For eight years, from November 2002 until last Saturday, Alhaji Farouk Suleiman, as President,Â piloted the affairs of the Association of Bureaux De Change Operators of Nigeria (ABCON), the umbrella body of bureaux de change (BDCs). In this interview with the Editor of Financial Vanguard, Babajide Komolafe heÂ bares his mind on major developments in the sub-sector, which marked twenty years of existence in Nigeria last year. He also addressedÂ criticism of the Cash Sale of Dollars to BDCs scheme and the categorisation of BDCs.
Last year marks twenty years of bureau the change in Nigeria. What has been the contribution of the sector to the Nigerian economy?
First and foremost, I would like to thank the Federal Government of Nigeria for making the policy which established bureaux de change in 1989 (BOFIA ACT). Before now, anything in bureau de change outside the banking industry is considered an illegality. A lot of people had challenges in the past and consequently lost their money.
The wise decision of the Federal Government then to bring bureaux de change into being in Nigeria has transformed the issue of retail purchases of foreign currencies in Nigeria by ensuring standards and etiquette in the retail segment of the foreign exchange market. Before then, we had a situation where people don’t even know where to go and were compelled to deal with currency traffickers along the road side and in the process some fell into wrong hands. But with the introduction of bureaux de change, people now know where to go and what to do.
The bureaux de change industry has enhanced supply of foreign exchange into the economy especially for the small end users. These are those who mostly deal in invincible trades. Now thanks to bureaux de change, people can easily access foreign exchange for travelers’ cheques, travelling allowance, to pay for medical trips and for education (school fees) abroad etc.
This has made it easy for people to travel abroad or settle bills abroad. Also the bureaux de change industry has generated employment and income for many Nigerians and because bureaux de change are now stand alone businesses, the industry has attracted significant investment into the economy as more and more people have established bureaux de change as stand alone separate business entities.
This was not so in the past when bureaux de change were operated as a unit of a business entity. The bureaux de change played a key role in the foreign exchange market liberalisation policy of the government introduced in 2006, which led to the convergence of the exchange rates, elimination of the parallel market premium and the dominance of the illegal currency traffickers. This has helped in curbing incidence of sharp practices like arbitrage and round tripping that would not have been possible if we don’t have bureaux de change.
What have been the challenges during these twenty years ?
We have had challenges and they started from inception of the industry. The first was the challenge of confidence, been a non-bank financial institution, we faced the challenge of public acceptability and even the challenge of earning the trust of the authorities to be able to operate. Secondly, was the challenge of supply because before now and prior to the foreign exchange market liberalisation policy which admitted bureaux de change into the official market, we were not allowed to source for foreign exchange from official sources including the banks.
That was a major challenge. So, you have to wait for walk-in customers and if they don’t come in to sell to you their foreign exchange, you do not have foreign exchange to sell to others. So these are some of the challenges we faced through the years. It was very tough that some bureaux de change had to close shop. Some however persevered in the hope that the environment will be more conducive and things will get better as it is now.
What are the factors that sustained the industry especially before the admission of BDCs into the official Foreign exchange market in 2006?
Well, as I said earlier, one of the factors that have really sustained us pre-2006 liberalisation policy was hope and resilience. We were able to manage and go through it, managed to ensure that our outfit remained on board and few BDCs were able to do small marketing via exhibition, small marketing advert, and we were able to develop a client base where you have a walk-in customer that comes in, sometimes tourists come to sell/buy.
Unfortunately, we did not have much to meet the demand. And with time the customers began to develop confidence in the operations and services of BDCs. So the confidence we enjoyed from the Nigerian public and our resilience to stay on board even in the face of enormous challenges sustained us until recently when we began to have enhanced and adequate supply from the Central Bank of Nigeria.
Since the admission of BDCs into the official market, the number of BDCs has shut-up to more than 1500, is there need for such high number of the BDCs?
Yes. First and foremost, to the best of my knowledge, I think we should be above 1500 and given the size of this economy, the size of Nigeria population, I think it will not even be enough. The main purpose of Bureau de change is to meet the needs of small users/clients at convenient locations and time for retail of foreign exchange. We could even do more. The Central Bank of Nigeria could even add more.
