Bureau De Change (BDC) operators in Nigeria have attributed the recent depreciation of the Naira in the parallel market to scarcity of forex in the sector as major sources become drastically reduced.
The Chairman of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe told Nairametrics that sources of forex to that segment of the forex market have been severely impacted by the recent policies of the CBN.
According to him, members of the Association no longer get as much forex from relevant sources such as exports and external remittances and now rely on irregular intervention from the Central Bank of Nigeria (CBN).
However, Mr. Gwadabe explained that the major culprit for the condition of BDCs is the International Money Transfer Operators (IMTOs).
He said, “The liberalisation of the market has hindered supply inflows which is being reduced drastically and has made it difficult for our people. The International Money Transfer Operators (IMT0s) have ambushed the international remittance payment as most remittance payment now go their direction.”
“Another source of FX for us, which is non-oil exports, has also been reduced and the CBN intervention is not regular. In the past, we use to do up to $40k weekly but now it’s not more than $20k.”
Need for CBN intervention for BDCs
Mr. Gwadabe noted that the Naira will continue to depreciate in the parallel market except there is regular intervention by the CBN. He explained that the BDCs is the language of the invisible players in the retail end of the market and any sentiment of scarcity by buyers as well as sellers affects the value of the Naira.
The Naira fell to the lowest point in seven months in the parallel market by the end of September at N1,700/$ but recovered marginally at the beginning of trade on the 2nd of October. Although, the official market saw a wide depreciation of up to 8%.
The CBN in the past one year has sought to regulate the IMTOs and enable them to play a more prominent role in attracting foreign exchange into official channels from international sources. In 2023, Nigeria received around $19.5 billion- around 35% of total remittances to Africa according to the World Bank.
However, Mr. Taiwo Oyedele, the Chairman of the Presidential Committee on fiscal policy and tax reforms stated that only about 10% of the nearly $20 billion remittance entered the official forex exchange market as the parallel market swallowed up almost 90% of remittance inflows.
CBN regulation of IMTO and increase in international remittance inflow
In light of this, the CBN instituted reforms in the IMTO industry first in January by removing the exchange rate cap of +2.5% and –2.5% around the previous day’s closing rate for transactions. The removal of the -2.5% to +2.5% cap marked a major move by the CBN towards liberalizing Nigeria’s foreign exchange market.
By the end of January, the apex bank issued revised guidelines for IMTO operations, raising the IMTO licence application fee from N500,000 in 2014 to N10 million, a 1,900% increase over 10 years. The CBN also set a minimum operating capital requirement of $1 million for foreign IMTOs and an equivalent amount for local operators.
These regulation coupled with the approval in principle given to 14 new IMTOs by the CBN has resulted in increased remittances from IMTOs this year. During the last MPC meeting, the Governor of the CBN, Mr. Yemi Cardoso stated that international remittances via IMTOs increased by 130% to $585 million in August 2024 compared to the same period of last year.
International remittance inflows in the first quarter of 2024 reached $1.07 billion, a 39% rise from the $770.23 million recorded in the same period in 2023. Compared to the last quarter of 2023, which had inflows of $965.82 million, this represents an 11% increase.
CBN data reveals that international remittance inflows have been gradually increasing monthly from $383 million to $585 million in August 2024.
It can be inferred that the regulation by the CBN on IMTOs is paying off as witnessed in the rise in international remittances from the IMTO sector. How BDCs deal with this challenge remains to be seen as intervention from the apex bank become rare.
The decline in FX supply to the BDC segment of the currency market comes on the heels of recent guidelines for BDC operations from the apex bank where it increased where it increased the minimum capital requirement for tier-1 BDCs by over 5000% from N35 million to N2 billion.
