As CBN goes tough on forex speculators

Foreign exchange (forex) speculators are at it again. Whilst the economy was in a COVID-19 lockdown, and international travels suspended for about five months, speculators were busy piling up forex, especially the dollar currency.

The speculators also anticipated that with the dwindling oil price, and declining forex reserve, forex scarcity would surface once the economy opened up again and they would make a huge profit margin.

These speculators pushed the dollar rate to N480 to a dollar (N480/$1) as of August. One wonders where the huge dollar demand was coming from when imports were minimal and Business Travel Allowance (BTA) and Personal Travel Allowance (PTA) requests were zero. Also medical and education tourism were down as global economies went into a lockdown.

Worried by the activities of these speculators who were bent on subverting the hard work of the CBN in stabilising the naira and even bridging the gap between the official forex window and the parallel market, the CBN took steps to make sure they lose their investments.

One of the first major steps was that the Central Bank of Nigeria (CBN) directed all banks in the country to submit the names, addresses and Bank Verification Numbers (BVN) of exporters that have defaulted in repatriating their exports proceeds, for further action.

The directive issued by the CBN Governor, Mr. Godwin Emefiele, on Tuesday, August 25, 2020, during the Bi-monthly virtual meeting of the Bankers’ Committee, came barely 24 hours after the Bank announced the abolition of third-party “Form M” payment.

The move by the CBN followed the adoption of the strategy to discourage overinvoicing, which some businesses have allegedly used to divert foreign exchange from the country, through the opening of “Forms M” for which payments are routed through a buying company, agent, or other third parties.

The statement signed by the Bank’s Director of Trade and Exchange, Dr. Ozoemena Nnaji, had also explained that the directive was aimed at ensuring prudent use of Nigeria’s foreign exchange resources and the elimination of incidences of overinvoicing, transfer pricing, double handling charges and avoidable costs that are ultimately passed to the average Nigerian consumer.

Recall that the CBN, in the past, had also warned exporters conducting export activity against diverting foreign exchange from the export proceeds, instead of repatriating the same home.

The Bank, in collaboration with the Bankers’ Committee, had threatened heavy sanctions against exporters who failed to repatriate foreign exchange proceeds from their international business.

The CBN stressed that its Foreign Exchange Manual provided that all exporters should repatriate export proceeds back to the country to support the local currency and boost the economy.

Analysts say that a number of punitive options are open to the CBN, including, but not limited to, barring the exporters from the foreign exchange market and other banking services.

The next move by the Central Bank of Nigeria (CBN) was the announcement of the resumption of forex sales to the bureau de change operators after over four months of suspension.

The CBN had suspended dollar sales to BDCs when the FG announced suspension of international flights in response to the COVID-19 pandemic.

The CBN in a circular to all authorised dealers, bureau de change operators and the general public said the resumption will commence August 31, 2020 but it was later shifted by a week.

The CBN said it will sell dollars to the BDCs at a rate of N384/$1 while the BDCs are to sell to end-users at no more than N386/$.

The circular signed by NNAJI O.S, the Director Trade & Exchange Department of the CBN said the resumption is following the resumption of international flight operations fixed for September 5, 2020.

The CBN said the purchase of foreign exchange by BDCs shall be on Mondays, and Wednesdays in the first instance.

It also said the BDCs are to ensure that their accounts with the banks are duly funded with the equivalent Naira proceeds on Fridays and Tuesdays accordingly.

The circular also said, Authorised Dealers (deposit money banks) shall continue to sell foreign currencies for travel-related invisible transactions to customers and non-customers over the counter upon presentation of relevant travel documents (passport, Air ticket & Visa).

“All authorised dealers and Bureau De Change Operators are hereby advised to ensure strict compliance with the provisions of the extant regulations on the disbursement of foreign exchange cash to travellers, as any case of infraction, will be appropriately sanctioned” the circular warned.

These majors and more have caused huge losses to the speculators.

Immediately after the announcement, the naira began to rebound in the parallel market, gaining N60 in about two weeks.

The CBN said speculators will count more losses as it begins weekly sales of forex.

“Speculators in Nigeria’s foreign exchange market are set to count huge losses as the Naira continues to surge against the dollar, following the interventions made by the Central Bank of Nigeria (CBN) in the Investors and Exporters (I&E) window,” the CBN said in a statement.

The statement noted that prior to CBN’s renewed intervention in the I&E window on Monday, August 31, 2020, the Naira exchanged for as high as N480 to the dollar, prompting fears that the Naira was in a free fall.

However, the naira began to rebound against the dollar following an announcement by the CBN that it would also resume the sale of foreign exchange to operators of Bureau de Change (BDCs) from Monday, September 7, 2020.