And the idea is to bring more foreign exchange outfits closer to the customers or end users, that is those who have the need for foreign exchange for whatsoever reason particularly those with whom we are allowed to trade with. So for 1500 BDCs, I don’t think it is too much a number. Because if you look at the geographical spread of Nigeria, in Lagos alone, we are talking of about 845 BDCsÂ as we speak and the number is still growing.
That is good for Lagos because this helps to keep the exchange rate as low as possible.Â This is one of the major objectives or reasons why the Central Bank of Nigeria introduced the liberalization policy – that is to have exchange rate stability, to have improved supply statistics of foreign exchange receipt and utilisation that will help in policy formulation for foreign exchangeÂ to meet the needs of small users. If we do not have enough BDCs, foreign exchange end usersÂ would be compelled to travel far distance to get bureaux de change services, but having more will give increased access to forex.
The cash sales of dollars to the BDCS was part of the liberalisation measures of the 2006Â and the aim basically was to reduce or eliminate parallel market premium which was at N20 then and within six months of its implementation, the parallel market was eliminated, the open market rate and official rate converged and since then, it has been like that. What would you say is responsible for the success of the policy?
I think I will use this medium again to thank the Central Bank of Nigeria and the Federal Government of Nigeria at large for the trust it reposed in the BDCs and the Association. Let me take you a little backward, pre-2006 and early 2003, to be specific between March and April.
Some form of liberalization was introduced whereby some BDCs were allowed to trade in travellers cheques which never really worked because of obvious reasons.
But thanks to the new management of the CBN, who further liberalised the market in 2006 and by 6th April 2006, we started in earnest from Lagos. When we started this transaction, US dollar was doing N150 to $1 and from trading day one, we achieved about three naira appreciation of the naira and the appreciation continued till the parallel market premium was reduced to a level that is globally acceptable.
And before the sixth months, as a matter of fact, within eight to ten trading weeks, we had achieved convergence of exchange rates and it was applauded and celebrated as it has never happened in the history of this country. And what is primarily responsible for this is the faith and confidence the CBN reposed in the BDCs through the Association of Bureau De Change Operators of Nigeria, which was led by my humble self.
When we started, we were just about seventy-nine BDCs in real operation, and registered members were about 149. We started with about 21 BDCs day one and we were able to put to use those 21 BDCs while the number increased steadily until we got to where we are today. Because of the trust reposed in us, our locations and our flexibility, those twenty one BDCs were able to reach out to the end users, and that quickly transformed everything. You do not need to go to the banks where you have to wait endlessly.
We have simplified transaction model which was able to bring many more customers and increased accessibility to foreign exchange. So the trust enjoyed by the association and its members was primarily responsible, that we do not have to make much premium, yes the premium was wide then but slowly and progressively, itÂ shrank over time to the advantage of the naira. And as we speak, the premium we make is less than one per cent even though the CBN allow two per cent max. And this is because we are oligopolistic in nature, we are not monopolistic.Â WhateverÂ BDC A is doing is dependent on what BDC B is doing.
If the other BDC is selling low, there is no how the other BDC will be selling high. So these things are normal particularly with the enhanced supply channel from the CBN. That you know you will have supply and you know that somebody will sell at the other rate, you will sell. So these are some of the things responsible for the achievement of the convergence of the rates and general calmness in the forex market.
What is your response to the criticism of the cash sale of dollars to BDCs that it is a waste of the country’s foreign exchange resources, that official foreign exchange is given to people who fund smuggling and other illegal activities?
This is unfortunate. Whoever has such opinion is misinformed and I don’t think he or she has the interest of the nation at heart. Before now, when some other institutions were allowed to do this, selling official foreign exchange directly to the public, the premium kept widening. So, that somebody will criticize this initiative, the cash sale of dollars to the public through BDCs, it means you don’t have the interest of this nation at heart and you are ignorant of what is happening as far the economy is concerned.
The economy is governed by the dynamics of supply and demand, now there are citizens of this country who are in need of this foreign exchange and they are compelled to go to some institutions or people where they have to go through long processes and at the end of the day, they will have to pay wide premium to get this forex. The Federal Government came with a policy and said rather than go through all these processes and challenges, let some people buy it for you and go through all these processes on your behalf. In the past the foreign exchange has not been going to the right people who need it but it has been going to the wrong hands through round tripping and arbitrage and sharp practices.Â But the Cash sale to BDCs is a more transparent way of selling foreign currency to the Nigeria public.
