President, Association of Bureaux De Change Operators of Nigeria (ABCON) Alhaji Aminu Gwadabe has said that despite foreign exchange intervention by the Central Bank of Nigeria (CBN), Naira volatility is being compounded by rising inflation, interest rate hike and slow economic growth with consequences for middle- and low-income earners.
Speaking in Lagos over the weekend, Gwadabe said the unfolding scenarios raise the risk of stagflation with potentially harmful consequences for the poor within the economy.
He said that already, global growth is expected to slump from 5.7 per cent in 2021 to 2.9 per cent in 2022— significantly lower than 4.1 per cent predicted by the International Monetary Fund (IMF) in January.
To keep the Nigerian economy going strong in the face of these challenges, Gwadabe called for improved local production and diversification of the economy from oil.
He said the naira exchanges at N614/$1 at the parallel market , dollar bids continues to rise as inflation rose to 11-month high of 17.71 per cent in May.
These occurrences, the ABCON boss said, are eroding the purchasing power of households. “The biggest driver of inflation is the stubborn rise in food inflation. The average price level of the food basket rose by 1.13 per cent to 19.50 per cent in May from 18.37 per cent in April. This can be reversed by increased support for agriculture and government policies that support the sector,” he said.
Gwadabe said Nigeria’s huge population and diaspora market, which attracts average of $20 billion annually can be explored to deepen dollar inflows to the economy.
He said expanding the dollar receipt points through over 5,000 Bureaux de Change operators can deepen dollar inflows and significantly raise Nigeria’s forex position.
Gwadabe pointed out that 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.
The ABCON believes the success of BDCs will be boosted by 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 $20 billion annual Diaspora remittances enter the economy will give depth to forex market and boost BDCs operations. Nigerian BDCs operators have also identified with the immense opportunities presented by Diaspora remittances and want to play greater role in attracting more foreign capital into the economy. Reason being that remittances are known to help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially, drive economic growth,” Gwadabe said.
Additionally, Gwadabe said efficient implementation of the “RT200 FX Programme”, which stands for the “Race to $200 billion in FX Repatriation” policy of the apex bank announced in February will boost forex inflows to the economy.
He said the programme is a set of policies, plans and programmes for non-oil exports that will enable Nigeria attain its lofty yet attainable goal of $200 billion in FX repatriation, exclusively from non-oil exports, over the next three to five years.
Gwadabe said the RT200 FX Programme is one of the strategies that can help Nigeria earn more stable and sustainable inflows of foreign exchange.
He said although the CBN recently demonstrated greater commitment to combat inflation by raising the Monetary Policy Rate (MPR) by 150 basis points to 13 per cent per annum, the strengthening of the economy through local production will reverse negative trends in the economy.
He explained that as inflation rate remains higher than interest rates, returns on investment will drop and foreign capital inflows will fall leading to sluggish economic growth.
Gwadabe said that other advanced economies, including the United States are also fighting inflation with interest rate hike.
The US Fed maintained its monetary policy tightening stance, raising interest rates by 75 basis points to 1.75 per cent in order to rein in inflation. This is the third rate hike this year and the biggest increase since 1994.
He said rise in US interest rate will cut capital inflows into Nigeria and other developing markets noting that the US was the third largest source of capital imports into Nigeria in first quarter of 2022, accounting for 5.22 per cent of total capital imports.