Bureaux de change and the economy

Written by the Editorial Board of The Guardian Newspaper

The Central Bank of Nigeria (CBN) began to issue guidelines for the operation of bureaux de change (BDCs) in 1989. BDCs are licensed to provide “small scale foreign exchange service” by purchasing foreign currency from small holders such as tourists for sale to banks and small end-users. The revised guidelines issued in June 2001 stipulated among other don’ts that the “Foreign exchange excluding Travellers’ Cheques employed by BDCs shall not be sourced from banks operating in Nigeria including Central Bank of Nigeria”.

But the provisions have kept changing rapidly in a manner that sacrificed the national economic interest for basic private greed. And then London and Paris Clubs of creditors nations exploited the situation by conning the trio of President Olusegun Obasanjo, Finance Minister Ngozi Oknjo-Iwela and CBN Governor Charles Soludo, who negotiated the country’s external debt exit, to accept the slavish conditionality whereby the IMF sent down two delegations in order to formalise the adoption of the wholesale Dutch auction system (WDAS) in February 2006 and the disbursement by the CBN of a part of the withheld Federation Account (FA) dollar allocations to BDCs two months later. It has come to light that disbursement began in 2005.

But what an irony! Clutching an over-generous sum of $12 billion as extinguishment of Nigeria’s external debt, the London and Paris Clubs used the IMF to poach FA forex allocations, which the FG has got the apex bank to improperly withhold since the demise of the Bretton Woods system of fixed exchange rates in 1971. The FG has feigned World Bank/IMF support for disdaining the campaign since 2001 for release of FA dollar allocations in a secure form to the beneficiaries in order to realise vital naira exchange rate objectives that have proved elusive over the years but which the IMF-endorsed CBN disbursement of forex to BDCs was falsely promised to achieve.

Now, what did the BDCs reckon to be their responsibility in the above arrangement? In an advertorial carried by the Vanguard on June 21, 2014 titled “Appeal against ploy to decimate BDCs and destabilise Forex Market”, self-styled concerned BDCs operators canvassed for continued disbursement of forex by CBN to BDCs because “BDCs are the stabilising force for foreign exchange rate and the value of the naira against the dollar.” An end to the weekly disbursements, the operators threatened, would, one, widen the gap between official and parallel exchange rates; two, exacerbate the black market; and three, facilitate round-tripping and fuel currency speculation.

However, the BDCs’ report card belatedly after 11 years is revealing. When the falsely couched “CBN’s monthly forex earnings” (these are the improperly withheld FA dollar allocations because the CBN neither exports any goods and services nor purchases foreign funds in all its flawed forex markets) nosedived owing to low oil prices and militancy in the oilfields, CBN Governor Godwin Emefiele bestirred himself and issued a press statement in January 2016 where he bemoaned that “Nigeria is the only country in the world where the central bank sells dollars directly to BDCs.” The dollar sales totalled some $66 billion over 11 years. Such free flowing forex at the disposal of BDCs predictably led to great abuse.

According to Emefiele, the BDCs abandoned the original objective of their establishment as small-scale forex buying and selling and had “become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction. Thereafter they use fake documentations like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.” He also accused BDCs of being only interested in widening margins and profits from forex market; serving as conduit for illicit trade and financial flows; increasing dollarisation of the economy; among other misdeeds. The CBN’s self-indicting tale shows the apex bank had been lax and had done next to nothing to enforce its rules and regulations. Neither sanctions nor penalties were imposed on the BDCs for their acts of economic sabotage. Last January, the CBN ended its funding of BDCs, but directed the operators to source their foreign exchange from the autonomous market which, by implication, could be devoured by BDCs.

In retrospect, the parting gifts of the London and Paris Clubs in the form of WDAS (it was rested in a feigned huff in October 2013) and FA dollar-funded BDCs were intended to exploit and reinforce the economic dislocations created by the faulty handling of public sector forex earnings. Ten years on, the country continues to wallow in ever-worsening hostile production environment that has kept the real sector comatose thereby entrenching high import dependency. That outcome by crook handed the alter ego of the London and Paris Clubs, the European Union, the opportunity to bide its time as it dangles before the successors of the outwitted trio named earlier an Economic Partnership Agreement that would leave Nigeria unindustrialised and open to exploitation permanently.

And as if to outdo the trio, the CBN about-faced in July and directed deposit money banks to sell foreign exchange cash accruing from inward money remittances to BDCs to the tune of $50,000 per BDC per week. Needless to state, the BDCs will carry on as before, which indeed has become noticeable. The CBN’s action raises several issues. Firstly, the 2,786 BDCs (January 2016) will annually harvest some $7.2 billion from Nigerians in the Diaspora (part of national export earnings) for the purpose of corrupt self-enrichment by a few, who will sell the forex at extortionate price to finance, as evidence shows, activities that undermine the national economy while fuelling development of foreign economies. It is ironic that the targeted remittances come essentially from Nigerians who were forced to migrate by the bad state of the economy owing to the mismanagement of FA oil proceeds including, as noted, their disbursement to BDCs. The CBN and proponents of the ruinous action are fully aware that forex accruing from remittances in the BDCs has rightly stopped.

In today’s national parlance, by its action, the CBN has begun to sell a critical national asset, forex, to our sworn economic enemies and so according BDCs the birthright to squander forex generated by other regions and sectors in order to keep stunting the national economy with impunity. Therefore, the sale of Diaspora forex to BDCs should cease immediately just as the bureaux should be restricted to the role of small-scale forex transactors as in the EU and other successful economies. Bureau operators will serve the country best by investing the capital of the present destructive BDCs in the real sector.

Secondly, the diversion of forex from what should be a single forex market, the retention of forex by international oil companies and permanent domiciliary account holdings have left the country with unrealistic and high exchange rates that inflict national impoverishment and contribute to the high cost of domestic production. Thirdly, Nigeria today possesses more than adequate collective export earnings but which lie idle in scattered and fragmented forex pools in the CBN, DMBs, international oil companies, domiciliary dollar accounts, BDCs, purpose-built soak-aways, attics, etc.

yet the FG needlessly forages everywhere for foreign loans (the Diaspora remittances, dollar for dollar, outweigh such loans) and fawningly begs to sell off to its cronies and foreigners national assets like the very profitable national natural gas plant. It is unacceptable. Having acknowledged that militancy in the oilfields is responsible for the economic recession, the FG should simply hasten to give oil producing communities equitable stake in their resources and also enthrone true federalism in a restructured Nigeria.

By the way, if need be, proponents of sale of national assets should ponder the best option. Since the CBN has deliberately mismanaged the national currency for decades and the Presidency has for years spurned the known solutions to the major national problems, Aso Villa, the National Assembly Complex and CBN complexes nationwide should be put on sale first.

In fine, contrary to the hodge-podge of high and unrealistic exchange rates that it has deliberately brought about, the CBN is meant to husband the country’s public and private sectors collective export earnings, coalesce a realistic exchange rate and build a FG-owned single pool of external reserves. It is in the country’s best interest that the bungling CBN management should go now.