing a trade every day, you will become an expert. You know what is happening, you have the knowledge of the market, intelligence of the market. You will see we have many ways we are losing these revenue sources. When you look at the oil theft, 80 per cent of the oil we produce goes into private hands, and I think that is why the government is trying to see how they can discourage that. The Central Bank of Nigeria released RT200 FX to encourage export. Tell me, when I’m suffering to get diesel at N600, and there is no light, do you want me to go and export just to be patriotic? Also, do you expect me to sell my dollar at N416? Liberalise it, this inflow will come. We developed the plan needed to save the naira from further decline and enhance exchange rate stability. There is urgent need to enhance dollar liquidity in the market and ensure stability of prices in the economy.
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