Adebisi, a young Nigerian set to migrate to Canada for good, found himself in a precarious situation when he visited the bank to purchase Personal Travel Allowance (PTA) with his July salary.
Having already sold all his belongings to fund his move and converting the proceeds to forex, he had hoped to save around N450k by buying at the official Investors’ and Exporters’ (I&E) window rate, which averages at N775/$1, rather than resorting to the black market rate of N870/$1.
However, upon reaching the bank, he was met with disappointment.
The bank informed him that they were unable to fulfil his request due to supply-related challenges and suggested he seek out the black market instead.
This scene is becoming all too common across Nigerian banks as they grapple with an acute scarcity of dollars, leading to rationing of forex supplies and leaving customers like Adebisi in the lurch.
The Central Bank, in its efforts to manage the forex market, had assured that PTAs and other invisible transactions would continue to be accessible through banks at the prevailing I&E window rate.
However, in practice, many Nigerians are finding it increasingly difficult to access forex through official channels, leaving them with no choice but to turn to the parallel market.
The current predicament faced by Adebisi and countless others looking for dollars is a symptom of the prevailing dollar scarcity that has enveloped Nigeria.
A survey of several commercial banks in Lagos has shown that most institutions are struggling to keep up with the demand for forex, and in many cases, they simply have nothing to sell.
As a result, customers are left with no choice but to explore alternative sources, such as the black market, to meet their forex needs.
When questioned about the situation, a manager at one of the commercial banks, who preferred to remain anonymous, disclosed that forex is typically sold to at most two customers per week, but there are often periods when they have nothing to sell.
Another bank executive stated that their branch hadn’t sold dollars as PTA or travel allowances in weeks, and customers were frequently redirected to larger branches.
The frustration of customers has led many to resort to the black market to secure their much-needed supply of forex, especially now that the disparity is not as wide.
Previously, the disparity between the official and parallel market rates created an advantageous situation for customers purchasing forex through PTAs.
However, with the convergence of the two rates, the benefit of buying from official sources has largely evaporated, pushing more individuals towards the parallel market.
Why dollar is scarce
Asides from possible speculations against the naira, one of the contributing factors to the high demand for forex is the phenomenon of Nigerian youth seeking better opportunities abroad.
Many individuals, like Adebisi, are liquidating their assets to fund their migration, putting additional strain on the forex market and exacerbating the depreciation of the naira.
The situation is also impacting middle-class Nigerians who have children studying abroad. To meet their obligations, they regularly convert a significant portion of their income into dollars, further contributing to the limited supply available for all.
As a result, the depreciation of the naira persists, and the outlook for forex volatility remains uncertain.
Several analysts interviewed by Nairametrics share concerns that forex volatility may persist as more young Nigerians leave the country in search of better opportunities, a phenomenon colloquially known as “japa.”
The increasing number of Nigerian youth emigrating is seen as a significant factor contributing to the heightened demand pressures on the forex market.
Some individuals who choose to emigrate sell off their assets, including cars and houses, and then turn to the black market to convert their naira proceeds into dollars.
This behaviour is believed to further contribute to the depreciation of the naira, as the demand for foreign currency surges.
Additionally, many middle-class Nigerians have their children studying abroad, necessitating the regular conversion of a substantial portion of their income into dollars to meet their financial obligations.
Unfortunately, the limited supply of forex available to meet the needs of all these individuals and factors has resulted in the depreciation of the country’s currency.
What the CBN is saying
During the last monetary policy committee meeting of the Central Bank, acting governor Fola Shonubi acknowledged that the ongoing forex volatility is primarily attributed to the limited supply of foreign currency.
He expressed optimism that once the supply issues are addressed, the volatility is likely to reduce. In a bid to attract dollar inflows, government officials have also been engaging in consultations with foreign investors, as reported by Nairametrics last week.
The growing demand pressure on the parallel market has led to a significant widening of the gap between the official and parallel rates.
Last week, the parallel market rate plummeted to as low as N870/$1, while the official rate remained at N775/$1. This growing divergence is now a growing cause for concern as it threatens the forex stability envisaged following the unification of the naira.
Meanwhile, Bureau De Change (BDC) operators continue to face exclusion from the official forex market, ever since Godwin Emefiele ceased selling dollars to them last year.
However, some BDC operators argue that their absence from the market contributes to the volatility in the parallel market, as the lack of supply puts immense pressure on their ability to meet the high demand. Consequently, they have called on the Central Bank to reconsider their exclusion and reintegrate them into the formal forex market.