Just a few weeks on the job, Godwin Emefiele has been confronted with his first test as Governor of the Central Bank of Nigeria. A routine reform of the Bureaux de Change financial sub-sector has stirred the murky waters of Nigerian politics, warts and all, and the regulator will have to stare down the vested interests challenging the autonomy of the bank. How he manages this challenge may well define the direction of the bank on his watch.
The unfolding drama is all too familiar in its depiction of how narrow, selfish, sectional and group interests often get in the way of progress and national development here. When late last month the CBN rolled out new requirements to be met by BDCs to curb the rampant abuse of the foreign exchange market, and fend off the creeping “dollarisation” of the economy, the reaction was swift and furious. First, the Senate, followed by the House of Representatives, made common cause with the Association of Bureaux de Change Operators of Nigeria to demand that CBN rescind its decisions on the new capital base of N35 million and other well-thought-out regulations.
Yet, the CBN measures are long overdue. The CBN explained that it acted following observed deficiencies such as gross inefficiencies, sharp practices in the forex market, including the “growing incidence of rent-seeking, depletion of external reserves, financing of unauthorised transactions and “dollarisation” (increasing use of the US dollar in domestic transactions).” It also cited the continued depletion of foreign reserves, multiple ownership of BDCs, their inadequate capitalisation and possible funding of crime and terrorism.
Not surprisingly, operators, legislators from constituencies where BDCs and the parallel market are favourite vocations, their backers and politicians are up in arms. Sound financial policy should not be ethnicised. Every segment of the financial sector has at one time undergone reforms. Banks had to move from a capital base of N2 billion to N25 billion minimum as shareholders’ funds; insurance underwriters moved from N50 million to N150-N200 million; mortgage banks, financial houses, discount houses, pension fund administrators, stockbrokers, microfinance banks and equipment leasors similarly had to recapitalise; and all within tight schedules as regulators strengthened the markets in line with new realities and the global economy. BDCs cannot be an exception.
For business units that can process $50,000 minimum each every week, neither the N35 million capital nor the N35 million mandatory caution deposit is too much. The application fee of N100,000, licensing fee of N1 million and annual renewal fee of N250,000 are also reasonable. We fully support the CBN’s desire to midwife the emergence of well-structured, well capitalised entities and robust franchises “that are not dependent on rent-seeking activities,” but are “properly situated to compete in the foreign exchange market and deliver superior values and returns.”
Emefiele should not be deterred by the vested interests baying at his heels. He has all the legal powers he needs to see these and other much-needed reforms through. Our legislators should, for once, stop being selfish and put national interest first. It is common knowledge that our BDCs are veritable conduits for the laundering of stolen public funds and illicit money from drug trafficking and other crimes. Worldwide, BDCs are increasingly identified as conduits for funding terrorism.
A 2009 Organisation of Economic Cooperation and Development report identified negative attributes of BDCs operating in countries with large informal sectors such as Nigeria to include tax evasion, illegal and criminal activities, undeclared labour and unregulated economic activities. According to the World Bank, money laundering undermines the financial markets, causes loss of control of national economic policy, causes distortions in investment, undermines the legitimate private sector and derails privatisation by leaving money in the hands of launderers who win bids by higher offers. The IMF reports that money laundering is 2−5 per cent of global Gross Domestic Product, while $1 trillion flows illegally into the US each year. Former anti-graft czar, Nuhu Ribadu, estimates that about $100 billion was corruptly exported out of Nigeria between the 1980s and 1999.
In Nigeria, it is difficult to track illicit funds as BDCs often do not record their transactions while intelligence agencies and media reports say the terrorists laying waste to parts of Northern Nigeria move huge sums of money around that cannot be tracked.
The CBN needs to reduce the number of BDCs from the current 3, 200 to a more manageable figure and its ban on multiple ownership of BDCs is the right step. Many register BDCs only because the CBN allots forex each week from our foreign reserves to registered ones. Some operators simply sell wholesale to third parties at a profit, a classic case of rent-taking at the expense of the economy. In the US, Europe and Asian Tigers, all BDC transactions must, by law, be backed by receipts and records kept. The Central Bank of Ireland, for instance, mandates that such records be kept for at least five years.
In April this year, the CBN revoked the licences of 101 BDCs for their involvement in money laundering and other infractions. You cannot fight terrorism and drug trafficking without effectively tracking financial transactions. In 2013, the UK police smashed a criminal gang that had laundered illicit drug proceeds through BDCs, while the two persons arrested by the EFCC for laundering $238,858 in November 2012 used BDCs.
The CBN should also review the practice of selling forex directly to BDCs. In most other jurisdictions, they source their own forex for sale to their customers. Nigerians are not deceived: those bellyaching are not doing so in the national interest. The CBN must have control over all currencies within the domestic economy to enable it to achieve its primary mandate of managing exchange rates, inflation and interest rates. Too much money – some stolen by public officials, others the proceeds of crime – is in circulation, making a nonsense of monetary policy measures.
Arguments by operators and federal legislators that the policies “will worsen unemployment” are false. BDCs typically employ very few permanent staff, relying more on commission agents. They should provide evidence of their PAYE and pension fund remittances if they insist on this blackmail. Senate Finance Committee Chairman Ahmed Makarfi’s hyperbole that the move is “unjust, inequitable and unfair,” is unjustifiable. If it was not unjust, inequitable and unfair to raise the capital base requirements of every other segment of the financial sector that has made our financial institutions stronger, with some now competing globally through subsidiaries in other countries, BDCs cannot be different.
The CBN should remain resolute. BDCs must be reformed in line with other arms of the financial sector.