So if those criticizing the initiative had sat down and considered it carefully, they would applaud the effort of the Central Bank of Nigeria. This is no waste. Every day in Nigeria, People travel. Every day in Nigeria, people have need for foreign currency and this is because we do not have enough foreign exchange supply or foreign exchange inflows from other economic activities other than the oil sector. So, the little that has been given to the public through BDCs has transformed the entire forex market in Nigeria. This has allowed the manufacturers, importers and other end-users to plan. For the first time in the history of this country, by including BDCs in the official window we have exchange rate stability.
These days everybody on the street knows the average rate of forex and this is the rate in the market. Those days you have the CBN at N118 per dollar and yet foreign exchange is being sold for N151 per dollar.
What is happening? Is that the kind of economy you want us to run? Globally we do not have more than 5 percent premium and that is when it is bad.Â In most cases we have one to two percent fluctuation, which is natural. And this is what we have attained in this country. So we should be able to applaud the Federal Government of Nigeria for bringing about the policy in the first place. Now everybody knows you can’t play anybody around as far as foreign currency is concerned in this country. Ideally, that is how it is suppose to be.
That is how it is done globally. You see when things don’t favour some people especially when the policy has plugged the loops they exploit for sharp practices in those institutions, where one person takes everything, the monopolistic tendency. Maybe this is why some of those people are using the critics of the policy as stooges to try to get the government reverse the policy.
It is suppose to be an all inclusive thing where everybody enjoys all the benefits of whatever we have in this country. But these sharp practices as we all know, have taken over most of the institutions that are involved inÂ foreign currencies, round-tripping, inflated invoices, doctored form “M”, claiming all sort of papers in order to get foreign exchange illegally. But now, the Federal Government has throughÂ the CBN said let us open the door so that the other financial institutions will dealÂ with the major invincible trade, and the amount of foreign exchange needed for this invincible trade is insignificant to what is totally allocated by the CBN.Â We have been able to close the door on most of those people involved in these sharp practices and some people are not finding it funny.
That is why you won’t get two rates if you go to the banks, you will get just one rate, which is the official rate and the spread is known to everybody. So at the moment you are able to do that, then you have, unfortunately, people can’t do those sharp practices any more. You can do arbitrage which is taking money from one location and selling in another because of the premium but now with the assistance of the Central Bank of Nigeria, wherever you have registered BDCs in this country, you will be able to get the currencies, the dollars at the same price, the sameÂ rate and at the same time. So we are able to trade with the customer at the same price.
This is what the policy has achieved.
Before now, you may have to go to Lagos or Abuja as the case maybe and that is what informs sharp practices. You risk your life, take all the trouble and it is an opportunity for those who have taken commission to charge you unimaginable prices. Meanwhile at the official price, they will tell you it is not available. But now we have opened the doors and make the whole world know that it is possible. BDC has helped to bring sanity into the Forex industry in Nigeria.
The last reform of the sub-sector created two categories of BDCs and then brought about division in a hitherto united industry, do you agree with the justification for the categorization of the BDCs?
As far as the products are concerned I agree with them, but the justification was uncalled for. It is quite unfortunate. Rather, the policy is trying to create cartel. The categorisationÂ has helped to bring opportunists into the industry. It is trying to return the industry to the pre-further liberalisation policy era where very few people who have the money (forex) stocked it, invested in the business and increased the prices or fix the prices. Well, we are trying to run a liberal, free market economy where you do not have to fix prices because of competition. But rather they are trying to close the doors to competition.
On the product, we are very familiar with all the products and are able to deal in them very well, besides, if you wish to categorize or reform, it is only fair to reform those already in the business/industry rather than encouraging an entirely set of new entrants whom may not necessarily be interested in seeing the business grow but just for opportunity to grab.
These new entrants may not bring any new innovation or ideas in the business as the case may be with us right now, and once the market is sick, they will be the first to exit. It is unfair for those operators whom have gone through the rudiments and seen all the ups and downs of the business yet unshaken.
You close your doors. It is unfair; it is unfair to those of us that have gone through the difficulties. So CBN needs to do something about this. This not proper, this is unusual. There is no market where you create a policy and you now begin to introduce new people who don’t even know anything about the business. You say they have capacity. They have capacity to do what, when they don’t even have the market.
