Naira appreciation looms as BDC contest heightens


Rising competition among Bureaux De Change (BDC) operators, occasioned by the Central Bank of Nigeria (CBN)’s, approval of upward review of the trading margin for the sub-sector has bolstered prospects for a stronger naira and unification of the country’s multiple exchange rates.
Although it has received widespread commendation for the forex liberalisation measures it introduced in the second and third quarters of 2017, especially the establishment of the Investors’ and Exporters’ (I&E) forex window, the CBN continues to come under pressure from the International Monetary Fund (IMF) and other influential international financial bodies, to take steps to unify Nigeria’s multiple exchange rates.

Apart from the official CBN and the black market rates, the country also has an exchange rate for foreign travel and school fees as well as a retail forex rate set by BDCs.

While the Apex Bank insists that the multiple exchange rates are necessary for critical sectors of the economy to thrive, those opposed to the system argue that it creates distortion in prices and hurts businesses.

 Push for rate unification

For instance, at the IMF-World Bank spring meetings last April, the IMF’s Director of African Department, Mr. Abebe Selassie, said that while the Nigerian economy had improved due partly to CBN’s forex reforms, the country’s multiple exchange rate system remained an issue.

 He said: “Inflation has also been decelerated. These are all welcome trends, but I do think that there remains a need to move towards having a more simplified exchange rate regime moving forward. That would also be important for the conduct of monetary policy.”

Significantly, one of the Nigerian associations that supported the IMF’s position was the Association of Bureaux De Change Operators of Nigeria (ABCON).


ABCON President, Aminu Gwadabe, said:” The exchange rate harmonisation is important, as transparent and structured exchange rate will lead us to the Promised Land. Lack of exchange rate harmonisation affects transparency in the market. I think the IMF advice on the exchange rate is good and should be followed”.


Indeed, in the last one year, the association has issued several press statements calling on the CBN to harmonise the exchange rates.

Specifically, following the CBN’s establishment of the I&E forex window in April last year and the resultant gradual convergence of the exchange rate on this window and the black market, Gwadabe said: “The gradual convergence of the exchange rate on both black market and investor forex window is an opportunity for the central bank to unify rate in all segments of the forex market. ”


According to him, a move to eliminate multiple rates would restore investors’ confidence in the economy and boost offshore dollar inflows, further strengthening the naira.


He pointed out that the multiple exchange rate regime was a key challenge for members of the association as the CBN was selling to banks at N357 per dollar and BDCs were buying at N360 per dollar from the regulator.


“So it is a very big challenge for our members to operate. It is something that is making the business very unprofitable and some members are not able to meet up with their overhead cost and salaries for about six staff per operator.


“A situation where banks buy dollars from CBN at N357 per dollar and sell the same dollars to BDCs at N360 does not represent a level playing field or fair competition, given the fact that we operate in the same market segment,” he said.


Similarly, last April, the ABCON President said the association was still worried about the continued multiple exchange system in the nation’s foreign exchange market. Citing IMF data, he pointed out that the multiple exchange rate system creates various economic distortions.


“They (IMF) developed a model of foreign exchange markets, and present the efficiency costs imposed by quasi-fiscal operation under the current exchange rate regime. The results of the model-based analyses indicate that the equilibrium exchange rate under the unified market could increase trade openness to more than 20 per cent from less than one per cent measured by official statistics,” he said.



Thrice weekly mandatory forex bids


However, the BDCs were still grappling with this challenge when the CBN issued a statement, on May 27, directing banks and BDCs to sell foreign exchange to all eligible travelers over the counter, regardless of their customer status.