The Central Bank of Nigeria (CBN) recently stopped the sale of foreign exchange to Bureaux De Change (BDC) operators over accusation of illicit financial behaviour. However, analysts have stressed the need for the apex bank to allow the BDCs receive diaspora remittances through the institution of a framework that allows those with automated operations access the estimated $34 billion into the economy to boost dollar reserves and save the naira. AMAKA IFEAKANDU reports.
Funds from migrant workers
Globally, Nigeria is one of the few countries that concisely attract funds from migrant workers. Other countries are Pakistan, Canada, USA, Australia, and Vietnam.
Nigeria are one of the countries that have many migrant workers in the rest of the world, and therefore earn foreign currencies they remitted to their relatives at home. The introduction of the Naira 4 Dollar scheme by Central Bank of Nigeria CBN, which aimed at boosting liquidity at the parallel market has encouraged Nigerian diaspora to remit funds regularly.
The recent report showed that $34 billion estimated annual remittance by Nigerians in diaspora does not have the expected impact in the financial system because of non-existence channels to attract the funds into the economy.
Operators’ views on problems of funds remittance
The problem of lack of channels of remittance according to analysts limit the funds from getting home.
A renowned economist and chief consultant at B. Adedipe Associates Limited, Dr. Biodun Adedipe, in a media report explained that if Nigeria is able to manage that remittance effectively, it will add 0.4 per cent to the GDP growth annually.
He disclosed that a lot of the dollars don’t come into the forex market in Nigeria, as the receiver gets the naira equivalent of the fund even when the funds never got to Nigeria, denying Nigeria the full benefit of diaspora remittances, despite the country being at the top in terms of benefitting from migrant workers.
“So what then happens is that instead of bringing it into the forex market in Nigeria, they keep it outside. That also becomes a leg that supports speculations that we talked about. I believe that was part of the reason why the CBN introduced the $1 for N5 incentive. The idea now is to see if the country can harness the most of the remittances,” Adedipe said.
“That now is a policy I think we need to interrogate more. How can we make it more attractive for those foreign currencies generated by migrant Nigerian workers to be remitted home, and become a part of our national supply to our market here? That now is a space for the BDCs”.
Analysts said that what is needed is implementation of laws that stipulated that oil companies and other multinational companies bring dollars into the economy instead of keeping them at Home countries.
This will ensure that what is kept outside the market would come into Nigeria to boost supply. CBN already has the tools, but they need to enforce it.
ABCON President, Alhaji (Dr) Aminu Gwadabe said globally, BDCs remain one of the channels through which the Diaspora remittance funds come into countries.
He said that the BDCs remain at the centre of economic development and have the capacity to attract needed capital for the development of the Nigerian economy and deepening of forex market.
Findings have also shown that forex remittances from Nigerians in the Diaspora far exceeded the country’s earnings from crude oil export last year. Since many transactions are unrecorded or take place through informal channels, the actual amount of remittance flows into the country is arguably higher. The estimation is that migrant remittances to Nigeria could grow to $25.5 billion, $29.8 billion and $34.8 billion in 2019, 2021 and 2023 respectively.
Gwadabe said Diaspora remittances remain cheap source of fund, because it is not to be paid back with interest but goes directly into the construction of houses, payment of school fees, medicals and a lot of things that are adding value to the weak economy.
According to him “BDCs are supposed to buy from travelers coming into Nigeria, whether they are foreigners or they are Nigerians who did some things offshore, and were able to make some money, and brought back those foreign currencies.”
BDCs are expected to operate two-way rate, then in response to what they have told the you, the person will now disclose whether you want to buy from them or sell to them. The operators are also expected to be in tune with market dynamics, be able to fix its own rate within the recommended commission rate in such a way that is competitive in that market.
Other issues include customer service, relationship management and commission which must be within market range.
Import pressure on forex
He said “but because we were net importers, this brought pressure on the forex market. And like we have also argued overtime, the major worry for the CBN or anyone considering the management of the forex market is the premium.
“Premium is the difference between the official rates of the foreign exchange rate you get in other segments of the forex market. The other segments will mean, the parallel market, the BDCs, of course in those days we used to talk about export proceeds, and all manner of different arrangements.
“But today, the idea simply is that any other market outside of CBN is an alternative. So what is the rate there? How is it as compared to the official rate? So, the difference between these rates is called premium.”
Adedipe said: “Anytime that premium is greater than five per cent, it then becomes an incentive for round tripping. This means that the foreign currency becomes now attractive for those who want to speculate to go and buy, sell and then, they generate more Naira. So they can return to the official market and buy even more dollars, then go back and convert the dollar and get even more naira. That’s why it’s called round tripping. There is no currency anywhere in the world that can survive such an arrangement.”
More forex supply not solution
Adedipe also said that the question that needs to be answered is what drives the exchange value of the Naira. He said If you are able to answer that question, it will bring us to the understanding of what is happening today.
But ordinarily, he explained that in the interplay of demand and supply, what CBN has done is not to reduce the supply of forex to the market. What they have done is to shift the supply from one segment of the market to another, and even doubled the volume; which means, the response of rate is not to the supply coming to the market, which in fact has doubled.
He stated that what could have been the concern is access but the CBN has a dealt with that by not only telling the participatory banks to have desks designated for forex, where members of the public in need of foreign currencies for defined purposes can have access to the foreign currencies required, which you can now give to them either in cash, or as a credit into their domiciliary account, or into their dollar card.
“This means the issue is not supply on one hand, and on the other hand also, access is not the problem. It means the real issue is that the speculators knew that this position of the CBN is not something sustainable, which means that it’s not institutionalised.”
Diaspora Remittances and BDCs
The BDCs have for years supported Nigeria’s growth agenda and CBN’s commitment to exchange rate stability. To continue to play these roles creditably, the BDC industry needs improved access to forex.
The ABCON believes the success of BDCs goes beyond favourable rates but access to multiple streams of forex earnings to deepen the market, keep the naira stable and boost BDCs operations.
Making BDCs one of the channels through which over $34 billion annual Diaspora remittances enter the economy will give depth to forex market and boost BDCs operations.
Diaspora remittances to Nigeria, now at $23 billion annually remain a reliable source of forex to the domestic economy and that is why over 5,500 CBN -Licenced BDCs should come to mind.