- From Blog Archive
Experts open up on forex war - The Sun
By Omodele Adigun, Uche Usim, Abuja, Isaac Anumihe and Adewale Sanyaolu
For scores of foreign currency hawkers recently arrested and detained by the Department of State Security (DSS) and the Nigerian Police, November 10, 2016, could be listed as a day they may not forget in a hurry. It was on this day that the illegality of their trade, rather than selling the greenback above the stipulated N385 per dollar, prompted a security crackdown on the business that had done for several years without a hoot from the regulators.
The security raid on the black market dealers and Bureau de Change was conducted against the backdrop of their purportedly role in the downward spiral of the naira against the US dollar.
Even the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, alluded to this at the media briefing on the outcome of the 110th meeting of the Monetary Policy Committee (MPC) in Abuja last week, where he stated that those arrested were forex hoarders whose unwholesome practices have kept the value of the hard currency high and scarce, to the detriment of Nigerians. The governor was miffed that from about N200 to the dollar early last year, the naira has depreciated by over 100 percent of its previous value largely at the black market, a development that prompted the DSS sting operation.
Throwing his weight behind the action, the CBN boss urged Nigeria's security agents to sustain the tempo to ensure illegal parallel market operators are run out of town. But since the clampdown, fears are being raised that the arrests might get the market spooked to create a worse artificial scarcity of dollars that could further worsen naira depreciation and economic situation in the country.
Already there are strong indications that the DSS clampdown has forced those arrested to expose their sources of supply, thus making it more difficult to source forex for even legitimate international transactions. Black market operators who spoke to Daily Sun noted that despite the little priority accorded them by government, they are meeting the needs of critical segments of the market and silencing them could have very dire complication for the economy.
According to a BDC agent at the popular Sheraton Hotel forex hub in Abuja, who craved anonymity, "it is difficult to buy or sell forex these days since security men started arresting dealers. Where will you see dollars to buy at N390 and then sell at N400? It is almost impossible. What I'm selling is the dollars I bought earlier from the market and I'm even rationing it to keep myself busy. If I sell all, I don't know where to get supplies from. Most of our members have gone underground."So, the whole market is paralysed. Nobody is buying; nobody is selling because you don't know who you may be transacting with. If anybody asks for dollars, you tell them you don't have. They want people to be hoarding dollars, and this will strengthen the roadside currency hawkers because when people cannot buy from BDCs, they will be forced to patronise black market operators," he said.
Investigations by Daily Sun reveal that the market is largely funded by Nigerians, including top traditional rulers, government officials, politicians and the business community who are leveraging the acute scarcity to make huge margins from the hard currencies at their disposal
Ahmed Yaro, a currency dealer in Lagos told Daily Sun: "We have customers among government officials, traditional rulers, politicians and business men. They bring dollar for us to sell on their behalf for a margin. Sometimes we go to their homes or offices and other convenient locations to buy from them to sell. Sometimes we also sell to them when they are travelling and they don't have enough. But today everybody is now careful because of the DSS and police.
They are aware we can't sell above the DSS enforced rate. At times, they'll tell us they don't have dollars to sell but we know they do. We know they have but they don't want to sell at that rate. They feel the rate will go up soon," he said.
Another dealer who simply identified himself as Yahaya, insisted the government's action of force was not the solution to the dollar crisis. He said the best way out was for the CBN to flood the market with sufficient dollars, rather than resorting to force and coercion .
His words: "Arresting our members and forcing us to sell at N400/$1 is not sustainable. Do they care to know how much we buy dollar. They're simply making hoarding thrive. People still call us and we transact businesses secretly. When you approach most of our members, they'll say they don't have dollars. But they do. They have ways of trading it," he said.The common suspicion makes people to exercise caution when selling or buying forex.
Meanwhile, some financial experts have described the DSS' approach to stabilise the dollar as archaic and not in tandem with civilised economic model as it does not allow the forces of demand and supply to determine market prices.For instance, Founder, Center for Leadership Values (CLV), Prof Pat Utomi, said price control measures have never worked in any system, advising government to ensure availability of foreign exchange through investment inflow and exports of goods and services.
On the other hand, he said government has a responsibility to ensure that laws made by it are strictly adhered to. In this instance, he said the Central Bank of Nigeria (CBN) having made forex available to Bureau De Change operators for onward sale to members of the public, has the moral justification to ensure that the band rate fixed is adhered to by the operators. He explained that it is in human nature to want to profiteer from every situation arising from scarcity, insisting that only discipline and strict enforcement of law and order could salvage the situation.
According to him, the continued raid on the operators may not bring about the desired result because it is not a sustainable approach and may not stand the test of time because it defies the basic rule of theoretical economics.
