THE president of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, shares, in this interview with EHIME ALEX, his views on the proposed exchange rates unification, fight against money laundering and terrorism financing, and the impact CBN’s suspension on BDCs has had on the economy
What are your concerns about the Federal government’s plan to unify the foreign exchange rates?
Gwadabe: The Association of Bureau De Change Operators of Nigeria (ABCON) endorses the position of President Bola Tinubu on the unification of the multiple exchange rates in the markets. Multiple exchange rates are grounds for rent-seeking, currency substitution, foreign exchange hoarding position, dwindling reserves, and naira volatility. In recent years, naira volatility underpinned our slow economic growth. It is important to end multiple exchange rates to achieve a market clearance rate.
We, therefore, urge the new administration that to achieve the desired intention, there is the need to collaborate with our members in securitising diaspora remittances to deepen liquidity in the retail end of the market, where volatility and spikes have threatened our effective economic planning and policies.
Bureau de change (BDC) operators have continued to be potent and effective transmission mechanisms of the apex bank in helping to close the gap between the official and unofficial exchange rates.
In fairness to the CBN, both officially and unofficially, we have been meeting to resolve the issue. We all identified the root cause, which is the dwindling foreign reserves, as most of our proceeds from oil are being used for subsidy. Foreign investors have lost confidence in the economy and are exiting the market. Proceeds from the non-oil sector are still very poor. The diaspora remittances are not captured because of the multiplicity of exchange rates.
We have been collaborating with the central bank, but the way to go is reforms, not generalisation or criminalisation of the BDCs. No society is perfect! We make mistakes, ponder, think and make corrections. We are open to reforms and have discussed them with the CBN.
You can’t have a sector you are using to inject liquidity into the retail market to checkmate volatility and discourage informal market activities, and you shut it down completely
You can’t have a sector you are using to inject liquidity into the retail market to checkmate volatility and discourage informal market activities, and you shut it down completely. No economy will continue to grow with a massive difference between the official and market rates of about 65 per cent. It is not possible! We have been talking and sending proposals to the CBN.
It’s almost two years since the Central Bank of Nigeria stopped providing foreign exchange to the BDC operators. What is the latest on that suspension?
Gwadabe: By July 27, it will be two years since the apex bank suspended the distribution of United States dollars to our members. However, that decision came without any alternative or option. We are not against the policy. It is not sacrosanct that the CBN must fund the BDC sub-sector.
It is not sacrosanct that the CBN must fund the BDC sub-sector.
However, some reasons made that window to be available for the BDC. First, the licence of the BDC, from 1986 to date, is to formalise the informal market, which is very dominant in our economy. It is to prevent the hawking of foreign currencies and the prevalence of fake currencies. And most importantly, it is to address liquidity issues in the retail market, because the only way to reduce the gap between the formal and informal markets is to inject liquidity into the sector.
For instance, if the retail end of the market cannot meet the demand of $200 or $1000, let’s say for a person travelling, it becomes more apparent in the system.
How has the suspension impacted the operation of the DBCs?
When we were fully operational, we had about 5,000 licensed operators, and the sub-sector was capitalised to the tune of N300 billion-N400 billion. We were paying our taxes and employed no less than 30,000 to 40,000 staff.
So, the impact of that suspension is enormous in terms of losses. Many of us have lost our capital. When we were suspended, the exchange rate was about N495 to a dollar, but now it is about N770. Imagine if you had about N35 million capital then, now the volume of transactions you can do with it has almost reduced by 50 per cent.
We were paying our taxes and employed no less than 30,000 to 40,000 staff.
The suspension has also created an inefficient informal market because most of the transactions handled by the BDCs have entirely moved to an informal sector (black market), leading to instability and high volatility in the exchange rate. The suspension has almost caused embarrassment for nearly everybody. These are some of the unintended consequences.
For our members, it has been challenging. But we align with the position of the new government; we align with exchange rate harmonisation, as the multiplicity of exchange rates is the ground for spikes and volatility in the market, which come with a lot of illegal economic activities. Is it round-tripping, hoarding, or speculation? I must say that some of our members could not bear it, so we lost some of them due to frustrations and depression.
In other countries, the BDCs are the pick-up agent for diaspora remittances. But what we see here is a monopoly of a few players.
There had been many times the CBN came up with suspension of sales of dollars to the BDC, but they often opened other windows for us. But not this time around. In other countries, the BDCs are the pick-up agent for diaspora remittances. But what we see here is a monopoly of a few players. We didn’t even receive the proceeds from the diaspora remittances as they left at the destination of origin without coming to their expected destination, and the funds were then diverted to prohibited items.
What has been ABCON’s collaboration with the CBN on anti-money laundering activities?
Gwadabe: The aspect of money laundering and terrorism financing is one of the concerns of the CBN. We have done a series of training together. Last year, the CBN trained most of our members and supervised them in their advisory roles.
As we speak, CBN examiners are all over the country, trying to meet with our members who still have their offices on rendering returns and other relevant obligations of their licences.
Does ABCON have a mechanism for penalising its members who default on money laundering or terrorism financing activities?
