CBN and forex scavengers

By Omoh Gabriel
The scavenger they say is a patient animal. it can wait hours or weeks for its victim to die before descending to eat it up. But the Nigerian foreign exchange scavengers are not the normal ones. Their breed is the impatient type. As soon as they are not able to access foreign exchange for their private use, they begin to cry out in a very loud and noisy sound. In fact they begin to call for the head of those they perceive as denying them access to the scarce commodity. They will not help to earn the much needed foreign currency but only want to spend it thus creating a hole in the foreign exchange reserve position of the country. They keep making Nigerians believe that the money in the external reserve is spendable. This though is a subject for another day.

At the wake of the present foreign exchange crunch in the country, the CBN in attempt to manage what was available imposed some restrictions on which product should have access to forex. It was like hell was let loose. The apex bank was vilified, and the forex scavengers started calling for the removal of the CBN governor using their surrogates. They organised protests, plan one million man match in Abuja to weep up sentiments. They forget that financial and economic issues are explicit and factual not emotions and sentiments.

The restriction placed by the CBN on 41 items’ access to foreign exchange and Bureaux De Change at the time had generated so much heat that some highly placed Nigerian politicians who spend dollars in Nigeria and foreign portfolio investors were calling for  drastic action against the CBN. It is quite unfortunate that Nigerians have very short memory. As a young rookie reporter in 1987, some of the issues rearing their ugly heads now were the same issues we reported then. Then as it is now the CBN has always been vilified whenever there is drop in the supply of foreign exchange in the country. The difference between then and now is that for once the exchange rate which rose to N520 has come down to a lower level. In the official market it went up to N400 but has come down to N367to the dollar. Since the inception of the foreign exchange market this is the first time the exchange rate went up and was forced down in the official market.

The CBN at critical moment in the economic history of Nigeria had bent over backward in attempt to redeem what looks like a hopeless situation to roll out control measures that in the last three decades have been its last resort but the politicians and greedy businessmen in the country have always resorted to blame games and scapegoating the CBN for problems they created. They are so selfish that they only look at the immediate gains not the welfare of the generality of the people.

Reflecting on the economy in the last six months has shown that the foreign exchange scavengers are tacitly singing the praise of the monetary authorities. The CBN has been able to stabilise the Naira exchange rate, the foreign exchange scavengers now have sufficient access to what they want, they have gone silent. Nobody is commending the bank for bringing the exchange rate of the Naira to the dollar from almost N520 in February to the present N367 to the dollar. One question that is begging for an answer from Nigerians is in which developing economies do you find exchange rates going so high and within a short time comes down to a much lower level?

At the close of business last Friday, market report was that the rates at which the Naira was traded in the investor foreign exchange window and black market came close to converging. This was brought about as the central bank continued its bid to improve dollar liquidity in the foreign exchange market with regular dollar supply.

This is despite the fact that the nation is grappling with a foreign currency crisis caused by low oil prices, which created chronic dollar shortages. The CBN in a determined effort more than before wants to attract foreign investors in one hand and maintain a strong currency to ward off inflation on the other hand. In the bid to meet these noble goals the CBN created a new forex window in April to allow investors to trade the Naira at market-determined rates in a move intended to improve dollar supply and attract foreign investors who fled Nigeria at the start of the currency crisis.
The Naira was quoted at N368 to the dollar on the street market on Friday. In the investor window, it was quoted at N367.83 to the dollar. “The convergence of rates, at least for a segment of the market, demonstrates the success of the central bank’s intervention, according to Razia Khan, Africa chief economist at Standard Chartered Bank. Khan said that by addressing the demand for dollars, the central bank had been able to reduce the extent to which the Naira would have depreciated on the street market.

The big question is why are the Nigerian forex scavengers suddenly quiet? Why are they not speaking up to commend the effort that has been made this far? Are they now ashamed of their position in the past? Nigerians can not forget so soon that the Naira traded at about N520 to the dollar on the street market in February and at N400 in the forex window when it opened in April, three months ago before appreciating towards convergence in the past few months.

Reacting to the new reality Aminu Gwadabe, president Association of Bureaux De Change Operators, said “The convergence … has provided the central bank another opportunity to put in place a sustainable reform of the market to enhance the value of the Naira,”
From the look of things, if the current price level of crude oil in the international market holds and if production of crude is not disrupted in the Niger Delta, the Naira will appreciate further.
The central bank has consistently been selling about $40,000 a week to each of the 3,250 bureaux De change, thus improving dollar liquidity. CBN last week said that the investor window had handled $2.2 billion of trade in the past seven weeks but had accounted for almost 30 per cent of that trade itself as it worked to keep the window operating. The apex bank has sold more than $5 billion since it began its interventions in February, helping to restore confidence in the market.

A look back at the past may help us appreciate the efforts of the CBN in managing the economy. Nigerians who are old enough to know will remember that in 1986 when the foreign exchange market was libralised, there were four exchange rates. There was the first tier market, second tier market, autonomous market, then the never dying street market. It is shocking that many are shouting today that there are several foreign exchange market in the country forgetting that it has been so since the market was taken out of CBN control into the hands of Nigerian banks. It is not the current management of CBN that started giving preferential allocation to muslim and christian pilgrims. It has been with us all along. The questions to ask is at what period since the introduction of the Structural Adjustment Programmed SAP, did Nigeria have a single exchange rate?

I recall that in 1988, in an attempt to save the Naira, CBN under the leadership of Governor Abdulkadir barred eight newly licensed banks from access to foreign exchange market. It denied them access to the market because they were said to be involved in foreign exchange speculation in the interbank that was capable of destabilising the economy. It was in June 1988 that the first and second tier markets were merged leaving behind, the interbank, autonomous, bureaux de change and street foreign exchange markets.

