ABCON’s uniform exchange rate: An agenda for Naira stability

The road to exchange rate stability has been rough and rigorous. With the drop in crude oil prices and foreign reserves, came the depreciation of the naira at both official and parallel markets. In recent time, stakeholders have applauded ABCON’s consistent support for the Central Bank of Nigeria’s (CBN’s) policies and ongoing plans to boost public confidence in registered BDCs.

The foreign exchange (forex) market is driven by information flow and investors’ sentiments. The type of information available to local and international investors helps to swing rates. It therefore follows that positive information flow translates to better pricing for the naira and vice versa.

Having recognised these facts, the ABCON, which is the umbrella body for all Central Bank of Nigeria (CBN) licensed Bureaux de Change (BDCs), last Tuesday, launched the Uniform Weekly Exchange Rate for Licensed Bureaux De Change Portal.

The portal is meant to enable BDCs achieve same exchange rate for the naira against the dollar across all licensed operators.

The ABCON President, Alhaji Aminu Gwadabe who launched the portal at the maiden seminar for business editors of print, electronic media and wire services, held on Tuesday in Lagos, said it will bring exchange rate convergence, eradicate currency speculation and ensure speedy recovery for the naira against the dollar.

He said such aims are in line with CBN Governor, Godwin Emefiele’s plan to stabilise the naira and boost investors’ confidence in the economy.

According to Gwadabe, the purpose for launching the BDCs Weekly Rate was to make it a reference point for realistic rates in the market that will boost foreign investment inflows and displace the damaging effect of foreign forex media platforms on the economy.

Gwadabe was confident that with the gradual recovery in crude oil prices, enhanced commitment of the CBN to economic diversification which has led to rising production of local rice and drop in import bills, as well as political will of President Muhammadu Buhari to implement key economic reforms, the task of achieving a single determined exchange rate will be realised.

He urged the media to adopt a single rate in their reporting, and always quote rate on the ABCON website- www.abcong.ng for consistency and uniformity of reporting.

The ABCON chief reiterated the need for the public to deal with CBN-licensed BDCs only, and urged the public to report errant operators for necessary sanction.  “ABCON wishes to reiterate its willingness to embark on a comprehensive media campaign on the roles, activities and location of members nationwide so as to provide a guide to the public in dealing with only CBN-licensed BDCs and for the public to report any errant operator for necessary sanction,” he said.

Gwadabe said that CBN implements between N500,000 to N2million fines against BDCs that violate regulatory policies, while such operators may also face license suspension.

The ABCON boss said there was need for the CBN and Federal Government to harmonise the multiple official exchange rates in the country and adopt a unified rate for transactions.

Calling for the adoption of a single forex market rate system, he said licensed BDCs will post an exchange rate each Monday on its website from January 16 to “highlight positive rate development in the market” and counter certain domains which publish ‘high’ unofficial prices daily.

Trading in the parallel market became more regular since 2014 after the CBN strengthened capital controls as crude oil prices dropped. Dollar trades for about N490, compared with the official rate of about N315. The BDCs will initially quote a rate of N399, Gwadabe said.

The ABCON chief said there was need to disregard the parallel market rates as they were not recognised by law while raising hope that exchange rate will continue to improve in the course of the year despite the challenges faced in the forex market.

Former Executive Director, Keystone Bank, Richard Obire said that ABCON’s implementation of unified rate across all CBN-registered BDCs will bring sanity to the forex market. “I do not know how the group wants to achieve this, but if well implemented, it will bring orderliness to the market. It is easier to achieve such feats through Personal Travel Allowance and Business Travel Allowance transactions.  It is really a good initiative that will reduce the level of uncertainty in the market,” he said.

Managing Director, Afrinvest West Africa, Ike Chioke, believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy and revive the naira.

To him, the persistent pressure on the naira could have been minimised if a counter fiscal policy had been developed, as the CBN cannot continue to defend the naira with foreign reserves.

“To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods,” he said.

Diaspora remittances

Nigerians in Diaspora had in 2015, sent home $21 billion which boosted the local forex market in 2016, figures released by Senior Special Assistant to the President on Foreign Affairs and Diaspora Matters, Abike Dabiri-Erewa, showed.

Dabiri-Erewa said: “In 2016, they remitted $35 billion which is higher than what was remitted in 2015.”

But Gwadabe disclosed that less than five per cent of the 2016 Diaspora funds were captured officially by the CBN because of exchange rate divergence, which discouraged Nigerians in Diaspora from sending their funds home through official channels.  He said that harmonisation of the multiple exchange rates in the country, will make the rate for Diaspora remittances attractive to Nigerians in Diaspora.

He said: “The single forex rate has succeeded in Egypt. Nigeria should block all forex leakages to make it work in the country. Forex market is an information-driven market. The type of information you release helps to swing rates and would also help the CBN’s plan to achieve single exchange rate,” he said.

He said the ABCON is working very hard to build public confidence in registered BDCs because the forex market is driven by perception adding that the ideal rate for the naira is $400 to dollar even as speculation is hurting the local currency. He wants the CBN to stop banks from selling Personal Travel Allowances and Business Travel Allowances to travellers and assign the role to BDCs.

Building economic buffers to save naira

Gwadabe urged Nigeria to build strong buffers, so its currency can withstand headwinds that come during economic crisis. For instance, the United Arab Emirates has over $400 billion in their reserves, and that is a very big buffer for them as it protects their local currency at any given time.

“But the Federal Government and the CBN have stood their ground for a very long time by not allowing naira to float freely. The advantage of the flexible forex regime is that the volatility you see, whereby naira everyday is getting weaker, once it goes up, another thing will bring it down,” he said.

Continuing, he said: “The fact is that when you talk of BDCs, there are parallel market operators and black market operators. The parallel market is the opposite of official market. So, the BDCs are not parallel market operators. There are over one million parallel market operators in this country and they have been here even before the coming of the CBN. They have been here even before the CBN licensing the BDCs in Nigeria.”

He said, “There is a big difference between a parallel market operator and a BDC operator. And if you look at it, last year, we were branded the black sheep in the industry. In India, the BDCs generate over $30 billion from the Diaspora remittances.

“In United Arab Emirates, the entire banking needs of banks are met by the BDCs. The working of the Lebanon economy is highly dependent on the activities of BDCs in that country. I want stakeholders to support Nigeria’s BDCs in building the economy,” he said.

Automation of BDCs’ operations

Gwadabe said there was ongoing automation of BDCs’ operations which will help online real-time operations and enhancement of compliance among operators. These, he said, would boost transparency of operations, ease of public accessibility of BDCs’ procedures, returns rendition and regulatory supervision.

“We want to introduce certification for registered BDCs. The ABCON is also coming up with schools that will train and retrain members and encourage record keeping. We believe that once we are able to introduce measures that make the operations of parallel market irrelevant, they will be eradicated,” he said.

He said the BDCs are also advocating being the sole handler of Personal Travel Allowances and Business Travel Allowances. He said the BDCs are also raising their operational modalities to ensure that operators become agents of International Money Transfer Operators (IMTOs).

The ABCON boss believes that despite the challenges facing the economy, the CBN and BDCs will continue to work together and find sustainable solutions that can help the country wriggle out of the ongoing forex crisis and achieve full economic recovery.

“We have continuously assured the CBN and taken appropriate measures to ensure that purchased funds are disbursed to end users and for eligible transactions only. We also render weekly returns on purchases from the banks to Trade and Exchange Department of the apex bank.  We also ensure strict compliance to the provisions of the anti-money laundering laws observance of appropriate Know-Your-Customer principles in the handling of forex transactions,” he said.