As far as Nigeria foreign exchange market is concerned, the grass root traders, as far foreign exchange is concerned are the real operators. Those (the category A BDCs)Â I call them BDCs by name only and the earlier the CBN do something about it, the better for it. Otherwise, the purpose of the liberalization policy will be defeated in no time.
And have they (the CBN) bothered to check how many products they offered in all the products that they are supposed to be doing, How many? They are still doing the same products, buying from CBN and selling. So what is the purpose of doing it by raising the capital base and taking it beyond the reach of the average operator. Go to UK,Â go to Dubai or America even a grocery operatorÂ could be licensed or registered to run aÂ BDC, and that is why you see the spread is thin in those places. Why do you have to have many more money to have many more stocks? And to worsen it you give priority to those BDCs that will mop up the money.
The real people that will help you go through the market and enhance your policy,Â makingÂ sure it worked, and you give them at a later bid. It is so unfortunate and unfair. The earlier the CBN do something about it the better. In as much as we are not trying to send anybody away from this business, if truly the reason for admitting BDCs into the official window is to allow for exchange rate stabilization, price discovery, enhance supply in the markets, then all of us should be given level playing field and treated equally and not make some people more equal than others. Otherwise those BDCs with higher capacity to distribute should be allowed to have more products as practiced globally. Rather than all of us chasing one product and somebody has more advantage than the others.
What has been the role and contributions of ABCON to the development of the sub-sector and the larger economy?
ABCON is an umbrella body that is primarily concerned with protecting the investment of its members. Two, the Association helps to enhance capacity of its members so that they comply with required standards and ethics. In addition we make policy propositions to government and interact with government on behalf of the BDC industry so that the industry will be well positioned in the financial sub-sector.
These are some of the major roles we have played and that is why I said the trust which the CBN had in BDCs through the Association has really helped in great ways. Because we are able to speak to our members and when we tellÂ our members do this XYZ and they will do it. And for the first time BDCs were involved in policy formulation and implementation. Also the Association helped in setting minimum standards for operations of BDCs. Also with the introduction of minimum standards we were able to create many more employment opportunity.
The BDCs now have qualified personnel; operators now employ a minimum of three to five Nigerians. And if you quantify the number of BDCs operators in operation, you will know how many jobs have been created and the socio-economic impact this has had on the country.
In a nutshell, ABCON has propelled BDCs to greater height and we are still moving forward. Unfortunately, even the products we proposed have been given to another group. So, we solicit and pray to be given more products and enhanced access.Â In addition, ABCON has been organizing training and retraining programmes to build competence towards capacity enhancement of the BDCs.
In fact as a result of this, we are the only non-bank financial institutions that were able to achieve rendition of returns to CBN via the EFASS guideline first, only the BDCs and we achieved this as far back as July 2007. Furthermore, ABCON fostered cordial relationship between BDCs and the various regulatory bodies. Through the Association the regulatory bodies deal with one entity instead of dealing with more than 1000 operators, the Association will discuss and interact on behalf of its members.
As we speak, we are in the final process of installing the dedicated links at our secretariat in Lagos and Abuja, which would further enable our members render their returns online. Very soon we will also have another one in the eastern part of the country and the BDCs around there will be able to transmit their returns from there too.
Also the Association organizes in-house training for BDC operators. From time to time we organize in-house training workshop and we have actually trained our staff in-house which we believe have better impact on skill development. In addition to these, recently ABCON through the development levies contributed by members has acquired three properties, one in Lagos and two in Abuja for our National secretarial.
Finally, your tenure as the president of the Association would end this month, what are the legacies of your eight years administration?
I would have preferred my members to talk about my legacies but now that you have asked me, I remember in my acceptance speech on 21st November 2002, we pledged to take ABCON to greater heights. We promise to work with the regulatory and supervisory bodies to move the industry from where we were then and to God be the glory to where we are now. One thing I want my members to remember at all times is that from where you are, you should be able set milestones and with courage, patience and resilience you would get there. Off course you would face challenges and troubles, but with that faith you will be able to carry on and achieve beyond what we have done. So for me, it’s for my members and general public to judge my score card or what has happened during my tenure. But I want to say we saw a total evolution / transformation of the BDC sub-sector from dark days to bright.