Bureau de change (BDC) industry remains a critical sector in economic development and wealth creation. Most analysts believe that what the BDC operators need is the Central Bank of Nigeria’s (CBN) support to achieve exchange rate stability and contribute its quota to the national Gross Domestic Product (GDP).
Achieving this would require instituting relevant policies to deepen their operations and a partnership with fiscal and monetary authorities to put over $27.8 billion foreign reserves to domestic trade.
The Ayodeji Ebo-led analysts at Afrinvest West Africa Limited, in a note to investors, said, “The direction of capital and the performance of the local stock market reflect the wellbeing of the economy,” which in turn reflects on the strength of the naira.
According to the analysts, the economy has been experiencing moments of stagflation (low economic growth and high inflation rate) with a plethora of issues ranging from high unemployment, weakening consumer spending, poor monetary and fiscal responses and waning financial market sentiments.
This means that all hands must be on deck to salvage the situation. For instance, the CBN under Emefiele had earlier entered into an agreement with BDC operators on ways to bridge dollar liquidity crisis in the sector.
The President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said the regulator had, during the time, agreed to source petrodollars from international oil companies (IOCs) and other autonomous sources. The decision was meant to find ways out of the dollar crisis in the sector, as he promised to directly intervene in selling dollars to the BDCs when market liquidity improved.
Gwadabe said: “The CBN agreed to be sourcing for dollar from IOCs and selling to the BDCs between N198 and N201 to a dollar. We have also accepted to ensure that our members follow the regulatory guidelines and not sell dollars obtained through the autonomous sources over the required margin.”
He explained that the BDCs do not have the capacity to deal directly with the IOCs because of the intricate nature of the transactions, but will rely on the CBN’s expertise and experience to handle the transactions.
BDCs as partners in search of solution
The importance of BDCs became evident under Professor Charles Soludo, former CBN governor. He introduced the policy titled, “Further Measures to Liberalise the Foreign Exchange Market.” The aim of the policy was to address the widening gap between the official exchange rate and the parallel market rate.
The ABCON President, Alhaji Aminu Gwadabe believes that despite stoppage of sales of forex to the BDCs, the sector can be a good partner in finding solution to currency crisis in Nigeria and contribute to economic growth.
According to him, as law abiding citizens and partner in progress with the CBN, the BDC operators respect the decision of the apex bank as the regulator of the banking industry and foreign exchange market where they operate.
“While we are not totally surprised by the decision, we however believe there are better ways of addressing the challenges in the foreign exchange market,” he said.
He regretted that the BDCs are always blamed whenever there is Naira volatility. “Suffice to mention that before the CBN started selling dollars to BDCs in 2006, there were about 270 BDCs in the country. Despite the harsh operating environment, these operators were able to survive by servicing their clients,” he said.
A herd of industry stakeholders agree that Bureau De Change (BDC) operators remain critical stakeholders in economic development and wealth creation for the citizenry all over the world. They believe that BDC operators in Nigeria are collaborating with the CBN to achieve exchange rate stability and build an industry that contributes its quota to the National Gross Domestic Product.
The currency auctioners have repeatedly called for appropriate sanction against its erring members rather than condemning the entire sector as economic saboteurs. Indeed, BDCs need regulatory and government backing in terms of policies that will deepen their operations.
They also want to partner with fiscal and monetary authorities to put over $27.8 billion foreign reserves to domestic trade and build a strong naira economy.
Globally, bureaux de change (BDC) operators have remained critical agent of development and economic growth.
For Nigeria, BDCs are not just a critical factor in the CBN’s plan to achieve price and exchange stability but have remained one of the major contributors to government’s revenues.
With over N250 billion worth of investments in the economy, the BDCs have not only enhanced employment generation but have contributed to the CBN’s revenues streams through one per cent commission charged on dollar sale to operators.
The over 3,000 BDC operators in the country have, especially since the CBN started direct sale of dollars to the industry in 2006, helped in the implementation of the historic convergence of exchange rates for the first time on 6 July, 2006.
That explains stakeholders’ worries when regulatory and government policies in recent months did not favour the continued operation and sustainability of BDCs’ businesses in the country.
CBN Governor, Godwin Emefiele had last January announced a new foreign exchange (forex) policy that includes the stoppage of weekly dollar sales to BDCs.
He said operators in this segment of the market would now need to source their foreign exchange from autonomous sources, even as CBN would deploy more resources to monitoring these sources to ensure that no operator is in violation of its anti-money laundering laws.
Why BDCs were created
According to Emefiele, the BDC industry was created by the CBN to fill a critical gap in the retail segment of the foreign exchange market even as the decision to sell dollars to them was because they have the capacity to counter the effect of the illegal currency traffickers and the continued depreciation of the Naira in the parallel market.
While the BDCs, which remain a globally acknowledged and reputable businesses have put the sudden stoppage of dollar sales to them by the CBN behind them, ABCON and its leadership have continued to seek plausible avenues to deepen dollar liquidity in the market, sustain their members businesses and make their contributions to Nigeria’s economic growth and development.
For Gwadabe, Nigeria BDCs can be strengthened to operate across the value chain of the retail foreign exchange sector; remittances and payments space as well as local and international travel insurance brokerage deals.
This, he said, can help turn them into a booming industry that can employ more millions of Nigerians. Both the CBN and BDCs, he said, can work also together and find sustainable solutions that can help the country wriggle out of the ongoing forex crisis confronting the economy.
