In normal times, the bureau de change (BDC) industry is a critical sector in economic development and wealth creation.
Financial experts believe that a partnership between the BDC operators and the Central Bank of Nigeria (CBN) is needed to achieve exchange rate stability and will enable the sector contribute its quota to the national gross domestic product (GDP).
For these laudable aims to be achieved, it would require implementing policies that support their operations by way of channelling over $27.8 billion foreign reserves to international trade.
The state of the economy of every nation is a function of different segments and industries and contribution to the GDP pool. Globally, BDC operators have remained critical agents of development and economic growth and transformation for countries. In Nigeria, BDCs are not just a critical factor in monetary plan to achieve price and exchange stability but remains one of the major contributors to government’s revenues through trade.
With over N250 billion worth of investments in the economy, the BDC sector not only enhances employment generation, but remains one of the major employers of labour. The sector has also contributed to the CBN’s revenue streams through 1 per cent commission charged on dollar sale to operators. The over 3,000 BDC operators in the country have, especially, since the CBN started the sale of dollars to the industry in 2006 helped in the implementation of the historic convergence of exchange rates for the first time on July 6, 2006, which have so far led to increased investment spending in the economy.
The CBN governor, Godwin Emefiele, had in January announced a new foreign exchange (FOREX) policy that included the stoppage of weekly dollar sales to BDCs.
“The bank (CBN) would henceforth discontinue its sales of foreign exchange to BDCs. Operators in this segment of the market would now need to source their foreign exchange from autonomous sources. They must, however, note that the CBN would deploy more resources to monitoring these sources to ensure that no operator is in violation of our anti-money laundering laws,” Emefiele said at news conference on the review of the contentious FOREX policy at CBN’s Abuja head office.
The president, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, explained that as law abiding citizens and partners 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 that 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 it 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 servicing their clients,” he said.
According to him, the BDC industry was created by the CBN to fill a critical gap in the retail segment of the FOREX 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 BDC, which remain a globally acknowledged and reputable business, have put the sudden stoppage of dollar sales to them by the CBN behind them, the ABCON and its leadership has 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, Nigerian BDCs can be strengthened to operate across the value chain of the retail FORX sector; remittances and payments spaces as well as local and international travel insurance brokerage deals. This, he said, can help turn them into a booming industry that can employ millions of Nigerians. Both the CBN and BDCs, he said, can also work 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 rates 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 the 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.
The BDCs can also explore opportunities in the diaspora remittances. For instance, the World Bank Migration and Remittances Factbook 2016 showed that Nigerians living abroad sent $20.8 billion home 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 received $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 reads in part.
It further reads that a quarter of a billion people around the world are migrants, and over $600 billion in remittances are sent annually. The global lender said that international remittances to developing countries reached over $441 billion in 2015, more than foreign direct investment and thrice more than official aid flows. It also said that 34 per cent of all international remittances are sent between developing countries and disclosed that remittances constitute more than 10 per cent of the gross domestic product for 25 countries, insisting 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, the senior mobile analyst at WorldRemit, Alix Murphy, said that the World Bank’s latest report showed that countries have now hit two significant milestones – quarter of a billion migrants globally and $600 billion of remittances sent annually.
“More than ever, we live in world of mobile and connected people whose financial ties extend across the planet. At WorldRemit we see the technological infrastructure evolving to meet these changing demands, in particular the convergence of mobile connectivity, instant messaging and international money transfers,” she said.
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 said a that proposal from the ABCON to the CBN, to allow BDC operators operate correspondent bank accounts that would allow currency auctioners to receive the average $20.8 billion annual diaspora remittances, making BDCs major agents of money transfer, like the Western Union, MoneyGram, among others will enable them achieve the objective. The proposal, which Gwadabe said is still being assessed by the CBN, will enable operators open a FOREX account with the 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 Nigeria payment system.
The CBN under Emefiele had earlier entered an agreement with BDC operators on ways to bridge dollar liquidity crisis in the sector. Gwadabe said the regulator has 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, promising to directly intervene in selling dollars to the BDCs when market liquidity improves.
Gwadabe said: “The CBN agreed to be sourcing for dollar from IOCs and selling to the BDCs between 198 and 201 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.
ForeigGross 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 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 $27.8 billion 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.
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 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 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.