The Central Bank of Nigeria (CBN), in a bid to manage the exchange rate and improve liquidity in the foreign exchange market, has been introducing forex policies that it expects will curtain demand and improve forex liquidity. The ‘Naira for Dollar’ scheme is the latest policy introduced by the CBN to promote diaspora remittances.
The scheme offers recipients of dollar remittances through CBN’s International Money Transfer Organizations (IMTOs) N5 for every $1 received as remittance inflow.
However, despite the CBN’s intention to attract more forex into the country through the policy, some experts have raised concerns about the policy’s implementation. They say that the policy is yet to address the issue of monopoly in international money transfer and cost to the sender of the funds. They also believe certain aspects that could make it work have not been adequately addressed.
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Nairametrics had a chat with the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, on several forex-related issues. The ABCON boss shared his opinion on the CBN’s naira-for-dollar scheme and possible challenges, instability of the naira, exchange rate disparity, and what could be the true value of the naira, among others.
His take on CBN’s naira-for-dollar scheme and the major challenges of the policy
Gwadebe said, “On the naira for dollar policy, though a step in the right direction, it’s not totally comprehensive to address the constraints in the remittance space in the economy. The major challenge of the policy is the fixed exchange rate versus the parallel market rate in the market. Also, the involvement of high-level institutions like banks with heavy infrastructural costs makes it usually very costly.
‘’Thirdly, factors like the prevalence of unregulated channels is a major setback to most policy initiatives.’’
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His proffered solutions to the instability of the naira
“The solution lies in the change in leadership mindset, transparency, price equilibrium and continuous stakeholders’ engagement. Also, diversification, reduction of debt portfolios, and enhanced internally generated revenue base. In the short run, total unification of exchange rates will hardly be instant as a result of the government’s call for economic patriotism; however, as events unfold in the medium and long run, unification of exchange rate will certainly be achievable.
“The problems we have all over, irrespective of the foreign exchange, are mindset, readiness, willingness, and passion, which are lacking in all aspects. It particularly boils down to our readiness because success, they say, is preparedness and opportunity. Even when an opportunity comes and you are not prepared, you cannot match it. So we all have to have that mindset, from the leadership downwards.”
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His assessment of the true value of the naira
He said, “In my opinion, the true value of the naira in the short run is N425/$1 officially and N450/$1 in the parallel market.’’
On whether the parallel market would achieve N450/$1 within a short period of time
“It is very possible, even without the CBN revamping the diaspora remittance which is huge. And they will continue to offer more solutions to make it better. Other countries like Lebanon are surviving on diaspora remittance, so we just have to look for more workable solutions.
‘’Now you can see that crude oil with the attack in Saudi Arabia, has hit over $70. That one is another muscle. You know it’s all about supply and demand, so now with CBN, if you want to deal with them, they will deal with you; they will make the speculators create losses. Also, with the vaccines out already, businesses have started to pick.
“Oil price is on the increase and CBN is diversifying sources; the government is also looking for ways to increase internally generated revenue, and cut their budget expenses. All these will ensure that the naira is within a comfortable limit.’’
Why the exchange rate disparity is still high despite the introduction of various policies by the CBN
He said, “Nigeria is an import-dependent economy, with high rate of negative trade imbalances, rising debt portfolios, porous borders and speculative activities. These, coupled with our infrastructural and institutional deficiencies, make it difficult for any policy to achieve its intended objectives.”
Why do we have BDCs’ in the first place?
What’s the origin of the parallel currency market?
Where do BDCs source for their dollars?
Who supplies the Aboki on the street with dollars?
These are questions I believe we need to ask ourselves and profer sincere answers to.
In my opinion, the naira4dollar scheme is not necessary. The earlier directive by the CBN for remittances to be received in foreign currency is sufficient as far as diaspora remittances are concerned. I believe that the pandemic-driven job cuts and losses abroad to be the major reason for the drop in remittances. On naira instability, I think that there is need for unification of the exchange rates, not so much to impress self-serving foreign investors as much as it is to ensure that local manufacturers are able to source FX for raw materials and machinery at official rates. The current FX scarcity also promotes inefficient allocation, enabling some companies more access to FX than their competitors thereby increasing production down times, market distortions, factory closures and job losses, which is contrary to the economic revitalization the government seeks to achieve.