Following the continuous downward slide of the Naira against other currencies, FUNMILAYO AREMU investigates why the Naira continues to perform poorly at the foreign exchange market.
Mallam Isa (not real name), the CEO of a bureaux de change company in Lagos, reclined in his chair, staring at the customer in front of him with a combination of disbelief and disdain. “You want me to buy your one dollar for N800? So, how much will I sell it to other customers? That is ridiculous!,” he growled at the woman.
“I expect the rate to have risen higher so that I can get more value in naira,” the woman defended her position.
“You are part of the problem in this country; I will only buy at N650 naira and no more. You are free to leave if you are not okay with that,” Mallam Isa retorted.
The woman did not even give the offer a thought; she just slammed the door shut and left.
Mallam Isa would later narrate the frosty exchange with his customer to Sunday Tribune, as he lamented what he described as “the wickedness of some customers” who tried to sell foreign currencies at exorbitant prices.
Bureaux De Change (BDCs) in Nigeria are licensed by the Central Bank of Nigeria (CBN) and are the primary source of foreign currency for businesses, individuals who trade overseas, as well as travellers. According to reports, they were launched to develop the forex market and provide individuals with easy access to foreign currencies. Abdukadir Ahmed, the then Governor of the Central Bank of Nigeria (CBN), introduced BDCs in 1989.
According to the International Monetary Fund’s Currency Composition of Official Foreign Exchange Reserve (COFER), as of 2022 Q1, the US Dollar held 58.88% of the world’s allocated reserve, while the Euro held 20.06%. This means that more than half of the world’s countries prefer to hold their foreign reserves in the USD.
In Nigeria, the mere mention of having the United States dollar fuels the attention of average person. Anyone in possession of a major foreign currency, especially dollars, is usually thought to be rich and well-loaded.
Nigeria, as a major importer of goods, even those as ordinary as toothpicks, has its citizens continually comparing the Naira to other foreign currencies to evaluate its strength or weakness, as well as to determine how much purchasing power they have in the international market.
Over time, the US dollar has gained strength over the naira. While the official rate in 2015 was one dollar to N190, by 2020, it had spiralled to about N360. Today, officially, one dollar exchanges for N416.89.
However, in the parallel market, often known as the black market, one USD is currently exchanged for N665. It was N720 to one USD a few weeks ago. This means more hardship for many Nigerians, as it is no longer news that when the exchange rate rises, so do the prices of food and essential commodities. This is just as the World Bank estimates that as many as 4 in 10 Nigerians fall below the national poverty line.
This stark reality soon sparked widespread worry and condemnation of the government. While some Nigerians blamed the government for failing to strengthen the naira more, others blamed the BDCs for causing the collapse of the naira by selling USD at a high rate.
BDCs and the business of forex
But are the BDC operators responsible for the disaster that has befallen the Naira, especially the high rate USD and other foreign currencies are exchanged in the black market?
According to Mallam Isa the BDCs should not be blamed for the misfortune of the Naira as they (BDCs) do not control the exchange rate in the parallel market. He explained that individuals with USD or Euro are the ones that sometimes dictate proceedings in that part of the market.
Echoing Mallam Isa, MrRabiuSani of VSO Bureau de Change in Lagos, explained that BDCs are not to blame and that the demand and supply principle is at play in the forex market in addition to cases of hoarding. According to him, many individuals who have these currencies sometimes hoard them to sell at higher prices at later date.
“You can’t blame the BDCs; the availability of the dollar is what causes the rate to fluctuate. When demand exceeds supply, scarcity occurs and the rates rise. It is not our fault that many people rush to buy currency whenever the rate rises.
“I just know that some people hoard it to boost the value of their naira. Because if I have $10,000 and sell it at the present rate, and the price continues to rise, the naira I received in return for the $10,000 cannot be used to purchase another $10,000.
“So, when the price is rapidly rising, some people hold on to their dollars until the market stabilises before selling,” he said, adding that it is common knowledge that the economy is causing the dollar to rise.
Mr Abdullahi Kabiru of Al-Nasara Venture Bureaux De Change, Abuja, explained to Sunday Tribune that the BDCs are not to blame because they can only sell at the rate at which they buy forex.
His words: “This is a fact that many people don’t understand. I can only sell what I buy as a BDC. I can’t buy dollar for N2 to $1 and then sell for N10. That means I am not God-fearing. If customers sell one dollar for N500, it means I’ll sell for N505. I cannot purchase for N600 and then sell for N550 or N500. I’ll be running at a loss.”
Another BDC operator, MrSule Ahmed Gise of SuleLabbo BDC in Abuja, confirmed Sani’s assertion, noting that the high exchange rate benefits no one, not even the BDCs.
“It is not the fault of the BDCs. We cannot do anything (about it). The gospel truth is, check into the market now, if you were buying 10,000 dollars with your capital, now you cannot buy more than 5,000 dollars. The capital has reduced to half. Even the prices of basic commodities have doubled and no one is benefiting from this. Ignorantly, some may think we are making money but no one is benefiting from this. It is not good for anybody; we are not making money,” he lamented.
So, what is responsible?
Since the BDCs have absolved themselves of blame for the high exchange rate, who or what then could be the source of the problem?
According to Mr Ahmed Gise, the dismal state of the economy and insecurity are factors leading to the high exchange rate.
“Capital flight, in my opinion, exists [as a result of insecurity] and I am open to being corrected. Kuje prison was attacked. Bandits attacked Kaduna train passengers and abducted some people, and now they have attacked people in Gwari (Abuja), killing several military men, and the federal government has declared that the Federal Capital Territory is no longer safe and that people should be cautious.
