Importers lament over the difficulty in sourcing the greenback to place order for consignments following the stoppage of sale of US dollars to Bureaux de change operators
By Dike Onwuamaeze
Since January 11, this year when the Central Bank of Nigeria (CBN) stopped the sale of US dollars to Bureaux de Change (BDCs) operators, many importers have been finding it difficult to source the greenback to place order for consignments.
Mr Godwin Emefiele, governor of CBN, while announcing the decision of the apex monetary authority, said that the central bank would discontinue its sales of foreign exchange to BDCs who would now source their foreign currencies from autonomous source.
Already, importers are lamenting that CBN’s action is hurting their businesses. Eze Chukwu, a Lagos-based businessman, complained that since the ban, he has been passing through harrowing experience in his efforts to source dollar to sustain his import business. Visibly agitated, Chukwu spent more than four hours in the banking hall on January 15 calling his business associates in the United States to sell dollars to him. He promised to credit their Nigerian bank accounts with Naira while they would credit his with dollar. After long haggling, he was able to get a favourable rate at N270 on a day the Naira was selling for N310 at the parallel market against the official rate of N197 per dollar.
Despite the fact that he managed to meet his dollar needs on that day, Chukwu is still haunted by the spectre that he might not be able to find enough dollars in future to sustain his business. He is worried that even though he managed to buy dollars from his business associates in the US to place order for consignments, it would be a Herculean task for him to find dollars to replenish his stocks.
Chukwu’s worries were shared by a large spectrum of business people in Nigeria who are afraid that the CBN’s recent measures on foreign exchange management would put them out of business. Indeed, apart from the initial stoppage of sales of foreign exchange to BDCs, other measures earlier introduced by the CBN which hurt importers but were later reversed include the stoppage of the use of Naira-denominated ATMs outside the country, banning of cash lodgement of foreign exchange into domiciliary accounts to check money laundering and dollarization of the Nigerian economy. The delisting of 41 items from accessing official foreign exchange window has continued to take its toll on the importers.
Chukwu had hoped that the CBN’s Monetary Policy Committee meeting held on January 25 and 26, this year, would ease the burden of importers by either devaluing the Naira or introducing a more flexible foreign exchange management regime that would make the dollar available and accessible.
However, his hope was dashed when the MPC meeting took place without bringing the desired succour to the business community. The only decision the CBN took to calm frayed nerves was the permission granted commercial banks in the country to begin accepting cash deposits of foreign exchange from their customers.
The CBN has continued to justify the tough measures adopted in its current foreign exchange regime. Dr Joseph Nnanna, deputy governor of CBN for Financial System Stability, said these measures were necessary because the impact of the oil price slump and the attendant decline of the foreign reserves triggered speculative attack on the Naira and led to widening the gap between the interbank rate and the BDC segments of the forex market in recent times. As a result, the interbank rates widened from N165/dollar to N197/dollar as at end- December 2015, while the BDC rates depreciated to N237/US$ and closed at N267/US$, as at mid-January 2016. “So, the delisting of 41 items by the CBN and its recent decision to stop the sale of forex to the BDCs are measures aimed at conserving Nigeria’s dwindling foreign reserves. The impact of these two policy measures has temporarily halted the haemorrhage in the reserves in recent times. The delisting of the 41 items represents a temporary measure,” Nnanna said.
Mixed reactions have trailed the recent measures of the CBN in respect of the management of the foreign exchange market. While some people have applauded it as a step in the right direction to salvage the economy, others claim that it has caused loss of business confidence in the country. Ironically, one of those in support of the closure of the official foreign exchange window against the BDCs is Chief Josephat Madueke, chief executive officer, Cash Express Bureau de Change. “I have said it before that it is only in Nigeria that central bank sells foreign exchange to the BDCs in spite of the fact that I’m an operator in the BDC market,” he told TheEconomy.
Similarly, Dr. Boniface Chizea, managing director, BIC Consultancy Services, was pleased that at last the CBN has found the courage to deal with the BDC operators. “It is either we use the money for more productive purposes or pour them on the BDCs in spite of what we know about them,” he said. To him, the bane of the BDC operators was their failure to serve the purpose for which the central bank regularised their activities, which was to narrow the gap between the official and unofficial exchange rate by allocating foreign exchange to them.