“The BDCs do not depend on exchange rate to make profit and therefore will benefit nothing from a depreciated naira. Depreciation affects operators’ working capital as they are more interested in turnover than the exchange rate. The BDCs do not also determine exchange rate and the ABCON has continually worked closely with the CBN to ensure that dollar supply increases so as to restore calm in the currency market,” he assured.
Diaspora remittances
The BDCs can also explore opportunities in Diaspora remittances. For instance, the World Bank Migration and Remittances Factbook 2016 showed that Nigerians living abroad sent home $20.8 billion in 2015. The figure, it said, is by far the largest volume of remittances to any country in Africa and the sixth largest in the world.
“The United States is the biggest remittance sending country to Nigeria, followed by the United Kingdom. Nigerians will receive $5.7 billion in remittances sent from friends and family members in the US and $3.7 billion from the UK in 2015. Nigeria is also the third largest destination country for migrants from other African nations,” it said.
It says a quarter of a billion people around the world are migrants, and over $600 billion in remittances are sent annually. BDC can partner other institutions as an official channel for most of these remittances as they are already doing at the moment, though unofficially due to higher rates they offer.
The global lender says international remittances to developing countries reached over $441 billion in 2015, more than foreign direct investment and thrice more than official aid flows. It says 34 per cent of all international remittances are sent among developing countries.
It disclosed that remittances constitute more than 10 per cent of Gross Domestic Product for 25 countries. It insists that international remittances have been growing steadily and remain stable even during episodes of financial volatility.
“In 2015, the number of international migrants surpassed 250 million, a quarter of a billion people, globally. International migrants now represent more than 3.4 per cent of the world’s population. South-South migration is now larger than South-North migration. Over 38 per cent of international migrants have migrated from developing countries to other developing countries. 14.4 per cent of international migrants are refugees,” it said.
Speaking on the development, Senior Mobile Analyst at WorldRemit, Alix Murphy, says the World Bank’s latest report shows that countries have now hit two significant milestones - quarter of a billion migrants globally and $600 billion of remittances sent annually.
She believes that despite being the biggest economy in Sub-Saharan Africa, Nigeria’s financial system is still deeply fragmented, making sending and receiving money very challenging for ordinary Nigerians.
Gwadabe believes a proposal from ABCON to the CBN, asking the regulator to allow BDC operators operate correspondent bank accounts that would allow the currency auctioners receive the average $20.8 billion annual Diaspora remittances is needful. Making BDCs major agents of money transfer like the Western Union, MoneyGram, among others will enable them achieve the objective.
The proposal, which Gwadabe says is still being assessed by the CBN, will enable operators open forex account with Bank Of America or Barclays Bank or any other international bank, through which Nigerians living abroad can send funds home through the foreign bank accounts run by BDCs while the recipients claim their money at home. This practice, when approved, Gwadabe said, would not only boost dollar liquidity in the market, but help the country navigate through raging currency risks.
He believes that integrating BDCs into the money transfer business will ease the challenges faced in the industry and deepen Nigerian payment system.
Brighter future awaits BDCs
But for the BDCs to play these roles in the economy, Gwadabe said the CBN must tackle the increasing challenges arising from over regulation and complex documentation requirements that licensed BDC operators are facing in carrying out their daily legitimate operation.
These, he said, have had negative impact on their efforts toward compliance to statutory and regulatory requirements. The ABCON chief said that six units within the CBN are involved with BDC regulations, supervision, licensing, monitoring, saying this constitutes multiple regulation of a unit of the financial sub-sector that is only involved as a small market player.
“A BDC operator is expected to render daily, monthly, quarterly, half yearly and annual returns to these various departments of the same corporate body, which could be very cumbersome, repetitive and time consuming for both the operator and the regulator,” he said in a statement.
“In addition to the above, the BDC is also under obligation to render same returns to the Economic and Financial Crimes Commission /Nigeria Financial Intelligence Unit, while at the same time reporting to other statutory government establishments, including the Federal Inland Revenue Service and Corporate Affairs Commission respectively”.
Gwadabe said naira devaluation is not the solution to Nigeria’s problems while asking government to pay more attention to economy diversification. He believes the strengthening of the BDCs will also be in line with the government’s diversification agenda because of the benefits that a strong BDC industry will bring to the economy.
The ABCON under Gwadabe’s leadership is also working on achieving transaction automation for members, create live trading platforms and uniform rate for operators. The operators also want to partner with other relevant agencies, while reviewing and updating its operational manual.
The ABCON, he said, has a zero tolerance for non-compliance with regulatory requirement and for unethical conduct amongst its members. “It is for this purpose that the association created the office of Compliance Officer in its National Secretariat and in all its zonal offices and also provided official vehicles for the compliance officers to regularly pay inspection visits to BDCs under their jurisdictions,” he said.
Foreign exchange reserves
Gross external reserves stood at $28.33 billion at end-June 2015, compared with $34.24 billion at end-December 2014, representing a decrease of 17.3 per cent. The end-June 2015 level of reserves was equivalent to 5.8 months import cover compared with 7.0 months of imports at end-December 2014. The fall in reserves was due to the sharp decline in foreign exchange inflow from $23.66 billion in the second half of 2014 to $15.28 billion at end-June 2015. The development reflected a decrease of US$8.38 billion or 35.4 per cent. Total foreign exchange outflow was $21.07 billion in the first half of 2015, compared with $26.33 billion in the second half of 2014, indicating a decrease of 20.0 per cent.
The reserves currently stand at $27,881 billion as of Tuesday, 8 March, 2016 and Gwadabe believes that the fund should also be used for domestic trade where the BDCs will be involved. The practice, he said, will help deepen the market.
