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Difference in exchange rates caused by restrictions in forex supply—ABCON President

By Babajide Komolafe & Jonah Nwokpoku

The difference (margin) between the official exchange rate and the parallel market exchange rate has always been a challenge in the foreign exchange market.  In 2006, and for the first time, the Central Bank of Nigeria, CBN, succeeded in eliminating this gap, by incorporating bureaux de change to access the official foreign exchange, which is sold to end-users with regulated margin.

But as at last week, this gap has widened to N16.26 with the official exchange rate at N155.74 per dollar and the parallel market rate at N172 per dollar.

In this interview, Alhaji Aminu Gwadabe, President, Association of Bureaux De Change Operators of Nigeria (ABCON), umbrella body of the over 3000 licensed bureaux de change in the country, speaks on factors responsible for this wide gap, the challenge of illegal foreign exchange traders (black market operators) and efforts of the association to improve capacity of its members.

There are confusions about   bureaux de change operators, and how to differentiate them in the foreign exchange market

You see, there are different sectors in the foreign exchange market and different players. You have the Central Bank, the commercial banks, and you have the BDCs. And then you have the unlicensed BDCs that also operate in the market. The activities of the unlicensed BDCs – the so called BDCs that operate along the streets are unfortunate.

They are not our members; they have existed long before the emergence of licensed Bureau De Change in Nigeria. It is a traditional business too for those that are into it. It has to do with the enforcement agencies because they are also our competitors in the market.

You see, we are regulated even in terms of the commission we charge. We were licensed before we became Bureau De Change operators, and before we get access to the CBN, we have to register with the Corporate Affairs Commission. Part of the requirement is even the $20, 000 that I mentioned earlier.

Our members have to keep that with the CBN, meaning it’s a buffer, in case any member of the public complains. That is why we are saying that people should patronise the registered Bureau De Change.

 

For instance, you walk into my office, do a transaction, you find out that there is something dubious about my transaction, you can quickly go back to CBN and report, and CBN will take that money from that my $20, 000 and refund you for the business that I could not deliver.

There are lots of disadvantages in patronising illegal BDCs. We agree that the black market is a menace and we are calling on the enforcement agencies to look at their activities, because if the so called black market can be eliminated, it will help in a long way for the CBN and the federal government in monitoring  foreign exchange inflows and outflows in the economy.

So, it will not only help the BDCs, but also the government and the economy.

So, how many licensed BDCs do we have in Nigeria?

As I am talking to you today, tentatively, we have CBN licensed BDC members, an average of 3,500 members across the country. In Lagos alone, we have about 1,500 active members; in the northwest zone, we have about 700 active members; in the North West zone, we have about 500 active members and in the south east zone, we have active members of about 500.

On our part, before you become a member, there are certain steps you must follow. One, you must have a licence from the CBN. Two, you must have a CAC certificate. So, we have registration and identification systems.

The registration involves these requirements. On the identification, each BDC must provide identification of two directors or shareholders, and then we do not stop at that, we also have a compliance department at the secretariat.

The work of this department is to monitor all our members to make sure they are guided, to make sure that they are responsible and to make sure that they do not abuse the privilege given to them by the CBN.

Also, we have published the first edition of our Operational Manual that will be launched very soon. It contains all the dos and don’ts for dealing in foreign exchange. These are part of the things that we are doing to make sure that our members comply with regulation requirements.

Finally, we believe in training. Very soon, we will be training our members nationwide in collaboration with the regulatory authorities. There was a sensitisation programme organised last week by CBN; there is another one coming up this week in Kano.

There is also the NFIU sensitisation workshop that is coming up next week in collaboration with the association. So we are making sure that the basic priorities of this leadership is transforming the BDC operation in this country and by making them 100 percent compliant.The present leadership of ABCON has made several representations to the management of the CBN.

We met the CBN governor on behalf of our members to appeal to him on behalf of our business. We met with the Deputy Governor, Economic Policy, Sarah Alade, all in respect of how we can have a better relationship, how we can improve our business, how they can use us because the BDC sector is one of the major monetary tool of the CBN to achieve the convergence of the exchange rate in Nigeria.

So, we are interacting with stakeholders and we believe in the role that we are playing. The association has been meeting with different organisations, even to the chairman of Federal Inland Revenue. We met with the Inspector General of Police, so we are expanding our tentacles; we are making the association to be known so that our members can be protected.

The CBN has severally expressed concerns over the wide gap between the official and parallel market exchange rate.

In the communiqué of the monetary policy committee, the CBN governor said that we are a small segment of the market. But you see, there are so many players when it comes to determination of rates. Every price is a function of demand and supply.

Late last year when the rates started going up, and any time this kind of thing happens, it is easier to pass the bulk to the BDCs. But we have made our position known to the CBN. We pointed out  some certain factors, which we believe are responsible for the huge gap. I want to make certain clarifications, sometimes, there is confusion between the BDC market and the parallel market.

The licensed BDCs are controlled by the CBN, we are not allowed to charge more than two percent margin. And I tell you, report any BDC to me if you enter his office, just get the CBN rate, what he is allowed to charge on his margin is two per cent.

If you are doing your Personal Travel Allowance  (PTA), and you have your passport and visa, and you enter a BDC office and the operator charges you more than two per cent, report that operator to us. We will give you that dollar free and also punish that member. That is the differentiation I want to make between the parallel market and the licensed BDCs.

Now on  what is causing the margin, every price is a function of demand and supply. The recent development in the market whereby the CBN banned the importation of dollars by the banks, and also  set the limit of autonomous transactions per BDC per bank to $250,000 limits supply; it caused drastic shortage in the market.

And in so far as there is drastic shortage in the market, the price of that product would definitely go up.  Also, is the depletion in the foreign reserve in 2013 from $45.98 billion  to $43.61  billion dollars. In excess crude account, there is depletion  from $11 in 2012  to $2.5 in January, 2014 and these are the buffers that will determine the currency value of any country.

This fuels speculations, as it signals to people that we don’t have the dollars to meet supply. These are the major factors causing these gaps in exchange rates.

Another challenge is the activities of the banks. They buy at N159 and sell at N167; the CBN has addressed this last year when they said that no bank should sell their money above one percent margin. But what the banks decided to do is to even stop selling.

What is obtainable right now?

What is obtainable right now is that the CBN sells to each BDC $50, 000 every week. Selling $50, 000 at official rates which some of our members are buying. Some banks, (few of them) are selling and then we are also buying from customers in over the counter transactions.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.