Gwadabe: The naira is weakened not because of the purchase of dollars but because of the graft of any income pursuing it. I mean the unending corruption that puts pressure on our local currency.
The financial action task-force (FATF) that sets measures against money laundering and terrorism financing has grey-listed Nigeria. What that means is that if we don’t improve on our anti-money laundering and counter-terrorism financing (AML/CFT) measures, we are going to be delisted from that group, a global inter-governmental agency that sets the standard against money laundering and terrorism financing.
The naira is weakened not because of the purchase of dollars but because of the graft of any income pursuing it.
This is where we are. We have been grey-listed, we either get out of that list, or we will be blacklisted completely. Blacklisting us will mean that Nigeria, which has a penchant for borrowing money, will not have the loans it would have borrowed to fix infrastructure and other projects. It also means that our credit card, letter of credit, on behalf of our manufacturers and other companies that need to import their contents will not be recognised for import settlement.
Because of the dominant nature of cash transactions by the BDC, the operators are sometimes exposed to criminal attacks, including armed robbery, and the whims of politicians.
As a self-regulatory organisation, we have adopted and embraced technology to modernise the manual aspect of our operations. This is one of the first things we did to improve our conventional way of operations. We take record-keeping as one of the critical requirements of BDC activities. The BDC is a reporting entity like the banks, reporting to the CBN, financial intelligence unit, and sometimes the National Drug Law Enforcement Agency (NDLEA). We also collaborate with the Police and the Economic and Financial Crimes Commission (EFCC).
We train our members on the global practices, market trends, vulnerabilities, and risks of our business, which include interest rates, products, exchange rates, and other threats, to mitigate risks. We adopted Saaz Masters, an online real-time technology that enables any of our members to send returns to the CBN. We integrated our members with the Nigerian Inter-Bank Settlement System (NIBSS), which enables us to check information about the customer before carrying out any transaction. We prioritise on customers’ due diligence and know your customer (KYC).
The CBN created the RT200 initiative last year to target, at least, $200 billion from non-oil exports in the next five years. Exporters repatriated $1.7 billion through the RT200 in the first quarter. What impact can this have on the foreign exchange market?
Gwadabe: The RT200 is a laudable initiative, but the only thing that can make us self-sufficient is increasing the standardisation, packaging, and yield of our primary products. How significant is that quantum of the $1.7 billion? Our foreign reserves of $35 billion will only last or cover six months of imports. It means we must meet up with huge buffers that can cover two, three, or 10 years of import. We must improve our commodity’s payment terms; our exports should be more than our imports, not the other way around.
To add flesh to the RT200 scheme is to de-risk the export sector. Like the BDC, the export sector has been criminalised and have a lousy perception that many people don’t want to buy Nigerian goods because the good is seen as substandard and fake. So, the government has to de-risk the export market the way it de-risked agriculture.
Before the CBN intervened in the agricultural sector using the Anchor Borrowers Programme, most financial institutions did not want to fund that sector as they saw it as risky. It should be that if I export my goods, I should have an assurance that the government has insured it, and that my proceeds will come back to me.
Government should, besides other things, reduce the documentation required for export by bringing all the different agencies into a central processing area as done in other climes like Lome and Togo. We need to borrow from some of these practices to reduce the challenges associated with our export commodities.
What does the ABCON propose for this new government?
Gwadabe: The first is to stop the generalisation and criminalisation of the BDC sub-sector. This affects the perception and image of the country, not the leaders alone.
We need to de-risk and stop de-marketing the sector, so that Nigerians, even foreigners can have confidence in the foreign exchange market.
Second, the regulated spread of the BDC is not achievable. You cannot peg my margin (profit) at N2/dollar, which is less than 0.0125 per cent, when in other climes, the margin is about 10 per cent and, at minimum, six per cent.
Another challenge is the multiplicity of the exchange rate. If you tell the BDCs to buy from customers at N465, when its competitor and the unlicensed informal market, who are outside and have no office, buy from customers at N750, would you care to transact with the BDCs?
Third, one of the major sources of BDC is the CBN window; it accounts for 80 per cent of the BDCs transactions, and now it has been removed.
Another challenge is the multiplicity of the exchange rate. If you tell the BDCs to buy from customers at N465, when its competitor and the unlicensed informal market, who are outside and have no office, buy from customers at N750, would you care to transact with the BDCs? These are some of the challenges that should be looked into. There is a need for a local content bill that would modernise and transform the BDCs to compete globally. Call it Western Union, Ria, or Money Gram, these companies are not owned by Nigerians but by foreigners. It will be good for the new government to prioritise this.
In the United Arab Emirates, the BDCs take care of 90 per cent of the foreign currency cash needs of banks. What of India? Over $30 billion in diaspora remittance is being operationalised through the BDCs. The new government should ensure they make the BDCs a part of the financial inclusion we are yet to achieve.
I am calling on the government to bring us back into business. And for my members, the challenges are real – two years without doing business. So, let us pause, learn, unlearn, and relearn. Let us embrace technology and ensure we have all the measures against money laundering, and terrorism financing. And finally, our members should not allow themselves to be used by politically exposed persons but ensure they know their customers, do customers’ due diligence, keep records and render returns.