•Call for reversal
Class ‘A’ Bureau De Change (BDCs) have described the recent withdrawal of their licenses as unfair and inexpedient for the economy. They called on the Central Bank of Nigeria (CBN) to reverse the decision in other to encourage investors who just received licenses.
The CBN had on November 3rd, withdrew the licences of all existing Class ‘A’ Bureau De Change BDCs with effect from November 8, 2010.
‘’The withdrawal is part of measures to stem the gross abuses of the enhanced Class ‘A’ BDC in line with the CBN’s avowed commitment to eradicate money Laundering’’, the apex bank stated in a press release.
Some Class A BDC operators, particularly those who just received operating licenses however faulted the decision saying it was unfair and a discouragement to investors. Managing Director/Chief Executive, Bluewall BDC, Mr. Lucky Aiyedatiwa said that the blacket withdrawal is unfair to newly licensed Class A BDC operators.
He said some of them including Bluewall BDC in response to CBN advertorial in March calling for application for license for Class A and Class B BDC from willing investors, devoted so much resources to obtain the license, only for the CBN to withdraw the license less than a month after giving them the license.
He said Bluewall for example had just received its Class A license not more than a month before the apex bank announced the withdrawal adding that he is aware that some got their license a week before the decision of the CBN. He said the withdrawal of the license will result to colossal loses for these set of Class A BDCs.
Some Class A BDC operators who spoke under anonymity alleged that the CBN’s decision was in bad faith and a ploy to satisfy certain interests. They therefore called for a reversal. They claimed that since the categorization of the BDC operators into class A and B, during the tenure of Prof. Chukwuma Soludo as CBN Governor, and issuance of licences in this regard, CBN has only carried out an inspection which was between November and December 2009 with the report not yet released.
The withdrawal of Class A license, they alleged, was carried out in a manner that suggest a predetermined objective with issues raised on certain operations procedures that were never communicated to the operators as expected
of a regulatory authority that is out to build an economy and not into cat-and-mouse games.
It would be recalled that the categorization the BDC subsector gave birth to class ‘A’ and ‘B’ Bureau De Change.
The measure was aimed principally at bridging the widening gap between the official and parallel market exchnage rate of the dollar; and also to put an end to the rising excahnge rate of the dollar in the parallel market.
Before the advent of this policy, there have been numerous operators in the class ‘B’ category and the expectation that banks would help in closing the gap was not met as money deposit banks could not do much in helping to pin down the exchange rate to a stable price so as to eliminate the wide gap.
It was therefore in an effort find a lasting
solution to the problem of broadening gap that the then CBN authorities decided to categorize the operators the introduction of a limited number of class ‘A’ BDCs.
The move essentially was meant to eliminate the gap by: Making foreign exchange more accessible to the end users through a number of operators that are easily manageable; Providing adequate competition in the sector aimed at ensuring that the difference between the official and unofficial exchange rate is not more than 2% at all times; and ensures a stable exchange rate that can help to curb inflation as importers and businesses can then
project on a fairly assured stable rate.
How CBN handled the situation CBN effectively handled this situation through the provision of a controlled access to limited number of the class ‘A’ and ‘B’ BDC operators. The number and the Foreign exchange window they access to have been structured to impact less on the nation’s foreign reserve.
Reacting to the development, one of the Class A BDC operators in Lagos, said that every importer, factories and businesses make their projections based on the prevailing exchange rate. According to him, prices of manufactured or finished products whose raw materials or components are imported are fixed based on the expected exchange rate at their anticipated time of replacement. He added that, prices of finished goods imported by businesses are fixed based on the anticipated rate at the time of their replacement.
“This is so simply because those goods need to be replaced for the business to continue irrespective of what the demand is. No one will sell her /his goods without being sure of how she will replace them in order to remain in business.”
This has been the situation until three weeks ago when the Class A, BDC operators’ licences were revoked and the CBN engaged in a flurry of award of licenses to all manners operators with the attendant negative consequences on the economy.
The CBN action and its implications However, the current Sanusi Lamido administration of CBN threw the arrangement overboard and embarked on contradictory and indiscriminate licensing of operators that have since doubled the number without taking cognisance of the burden on the source.
The CBN, the operators believed did not pay attention to the fact that the control of the number of operators and the amount accessed periodically was meant to achieve the preset objects without depleting our foreign reserve or exerting undue pressure on the economy. However, when these mechanisms were jettisoned and the pressure begins to mount, CBN management quickly resorted to unilateral withdrawal of licences.
Effect on the Public and Investors
One of the operator, who runs one of the leading BDC, and pleaded anonymity lamented that though the general public might not be able to read in between the line, but that sooner than later, everyone will see the folly in the new arrangement.
According to him, this will be seen in a steadily increasing and fluctuating rate of the dollar; a wider gap between the official and black-market price; an untamed inflations rate, business failures and unmitigated hardship to families whose investments have been eroded, increased pressure on the employment market as a large army of people
will be relieved of their jobs, scepticism and cold-feet towards Nigeria by investors who can readily see the unreliability of our systems, policy somersault and poor approach to our public policy administration.
However the reasons offered by the CBN for the general revocation of the Class A BDC operators licences even as some of them have never operated having just received their licences on the day before the clampdown, industry watchers are of the view that the action will lead to decrease in supply and availability of foreign exchange and also negative perception in the market about the future availability of Foreign exchange.
The negative perception it is feared will fuel hoarding of available foreign and coupled with diminished supply will force Foreign exchange rates up. Increase in foreign exchange rates will increase prices of goods and services in an import dependent economy typical of Nigeria.
This will immediately lead to increased inflation.
Inflation will reduce the real value of income of consumers, diminishing purchasing powers of consumers. When this happens, less goods and services are bought, and businesses and industries that are barely surviving at the current sales level will begin to go out of biz with the consequent sharp increase in unemployment.
This will naturally lead to negative economic growth on the macro level, which will defeat the whole objective of the concerned authority.
Another operator warned “we must note that Nigerian Economy is stil l a whole lot a cash economy with a lot of small and medium scale businesses that would not pass their foreign exchange purchases 100% through the banks.
So they are all at the mercy of exchange rate escalation. The competition among the class A BDC has achieved a whole lot in stabilising the exchange rate and we all know that more competition is better than less competition, healthy and well regulated.
Regulatory authorities should in their functions guide, support and help the players in the market do the business according to laid down operational guidelines. Stopping their activities entirely has very serious negative consequences on economy. Policy somersault we all know discourages foreign investors.
This singular action will elevate poverty, lead to increase in inflation, high rate of unemployment, highly decrease national economic growth, lost of investments by the players in the market, decrease real income of consumers, increase in crime rate and many
more. The reasons offered by CBN no matter how genuine they may sound, they are not good enough for the wholesale revocation of Class A operators’ licenses.”