In 2002, Joseph Sanusi, then CBN governor withdrew the foreign exchange dealership licence of 21 out of the 90 banks in the country that were found to be involved in foreign exchange malpractices in the interbank market. Other segment of the market were on.

The CBN has always acted in what it feels is in the best interest of Nigeria. Looking through Nigeria’s recent economic history reveals the activities of foreign exchange scavengers. On October 19, 1987, “The Republic newspaper” carried a report titled “CBN bars 80 firms from FEM.” An excerpt: “The Central Bank has barred 80 companies from further access to official foreign exchange. The order came as a result of the refusal of the companies to submit their shipping documents for scrutiny. Republic investigation revealed that it has become a practice among Nigerian companies to purchase foreign exchange and divert the money to purposes other than the one in which they were intended on purchase. CBN sources disclosed that such companies now refuse to submit their shipping documents for inspection. The shipping document include the bill of lading (clean or dirty) which  importers use to take  delivery of  goods. The bill also gives a detailed description of the type of goods, the state and stage of the goods during shipment.” These companies were run by Nigerians, Asians with Indians taking a lion share”.

On December 7, 1987 the same paper carried a report that 728 companies were barred from access to foreign exchange by the CBN. Excerpt:  “A total of 728 companies and individuals were blacklisted from procuring foreign exchange because of their involvement in different forms of foreign exchange malpractices during the first half of 1987.
Investigations conducted by The Republic revealed that 336 companies, mostly those registered as private companies, 228 individual Nigerians believed to be students and 164 foreigners were involved in the foreign exchanged malpractices.
According to our investigations, none of the companies quoted at the Stock Exchange was involved in the shady deals. It was revealed that most of the companies that were blacklisted by the Central Bank used forged forms‚ “Form A” to apply for foreign exchange. Most of the companies were also caught using Nigerians to front for them in foreign exchange deals especially in companies where Asians have shares.
The 228 individuals blacklisted were those who pose as students in Federal Government approved schools overseas when in actual fact they were not studying abroad. In some of the cases, Nigerians who have access to position of authority faked studentship while they trade with the proceeds of the foreign exchange they got from the Central Bank. Some were known to have connived with embassy officials to obtain the enabling documents to apply for scarce foreign exchange.”

The most prevalent in the series of embargo were  exporting firms that refused to repatriate home the proceeds of their foreign exchange earnings. It is the same thing that is happening 28 years after. On June 18, 1987, another report said that “Inter Bank dealing likely” to be restored. The CBN had in attempt to bring sanity into the foreign exchange market banned inter bank dealing in forex. Excerpt:
“The present ban on inter-bank dealings on foreign exchange will be lifted at the end of the current two-tier exchange system investigation has shown. An informed source at the Central Bank of Nigeria, CBN, said that when this happens the CBN would deal like any other bank selling and buying foreign exchange over the telephone or telex to and from other participants in the inter bank market. The source added that autonomous source of funding is expected to play a significant role or even replace the official sources as the main supplier of funds to the market. The current bidding sessions will pale into insignificance and be phased out when this is realised. The bidding sessions are being used as a vehicle for injecting official funds into the market.” This expectation has not been realised 28 years after the CBN put in place that policy
In another report on 18 June 1987, the “CBN made it mandatory for authorised dealers under SFEM to submit a detailed list of transactions with the Central Bank of Nigeria, CBN, before any bidding session. This CBN order effective from today is contained in a circular issued to dealing banks yesterday which is expected to check illegal inter-bank dealings and participation of banks in the parallel market”.

It is observable that the CBN has used almost the same instruments or modified model to deal with the unending foreign exchange situation in Nigeria. It has always made attempt to avoid the repeat of the Nigeria foreign exchange experience pre-SAP. A classic example is on this report. “Pre-SFEM import: N2.6 billion tied down as at February 1988. “About N2.6673 billion was paid by importers into the account of commercial banks that are still awaiting foreign exchange cover from the Central Bank. A large portion of the money had been paid into the banks since 1983. The Republic gathered that N1.4285 billion is already paid to the Central Bank, while the balance of N1.2388 billion which represents the advance deposits paid by importers against letters of credit is trapped in the commercial banks. The backlog was caused by foreign exchange crunch which hit the country. Accordingly, CBN cannot provide foreign exchange to facilitate the transfer of the money to overseas creditors before the introduction of Second Tier Foreign Exchange Market (SFEM). The hike in exchange rates put the importers who had already settled their bills in a difficult position as they were being asked by their bankers to pay the new rates”. The difference between what the CBN did then and now is the mere fact that in those early days the CBN imposed penalties on those who infringed the rule, but today the CBN is asking Nigerians to look inward in a conscious effort to make Nigeria a productive economy rather than being a consuming economy.

Private sector operators that are viniferous of the CBN, may have forgotten their 1988 experience and perhaps do not want to get to this point where the CBN can not provide foreign exchange cover  for import. Each time a new policy is put in place, those whose vested interest are affected by the decision mounts campaign for the CBN governor to be removed. In each of these cases, the President took side with the CBN. It is note worthy to say that Dr. Ibrahim Ayagi who was the Managing Director of Continental Merchant Bank and Oladele Olashore Managing Director of First Bank that went to court to challenge CBN policy of classifying banks in foreign exchange allocation in 1987 that were unceremoniously removed from office. Then the federal government had control stakes in Nigerian banks. Nigerians, big and small should learn to obey the rules of engagement in the forex market, this is the only way out of this vicious foreign exchange circle.

Categories: Column,Economy

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