While the Central Bank of Nigeria (CBN) has reiterated its resolve to not go back on its decision to stop dollar sales to the Bureau De Change (BDC) operators, the latter as well as some analysts in the financial sector, have urged for a framework that allows BDCs, which have automated their operations, to have access to Diaspora remittances into the economy to ensure the stability of the Naira.
It has been argued that the $34 billion estimated annual remittance by Nigerians in the diaspora are barely touched because of non-existence channels to attract the funds into the economy.
However, the CBN on December 2, 2020, clarified that the International Money Transfer Operators (IMTOs) must ensure that all funds in favour of beneficiaries/recipients in Nigeria be deposited into the agent banks’ correspondent account.
Consequently, agent banks (Deposit Money Banks) in Nigeria will be responsible for final payment to beneficiaries/recipients either in foreign currency cash (USD) or into the beneficiaries ’/recipients’ domiciliary account in Nigeria.
Findings have also shown that forex remittances from Nigerians in the Diaspora far exceeded the country’s earnings from crude oil export last year. Since many transactions are unrecorded or take place through informal channels, the actual amount of remittance flows into the country is arguably higher. The estimation is that migrant remittances to Nigeria could grow to $25.5 billion, $29.8 billion and $34.8 billion in 2019, 2021 and 2023 respectively.
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Globally, Nigeria is one of the few countries that concisely attract funds from migrant workers. Others are Pakistan, Canada, the USA, Australia, and Vietnam.
Nigeria is on the side of those that have many migrant workers in the rest of the world, and therefore earn foreign currencies they want to remit home.
But there is a huge problem that limits the funds from getting home.
In a media report, renowned economist and chief consultant at B. Adedipe Associates Limited, Biodun Adedipe, explained that if Nigeria is able to manage that remittance effectively, it will add 0.4 per cent to the country’s GDP growth annually.
He disclosed that a lot of the dollars don’t come into the FX market in Nigeria. The receiver gets the naira equivalent of the fund even when the funds never got to Nigeria, denying Nigeria the full benefit of diaspora remittances, despite the country being at the top in terms of benefitting from migrant workers.
“So what then happens is that instead of bringing it into the FX market in Nigeria, they keep it outside. That also becomes a leg that supports speculations that we talked about earlier on. I believe that was part of the reason why the CBN introduced the $1 for N5 incentive. The idea now is to see if the country can harness the most of the remittances,” Adedipe said.
“That now is a policy I think we need to interrogate more. How can we make it more attractive for those foreign currencies generated by migrant Nigerian workers to be remitted home, and become a part of our national supply to our market here? That now is a space for the BDCs,” he said.
Some analysts said that what is needed is the implementation of laws that stipulate that oil companies and other multinational companies bring dollars into the economy instead of keeping them in home countries.
This will ensure that what is kept outside the market would come into Nigeria to boost supply. CBN already has the tools, but they need to enforce them.
Aminu Gwadabe, president, Association of Bureau De Change Operators of Nigeria (ABCON) said globally, BDCs remain one of the channels through which the Diaspora remittance funds come into countries.
He said that the BDCs remain at the centre of economic development and have the capacity to attract needed capital for the development of the Nigerian economy and deepening of the forex market.
Gwadabe said Diaspora remittances remain a cheap source of funds because it is not to be paid back with interest but goes directly into the construction of houses, payment of school fees, medicals and a lot of things that are adding value to the weak economy.
Again, BDCs are supposed to buy from travellers coming into Nigeria, whether they are foreigners or they are Nigerians who did some things offshore, and were able to make some money, and brought back those foreign currencies.
“BDCs are also expected to operate at a two-way rate, then in response to what they have told you, you will now disclose whether you want to buy from them or sell to them. The operators are also expected to be in tune with market dynamics, be able to fix its own rate within the recommended commission rate in such a way that is competitive in that market,” he said.
Other issues include customer service, relationship management and commission which must be within market range.
According to Adedipe, “because we were net importers, that brought pressure on the FX market. And like we have also argued over time, the major worry for the CBN or anyone considering the management of the FX market is the premium.
Premium is the difference between the official rates of the FX rate you get in other segments of the FX market. The other segments will mean, the parallel market, the BDCs, of course in those days we used to talk about export proceeds and all manner of different arrangements.
But today, the idea simply is that any other market outside of CBN is an alternative. So what is the rate there? How is it compared to the official rate? So, the difference between these rates is called premium”.
“Anytime that premium is greater than five per cent, it then becomes an incentive for round-tripping. This means that the foreign currency becomes now attractive for those who want to speculate to go and buy, sell and then, they generate more Naira. So they can return to the official market and buy even more dollars, then go back and convert the dollar and get even more naira. That’s why it’s called round-tripping. There is no currency anywhere in the world that can survive such an arrangement,” Adedipe said.
He also said “the question that needs to be answered is what drives the exchange value of the Naira. If you are able to answer that question, it will bring us to an understanding of what is happening today.
“But ordinarily, in the interplay of demand and supply, what CBN has done is not to reduce the supply of FX to the market. What they have done is to shift the supply from one segment of the market to another, and even doubled the volume; which means, the response of rate is not to the supply coming to the market, which in fact has doubled.
“Equally, what could have been the concern is access. The CBN has also dealt with that by not only telling the participatory banks to have desks designated for forex, where members of the public in need of foreign currencies for defined purposes can have access to the foreign currencies required, which you can now also give to them either in cash, or as a credit into their domiciliary account, or into their dollar card.
This means the issue is not supplied on one hand, and on the other hand, also, access is not the problem. It means the real issue is that the speculators knew that this position of the CBN is not something sustainable, which means that it’s not institutionalised.
This means therefore that if another Governor comes into office, after the expiration of Emefiele’s term, there is a likelihood that he or she may go back to the old way of doing things. So we have to come back to look at those factors that cause exchange rates to move. There are about 12 of them in economics.
“One of them is the interplay between demand and supply, which as of today does not support what we see happening in that market. That is the depreciation of the Naira in the market as we see now is not supported by the interplay between demand and supply.”
“Which is why I say, ultimately, the only reason we can admit this is speculation, which is based on the fact that, oh, CBN will not be able to sustain this? So, the question now will be, why can’t they sustain it? If we look at our external reserves, there are two ways to interpret that in this connection”.
The BDCs have for years supported Nigeria’s growth agenda and CBN’s commitment to exchange rate stability. To continue to play these roles creditably, the BDC industry needs improved access to forex.
The ABCON believes the success of BDCs goes beyond favourable rates but access to multiple streams of forex earnings to deepen the market, keep the naira stable and boost BDCs operations.
Making BDCs one of the channels through which over $34 billion annual Diaspora remittances enter the economy will give depth to the forex market and boost BDCs operations.
Diaspora remittances to Nigeria, now at $23 billion annually remain a reliable source of forex to the domestic economy and that is why over 5,500 CBN -Licenced BDCs should come to mind.
Concerned with the stagnant state of the nation’s economy marred with inconsistent forex earnings through oil export, the ABCON agreed with Adedipe for BDCs to be one of the channels for receiving Diaspora remittances into the economy.