“As a result, several people began to liquidate their assets. They obtained cash, rushed to the market, exchanged their funds for US Dollars and fled the country. That is the first issue, which we refer to as capital flight.
“Secondly, the CBN is attempting to align with the Nigerian National Petroleum Corporation (NNPC). The NNPC has been privatised and is no longer remitting to the CBN as is customary.
“Another problem is that our economy is oil-based. From 2.5million barrels of crude oil, we are now producing 1,080,000 barrels. More than half is gone. Another problem is that there is no electricity, industries are collapsing, and we have become absolute consumers.
“So, we can only buy diesel to run our industries. Diesel is now almost N1000. That means every organisation using diesel runs on one thousand naira per litre which will be factored into their products and the ordinary man has to pay.
“People are demanding dollars everywhere, yet availability is limited. The economy is in bad shape. This is my opinion, and I speak only for myself,” he stated.
Mallam Isa also disclosed to Sunday Tribune that, in addition to CBN’s decision to halt supply of foreign currencies to BDCs, a rise in demand was created by politicians who gave US dollars to party delegates during the party primaries.
According to him, “When the politicians were preparing for their party primaries, they couldn’t give out naira. So, they came hunting for dollars and were eager to buy at any price, which caused the rate to rise. The demand then surpassed the supply.
“Then with the problem facing the market, there is no more bidding from CBN; the window has been closed. That created more problems and led to an increment. They were thinking that when they close the market, there will be sufficient dollars to buy and sell and the banks will give out dollars. Not knowing that it doesn’t work like that.”
According to him, it is even worse in banks because they ask clients to fill out forms when they (customers) require forex, and when the CBN approves it, they (the banks) inform the customers that they do not receive dollars from the CBN and do not have enough. After that, the banks sell the dollars to the BDCs.
“I’m absolutely certain about that. I usually exclude myself when banks bring dollars; I don’t want to be a part of it. You’re not doing anything to improve the country. Whoever is doing this is an enemy of this country. We must help ourselves before God does. We keep blaming the government, but we are all rogues,” he complained.
Mr Kabiru agrees with Mr Ahmed Gise that if the CBN supplied BDCs, the exchange rate would not be this high. Those who come to sell dollars to operators as of today, he claimed, set the price.
“When there is a scarcity of dollars in the market and certain buyers are willing to pay any price to obtain it, some people bring their dollars and set their own prices, especially since the government is not selling to us. There would be no inflation if the CBN were to sell. The dollar was not this high when we used to bid for it,” he explained.
Kabiru also stated that when businessmen require millions of dollars, they purchase them on the black market, causing dollars to be in short supply. If there were more dollars than demand, he said, it would be sold at a lower price.
Possible solutions
When asked what the solution to the high exchange rate is, Mallam Isa stated that: “It is either the CBN stops supplying dollars to the BDC and banks and sell it directly, or they create a channel for consultants to give dollars directly to individuals. When they were selling to BDCs, they said that we were underperforming; now, banks are worse than BDCs. It was N480 to N500 per dollar before they stopped supplying dollars to BDCs; now, it is N700 or more.
“After the EFCC intervened a few weeks ago, it was down to N620, but it has since begun to rise again, and it is currently N665, which is not proper. In 1982, when I started this business in Lagos, the naira was worth N1.10 to the dollar. At the time, a pound was worth N1.80,” he noted.
Speaking further he said: “The clients want the exchange rate to rise; 95 per cent of customers want the dollar rate to rise so that they may get more naira. When you go to the market, yam sellers will tell you that yams are expensive because the dollar exchange rate is high. But what does the dollar have to do with yam, rice, and tomatoes? What does the dollar have to do with the transporters who will tell you, ‘Ah, dollar don cost o, that’s why petrol is so expensive;’ what does the dollar have to do with all of these? We are not being honest with ourselves. Everyone wants to make it harder for others to survive.”
Speaking on solution to the problem, Mr Gise said government needs to address poor electricity supply and insecurity, and ensure that the country produces more than it consumes.
“The government should make every effort to provide Nigerians with power, specifically electricity. They should secure Nigeria and create a business-friendly environment so that individuals can travel freely. Traders should be free to sell and buy wherever they want. But when we are frightened, we restrict our movement, and when there is no movement, there is no flow of transactions.
“As a result, it will undoubtedly have a negative impact on the economy. Everyone is terrified right now. I used to travel to Kaduna by road, but I can no longer do so. People no longer use the road for safety concerns, and I can’t fill my car tank or buy from hawkers on the side of the road, and everyone is losing.
“This insecurity is detrimental to the economy. Everything has come to a halt. Insecurity can bring down any economy, no matter how robust it is. In the case of those kidnapped on the Kaduna train, one of them, a Pakistani, paid a ransom of N200 million; you would not expect a foreigner to visit such a place after learning about such an incident. When there is a persistent threat to economic growth, even animals can migrate.
“Finally, we are a consumer country. We import shoes and bags and export animal hides. We sell cocoa while importing chocolate, as well as crude oil while importing refined fuel. We consume rather than produce. We need foreign exchange to buy what we consume as consumers. We create jobs for outsiders by purchasing things from outside sources. They run their companies, employ their citizens, pay taxes to their government, and then we go there to buy finished products to bring home, despite the fact that we have no jobs here.
“We can’t go on like this. This is the harsh reality that our government does not want to hear. Without sentiment, we must just call a spade a spade,” he lamented.
Ironically, those who have legitimate and constructive needs for the dollar hardly get it. Many students abroad who need to pay school fees suffer untold anxieties in the course of their studies. The question is when will there be a respite and naira would once again be at par with other major currencies of the world.
This feature was first published 14th August, 2022
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