ABCON President explains why there is forex crisis, lists sources of forex for BDCs
The President of Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, has given reasons why there is a liquidity crisis in the foreign exchange market while also stating the sources of forex supply to the Bureau De Change (BDC) operators.
The ABCON boss stated that some of the reasons include; low remittances from the International Money Transfer Service Operators (IMTSO), the shutdown of the entire BDC sub-sector window, the shutdown of airports which has affected foreign travellers who are a source of forex especially to BDCs, cancellation of autonomous transactions from the banks to the BDCs and so on.
This was disclosed by Gwadebe, during a television interview with Channels Television.
According to Gwadebe, “Since the lockdown of the airports, the airports were shut down in March, and since then the entire BDC sub-sector window was shut down, because our sources include the International Money Transfer Service Operators (IMTSO) which is through the banks, then the travellers that are coming from abroad, the walk-in customers, the autonomous for 2, 3 years now, autonomous transactions that are coming from banks have been cancelled. So if you look at it all the sources are not there. So that’s why there is a liquidity crisis.”
Gwadebe said that the pandemic caused supply disruptions as the price of crude oil went down, even foreign exchange inflow from abroad also went down leading to the drying up of a lot of sources of foreign exchange. He said that once there is a liquidity crisis, there will be capital flight from foreign portfolio investors as they will move to convert their local assets to foreign assets which they regard as safer. He said a lot of speculators indulge in buying up a foreign exchange that they don’t need and keep in the bank. This he said puts a lot of pressure on the market.
Going further he said, “Also don’t forget that there are a lot of loans, foreign-denominated loans by Nigerians, foreigners from Nigerian banks. What that means is that anytime there are variations in exchange rate, your portfolio must go down, so you have to act fast to get the necessary liquidity to put so you can service your debt.”
The ABCON President lamented that the country’s import bill remains very high as a lot of foreign exchange is spent on food importation, petroleum products importation and even on medical supplies. He said that although the CBN resumed $100m weekly sales of foreign exchange for school fees, medical supplies and SMEs, it is still grossly inadequate as there is still pressure at the retail end of the market.
While commending the CBN for the exchange rate unification plan, Gwadebe said you cannot have the same product with different rates especially when you know you have liquidity crisis, when there is a foreign inflow crisis. He said that investors are checking out, the crude oil sales are down, diaspora remittances are going to be affected by 20% according to IMF.
So the exchange rate unification will address the criticisms that have been trailing different exchange rates which gives rise to hoarding, rent-seeking and a lot of speculation. It will also increase the confidence of investors.