The depreciation of the Naira in the parallel market, according to Bureau De Change (BDC) operators in Nigeria, has been ascribed to a shortage of foreign exchange in the industry as main sources have been substantially curtailed.
Aminu Gwadabe, the chairman of the Association of Bureau De Change Operators of Nigeria (ABCON), informed Nairametrics that the CBN’s recent policies have significantly negatively influenced the forex market’s supply of currency for that particular segment.
He claims that members of the Association now depend on sporadic involvement from the Central Bank of Nigeria (CBN) and no longer receive as much foreign exchange from pertinent sources like exports and foreign remittances.
However, according to Mr. Gwadabe, the International Money Transfer Operators (IMTOs) are mostly to blame for the state of BDCs.
He stated, “Market liberalisation has hampered supply inflows, which have been severely cut, making life tough for our people. The International Money Transfer Operators (IMT0s) have ambushed international remittance payments, as the majority of remittances now flow their way.”
“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 $20k.”
Need For CBN Action In BDCs
Mr. Gwadabe stated that until the CBN intervenes regularly, the Naira will keep losing value on the black market. He clarified that any perception of shortage among buyers and sellers impacts the naira’s value and that BDCs are the language of the unseen participants in the retail sector.
The Naira sank to the lowest point in seven months in the parallel market by the end of September at N1,700/$ but recovered marginally at the beginning of trade on the 2nd of October. However, the official market had a significant depreciation of up to 8%.
Over the last year, the CBN has worked to regulate IMTOs and give them more authority to draw foreign cash from overseas sources into official channels. According to the World Bank, Nigeria received over $19.5 billion 2023, or almost 35% of all African remittances.
However, according to Mr. Taiwo Oyedele, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, the parallel market took in about 90% of remittance inflows, meaning that just about 10% of the approximately $20 billion in remittances reached the legal currency exchange market.
CBN Regulates IMTO And Increases Foreign Remittance Inflow
Because of this, the CBN initially implemented reforms in the IMTO sector in January by eliminating the exchange rate cap of +2.5% and –2.5 % around the closing rate of the previous day for transactions. Removing the -2.5 % to +2.5 % restriction was one significant step towards the CBN’s goal of liberalizing Nigeria’s foreign exchange market.
The apex bank updated its guidelines for IMTO operations by the end of January, increasing the application cost from N500,000 in 2014 to N10 million, a 1,900% rise over ten years. Additionally, the CBN mandated that international IMTOs have $1 million in minimum operational capital, while local operators must have the same amount.
This year’s IMTO remittances have surged due to these regulations and the CBN’s provisional approval of 14 new IMTOs. The CBN governor, Mr. Yemi Cardoso, reported at the most recent MPC meeting that, in August 2024, international remittances through IMTOs climbed by 130% to $585 million compared to the same period in the previous year.
Foreign remittance inflows totaled $1.07 billion in the first quarter of 2024, a 39% increase over the $770.23 million registered during the corresponding period in 2023. Compared to the final quarter of 2023, which had inflows of $965.82 million, this represents an 11% rise.
According to CBN data, international remittance inflows increased month over month from $383 million to $585 million in August 2024.
The increase in international remittances from the IMTO industry suggests that the CBN’s regulation of IMTOs has a positive effect. As apex bank assistance becomes less common, it would be interesting to see how BDCs handle this challenge.
Following recent rules for BDC operations from the apex bank, which increased the minimum capital requirement for tier-1 BDCs by over 5000% from N35 million to N2 billion, foreign exchange supply to the currency market’s BDC section has dropped.