However, Winifred Iyiegbuniwe, professor of finance, University of Lagos, described the method the apex bank chose to deal with the BDCs as tantamount to “throwing away the baby with the bath water.” He said he would have preferred a gradual disengagement of the BDCs from the official forex window. “If you have problem, keep the baby and throw away the bath water, otherwise, you will resort to a lazy way of solving the problem,” Professor Iyiegbuniwe said.
The problem between the BDCs and the CBN stemmed from the widening gap between the official and the unofficial forex market rates due to CBN’s inability to “defend the Naira”. But rather than reducing the gap between the two markets, the decision to shut out the BDCs from the official window has broadened it. The parallel rate leapt from N230 at the beginning of December 2015 to N305 per dollar against the official rate of N197 because the market was squeezed. Experts believe that the widening gap between the official and unofficial market rates was based on the fact that the lower the supply, the higher the price.
Moreover, the situation was not helped by CBN’s refusal to devalue the Naira as it preferred to align its monetary policy with fiscal policy. Indeed, the CBN’s stance on the issue is in tandem with that of President Muhammadu Buhari who has continuously kicked against the devaluation of the Naira. According to President Buhari, Naira devaluation would bring more hardship on the poor because the Nigerian economy is import-dependent. “We will use our foreign exchange for industry, spare parts and the development of needed infrastructure,” President Buhari said.
Despite government’s opposition to devaluation, the reality is that the Naira has been devalued indirectly by the forces at play in the parallel market. There is currently an intolerable gap of N103 between the official and the unofficial market that might be narrowed by more open and flexible exchange rate mechanism through tender or bidding.
Financial experts are of the view that the problem with fixed official exchange rate is that the monetary authority must have the wherewithal to defend it. Doing this would require robust external reserves which Nigeria does not have at the moment. Emeka Ezike, professor of finance, University of Lagos, believes that under prevailing circumstances, the best thing would be to let the market determine the price of the Naira. To him, what Nigeria is experiencing now is a two-tier currency market that creates room for round tripping at a good profit for those who have the influence to access the subsidised official window. “So, the policy is killing the economy. My argument is that letting the market determine the rate is a measure that hurts initially but overtime the system will correct itself,” Professor Ezike said.
Tunde Lemo, former deputy governor of the CBN shares Professor Ezike’s view. He said that the country should learn to change its dance steps when the music changes. “So far, the era of fixed exchange rate is gone for good and the habit should be unlearned to allow the country to embrace market determined rate. It will be inflationary but it will wear off because a new equilibrium will be reached for us to move on instead of living in denial,” Lemo said. He submitted that unless the country embraces the market determined rate, the privileged few would be given the opportunity to round trip because the gap would be so wide to tempt even the angels.
Muda Yusuf, director general, Lagos Chamber of Commerce and Industry (LCCI), said that the current manner of managing the foreign exchange is causing loss of business confidence in the country. “We believe that given the kind of institutions we have, it is best to use the market to allocate foreign exchange resources. Right now, we do not have a transparent foreign exchange market that can create liquidity in a way investors would have confidence in our economy,” he said.
Financial experts contend that the wider implication of the forex crisis plaguing the economy is that, Nigeria might fall back to the era of import licence regime if the government should persist on rationing and making forex available to sectors (or people) it wants to either support or favour. Moreover, multinationals and investors might not be able to repatriate their profits. In addition, commerce would suffer as many businesses would not be able to restock imported raw materials or finished products. The market would be flooded with fake and sub-standard products. Furthermore, the number of foreign airlines coming to Nigeria would reduce and many in the service sector would fold up.
Against this background, experts have called on the apex bank to collaborate with the financial sector, especially the insurance industry, to create a forward market on foreign exchange that would enable importers and exporters protect themselves from foreign exchange risk due to fluctuations. Professor Ezike told TheEconomy that “this market is lacking but the CBN, through the bankers committee, can help to establish it to enhance international trade and payment.”
For Madueke, Nigeria is currently faced with a survival battle that it could not afford to lose. “We are at a point we need to hire sound economists to forecast our foreign exchange needs in the next five years and tell us how to structure our economy,” he said.