Also reacting, Mr Odilim Enwegbara, noted tht Bureau de change should not be scattered all over the country. They should be located at the borders and airports. When you enter the country, the bureaux de change gives you the currency. When going back, you meet them and they give you your balance. But in this country, BDCs are into money laundering and counterfeiting. You can't build a modern economy like this. The government should make sure that the BDCs are licensed and oversighted. Most of the owners of BDCs are actually top officials of Central Bank of Nigeria (CBN). So, what is happening is good to ensure transparency, sanity, openness and professionalism. If you travel everywhere in the world, you discover that the bureaux de change offices are located at the airports.
That is the only policy of the government that I like, especially the Central Bank of Nigeria. BDCs should be located at the airports and the borders so that they are highly monitored. But allaying these fears, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said those arrested were illegal dealers who have swarmed over the business across the country. His words: "We have over one million non-licensed BDCs across the country. We, the licensed are abou 3,000 in number. In terms of ratio, you can see that they far outnumbered us. That is our frustration because they are not under our umbrella. And yet they sell the same commodity, the same product that we are selling."
Gwadabe explained that before the crackdown, security agents held meetings with the BDCs with a view to making them reform their operations and stop hawking forex on the streets. But the non-licensed dealers would not listen. He explained: "Clarification needs to be made here. The crackdown is not really on the BDCs. It is just the enforcement of regulation. What do I mean by enforcement of regulation? You know our law outlaws street hawking of hard currency. Even before the enforcement of the law, we were invited to the stakeholders' meeting, both those that do not have licence and the licensed jurisdiction.
The security agents expressed their disappointment about the conduct of our members and the non-members alike on the street."Yes, of course, we have over one million non-licensed BDCs across the country. We, the licensed are about 3,000 in number. In terms of ratio, you can see that they far outnumbered us. That is our frustration because they are not under our umbrella. And yet they sell the same commodity, the same product that we are selling. The raid has tried to put sanity. The only thing we are seeing is that the business is now going underground.
"The public too has to support this initiative. What I mean is that you should learn to patronise a BDC with an office. Sometimes, even those who patronise these hawkers also lose their money by dealing with touts. But if you go to a BDC office, you will see whether it is licensed, registered with CAC and you feel comfortable. Even if there is a problem, you can as well go back there. That is better for you than to lose everything by patronising touts because of just N50 difference."
Emefiele also toed the same line of argument when he said that the Nigerian foreign exchange regulation forbade trafficking in hard currency on the streets, saying the DSS' raids were lawful and commendable. His words: "First of all, the foreign exchange regulation in Nigeria today forbids trafficking in currency on the streets. We should underscore that point.
You cannot stand on the street and traffic in forex. What we know is that security agencies have the right to enforce the law, which says you cannot traffic in forex. You're supposed to be in your offices to conduct your businesses. So, you will have to adhere to that. "If you don't adhere to that, the security agencies will arrest you. So, on whether it'll drive black marketers away and make dollars more scarce, let me say that black market in itself is an illegal business. So, we don't consider, in our own analysis, people who want to go underground to conduct illegitimate business. If you are conducting a legitimate business, you should be free to operate openly; not under the table," he explained.
However, Gwadabe disagreed that the crackdown has affected the market adversely in the country. "There is no DSS that has so far entered any licensed BDC office. Our members get our forex supply from International Money Transfer Operators (IMTOs) and some customers. Definitely, our members are losing because we want to follow the regulated rate.
Some customers would say I can't sell (forex) to you because you have competitors outside that would offer higher rate. In terms of that, it is really affecting our members' business."My appeal to all Nigerians is that we should help the system. The foreign exchange rate drives the interest rate, it also drives inflation rate. So no Nigerian is free from this problem. Even if you don't have children whose school fees you are paying abroad, yo must go to the market and buy food. If the prices of food are going up, you are definitely affected. People would say it is because dollar is high.
"Look at our neighbouring countries, their dollar income is lower than that of Nigeria but the volatility in currencies, the magnitude is not as high as our own because they have what I would call citizenship patriotism. But our citizens lack that patriotism. So if all Nigerians would agree that, henceforth, I am not going to patronise someone who doesn't have an office; that doesn't have have a registered office, I think that is going to help in the long run."
On adequacy of forex supply by agents, particularly, Travelex, he said: "It is only in Lagos that Travelex is staying. Other zones like Abuja, Kano and Onitsha have not been getting dollars. Last week, they agreed to disburse to Kano, Abuja and Awka. Kano will take care of the whole North Central states, Awka will take care of South East and South South. AMCON has been given that responsibility to start disbursing to our members today (Wednesday) and tomorrow (Thursday)."
When DSS raided some operators penultimate week, they arrested operators selling above official exchange rate of N385 per dollar.