- We welcome CBN’s stoppage of forex to BDCs
We are not surprised at the hammer by the Central Bank of Nigeria (CBN) on the bureaux de change (BDC) operators. Just as the CBN governor Godwin Emefiele had suggested on Tuesday, their cups had long been full.
A perceptibly frustrated Emefiele had noted after the Monetary Policy Committee two-day meeting in Abuja last week: “Operators in the BDC have not reciprocated the gesture to help maintain price stability in the market since the CBN had been selling forex to them”.
“They have remained renegade and so greedy, recalcitrant with abnormally high profit from these sales while ordinary Nigerians have been left to feel the pain and therefore suffer”.
For punishment – a discontinuation of forex sales and an embargo on the approval of new licences for the operators.
Few Nigerians would contest the need for the drastic measures. For their recalcitrance, the economy, as indeed the naira, has been on a downward spiral, just as the BDCs’ growth has been astronomic. From a mere 74 in 2005, they grew to over 2,700 by 2016 and now the number has risen to almost 5,500 with no less than 500 new applications for new BDC licences every month.
And the paradox of all: a naira on free-fall even when economic activities are at a lull. Which is why the apex bank’s rhetorical question – “what is in this business that everybody must be in it?” – comes across as utterly ludicrous.
Here is a CBN that says each licensed BDC gets $20,000 per week at the rate of N393 with the instruction that they should sell with a margin of N2; it goes on to admit that majority sell as high as N505, making over N100 on every dollar sold!
What other business could be more lucrative, more so in a country where regulations are not only observed in the breach but the regulator looks pathetically on; an environment where ethical practices are an anathema?
Talk of clinging to sanctimoniousness when occasion demanded an admission of an utterly flawed policy at the get-go; it was self-justification by the CBN through and through. Nothing about whether or not mechanisms were in place to ensure that these operators play by the rules, let alone those caught being punished while the bazaar reigned!
We have made the point before: a country whose forex supply elasticity is finite has no business playing footloose with forex management in the guise of liberalisation. To do that is to court the kind of shenanigans which the CBN apparently feared but has nonetheless brought upon the economy through the ill-thought-out measure of allocating forex to the unscrupulous band of rent seekers.
Truth be told, there is practically nothing that the CBN could have done in the circumstance that the country has found itself to boost its forex, at least in the short term. After all, it is a well-known fact that some 90 per cent of our forex comes from export of crude oil and that potential output is constrained by the variables of output as set by OPEC and the global crude prices. What COVID-19 has done is make the situation even more dire. That the nation is currently in the throes of an emergency due to the pandemic and so requires extraordinary measures should not be hard to understand.
Unfortunately, that is one realism that the managers of the economy often tend to overlook, hence the flawed idea about imaginary market mechanism being allowed to determine what is already acknowledged to be in very limited supply. It is the same idea behind the idea of bringing the BDCs into the official forex orbit despite their legendary ties to the black market – in the misguided assumption that they would perhaps change their rentier orientation.
Now that the CBN has thrown the game back to the banks, we wish we could with some degree of confidence say that things will get better. The truth is that the banks are no more than alter egos to the BDCs in the matter of forex trade. They are probably just as guilty of the same infractions that the apex bank accuses the BDCs of. If the banks have been somewhat more careful, it is only because the penalty could be quite steep when caught. The challenge is to ensure that the banks are closely monitored, going forward.
As for the security agencies, they have certainly not been helpful in this regard. After all, Nigeria is the only country in the world where foreign currencies are not only hawked in street corners, it is one in which millions are known to be routinely carted away in briefcases, often with the connivance of security agents. Much as the CBN has promised to make forex available to those in genuine need of it, we expect the relevant authorities to clamp down on currency trafficking and to make the illicit business an extremely costly one to those engaged in it.