As BDCs Set to Resume Forex Sales - THISDAY
BY Hamid Ayodeji
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele and President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe have in recent weeks, analysed the illicit business of currency speculators and the danger it poses to the economy and naira stability.
Both leaders have also warned the currency speculators about the looming danger for their trade if they refuse to retrace their steps as they will incur losses estimated at over N 10 billion in the next few months as the CBN prepares for BDCs return to the forex market after nearly six weeks of absence due to the Coronavirus pandemic and need to protect operators.
Emefiele even went a step further appealing to industrialists patronising the parallel market to stop such practices in the interest of the economy and for the sustainability of their businesses, failure which they will equally record same huge losses like the currency speculators.
Like in 2016 currency crisis, the market got a major relief after the BDCs’ began getting dollar allocations from the CBN. That same scenario will soon play out as the CBN team and ABCON Management begin to count days for the BDCs return to the market.
The CBN has come to realise that BDC operators can be the difference between naira recovery and depreciation during volatile and uncertain times. That’s especially true now that the local currency has come under intense pressure that is purely driven by speculative demand for the dollar. The BDCs are essentially operators that help get dollars to the end users no matter where they are and have for decades proven time and time again their relevance in stabilizing the naira.
Gwadabe said the CBN-licenced BDCs will soon start full operations as the apex bank will soon reopen dollar sales to operators.
According to him, with the CBN’s planned lifting of moratorium on dollar sales to BDCs, reopening of the airports for air travels, global ease on restriction of movement are positive indications that dollar flows to the economy will soon improve.
He said the naira has been exchanging at N461 to dollar at the parallel market but will be upbeat once dollar sales to BDCs commence.
He said: “The return of over 5,000 BDCs to the forex market will add great strength to the naira and lead to major capital losses for forex speculators. It happened in 2016 and will happen again in 2020. “The return of the BDCs will immediately boost Naira recovery and put the enemies of the economy to shame. We are committed to the CBN’s exchange rate stability and will take all necessary steps within set rules and regulations to keep the naira stable,” he assured.
Gwadabe said the return of BDCs to the forex market would help chase away speculators, curb rising inflation, boost productivity and employment, enhance price discovery, enhance market transparency and competitiveness.
Aside positive developments in the global economy, the CBN has taken action to address the risks facing the naira, which will lead to rapid recovery for the local currency.
For instance, the recovery in the Chinese manufacturing sector and opening of the Asian tiger’s economy after months of closure due to the coronavirus pandemic have raised the country’s crude oil demand, many of which will be bought from Nigeria. Such purchases will boost Nigeria’s dollar earnings.
Besides, Nigeria has secured emergency $3.4 billion loan from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI). This fund will not only support Nigeria’s financial sector and address balance of payment hitches, but has boosted foreign reserves and financing to the budget for targeted and temporary spending increases.
Nigeria’s foreign reserves have reached about $37 billion, which represents enough buffers for the CBN to deal with any act of illegal economic behaviour like hoarding, speculation, conversion of local assets among other illicit financial activities.
Gwadabe also added that the OPEC measures on sustainable price stability are commendable as many governments across the world have agreed to oil production adjustment targets and continued collaboration with all their partners, a move that will benefit Nigeria.
He also said the naira rate review and assurances by the CBN Governor, Godwin Emefiele to foreign investors that want to repatriate their funds from the country are positive for the naira continued recovery.
According to him, ABCON is issuing their reopening guidelines to all its members nationwide to include on-boarding on the queuing crowd ticketing management application by all members known as ABCON 360°QSM portal with over 80 per cent members registered nationwide so far.
“We are also updating all regulatory obligations during the lockdown, fumigation of members’ offices/markets, distribution of second phase of face mask nationwide to our members. There is also the provision of wash hand basins, sanitizers at our distributions centres while members are to explore school fees, mortgage, subscription payments as one of their allowable scopes during post COVID-19,” he said.
The ABCON boss said the impact of the coronavirus pandemic on the naira was not as bad as seen in other African countries’ currencies. Amid huge capital flow reversal driven by risk-off sentiment, currency rates of African countries show that the South African rand is the worst hit, down 20.6 per cent year-to-date. Gwadabe explained that while an adjustment of the Nigerian naira from N360/$ to N385/$ broadly reflects the 6.6 per cent weakness observed in the official market, it must be noted that currency depreciation at the unofficial market is much deeper, currently at N461/$.
But looking ahead, the outlook for the naira is expected to remain relatively strong on the back of growing foreign reserves at over $37 billion, increasing global demand for crude oil, rising commodity prices and rising global trade.
Emefiele has warned domestic and foreign investors against patronising the unofficial market, saying it was helping to overheat that market. Dollar sales have since resumed following a phased easing of the lockdown but foreign investor currency demand is yet to be met, analysts say.
Emefiele, has warned firms and individuals against patronising the parallel market, popularly called the black market. He warned them to stop using black markets for foreign currency exchange, adding that patronizing the parallel market is helping to overheat the foreign exchange market.
“I know some of you are involved, stop now. By going to the parallel market, you are helping to overheat that market. Not only that, you will lose money because you would have bought it at a price that is not realistic. I can tell you that you are going to lose money. But we have seen your account already. “We are appealing to you, please stop and let’s do what is right, what is legal, so that Nigeria can continue to be a good place for you and to live in,” Emefiele appealed to businesses patronising parallel market.
Going further, he said, “We are taking note of some of you and I can tell you, go ahead and do your business, nothing will stop your forward, your forward will be at a committed price, we are going to provide more liquidity in the market so that people can stop going to the parallel market. Don’t go there because it is not good for you. But be patient, it’s going to be orderly’’.
Gwadabe assured that ABCON’s Executive Council under his leadership would continue to promote transparency and efficient market dealings while commending the CBN Management for its progressive policies and achieving stable exchange rate that aligns with its price stability.