Compared to the previous days’ sales, the naira exchanged for N420 to a dollar in the BDC segment of the market on Wednesday, September 2, 2020, plunging speculators into losses, following their failure to heed warning signs from the CBN, the statement indicated.

The Director, Corporate Communications Department at the CBN, Isaac Okorafor reiterated that the Bank had concluded plans to inject liquidity into the foreign exchange market by selling forex to licensed

BDC operators.

“The sale to BDC would be gradual and be done twice a week – Mondays and Wednesdays, hence the BDCs had been directed to ensure that their accounts with their banks are adequately funded to ensure seamless transactions.”

While warning speculators to desist from what he termed unpatriotic tendencies, Okorafor urged registered BDCs to comply with the CBN guidelines as the Bank would not hesitate in sanctioning any erring dealer. He also assured that those requiring foreign exchange for purposes of travel, educational fees, and other Invisibles could obtain such over the counter from their respective banks.

It will be recalled that the CBN, in a circular signed by its Director, Trade and Exchange Department, Dr. Ozoemena Nnaji, on Thursday, August 27, 2020, had disclosed plans by the CBN to resume the sale of foreign exchange to BDCs as part of effort to enhance accessibility to foreign exchange.

Commenting on the CBN recent measures and what more the CBN needs to do, the President of the Association of Capital Market Academics of Nigeria (ACMAN) and renowned Professor of Capital Market, Uche Uwaleke said: “In order to contextualize the CBN’s recent measures regarding forex, it is pertinent to realize that the Q2 2020 negative growth in real GDP, high inflation rate, increase in inflation and downturn in virtually all macro indicators are all partly attributed to scarcity of forex following collapse in oil price since oil revenue accounts for over 90% of our forex receipts. This precarious supply situation is exacerbated by spurious demand for forex, activities of speculators and sharp practices. So, the CBN is faced with a double Whammy sort of situation.”

Prof. Uwaleke commended the directive by the CBN to Exporters to ensure that all export proceeds are repatriated as a measure capable of boosting forex supply if complied with.

He urged the CBN not to hesitate to apply sanctions on violators to serve as a deterrent. According to him, ‘this is the time for the apex bank to wield the big stick, not merely slap on the wrist, on any Deposit Money Bank that flouts the Form-M order regarding third parties’.

“I have not stopped wondering where people who hawk forex in the black market get their hard currencies. The CBN should device means of checking round tripping to ensure that the banks are not diverting forex to the parallel market. Ditto for BDCs especially now that the Bank has announced plans to resume sale of forex to the BDCs” he said.

Professor Uwaleke believes that improved liquidity in the forex market will rub-off positively on the capital market but thinks that the real challenge now is how to ensure that these laudable measures are not circumvented thereby defeating the purpose for which they were put in place.

He therefore urged the CBN to put in place a comprehensive Whistle-Blower System to support the effective execution of these measures.

On the proposed Whistle Blower System his body advocated he goes on to explain: “I am not referring to the one set up by the Federal Ministry of Finance some time ago. I am also aware of the Whistle-Blower policy statement contained in Section 5 of the CBN Revised Code of Corporate Governance for Banks and Discount Houses which requires banks to have a whistle-blowing policy that contain mechanisms, including assurance of confidentiality, that encourage employees and stakeholders to report any unethical activity to the bank or the CBN. Again, the comprehensive WBS is different from the Customer complaints mechanism handled by the Consumer Protection department of the apex Bank.”

“I am talking about a facility that allows customers, shareholders, NGOs and other members of the public, who may not be stakeholders of a bank, to report to the CBN any observed wrongdoing by a bank or non-bank financial Institution akin to the whistle-blower policy of the South African Reserve Bank” he said.

Through this system, he said the public can report any alleged violation of the guidelines or directives of the CBN especially in relation to forex.

“It goes without saying that whistleblowers who inform regulators of suspected instances of infractions, especially at this time, can be a vital source of information to support regulation against sharp practices” he said.

Professor Uwaleke is convinced that following the example of South Africa, the WBS will help rein-in misconduct in Nigeria’s financial markets.

Also commenting, Commenting, the President, Association of Bureau De Change Operators of Nigeria, (ABCON) Alhaji Aminu M. Gwadabe told our correspondent that the move by the CBN will mitigate the crisis we are witnessing in the industry due to exchange rate volatility.

“BDCs resumption will definitely add liquidity to the critical retail end sector where we have travelers that are resuming now, schools fees are opening so I think the timing of the CBN is tactical, strategic and welcomed” he said.

“Assuming this decision hasn’t been taken, and with the resumption of air travellers and school resumptions, that would have created serious difficulty in the market which would have caused a lot of shortage, imbalances and imperfections in the market” he noted.

I believe that even though the amount is still $10,000 a week, it is a step in the right direction and all the BDCs should live to the responsibility he noted.