Circumstances of forex crisis

Also published in Daily Trust

Though the recent decision by the Central Bank of Nigeria (CBN) to stop selling foreign exchange (forex) to bureau de change (BDC) firms in the country triggered an instantaneous and dramatic further depreciation of the naira, which in turn worsens inflation, it’s hard to propose any other measure to save the country’s alarmingly dwindling foreign-exchange reserves from which the CBN used to regularly sell foreign exchange to the BDCs.

Besides, economically speaking, selling foreign exchange by the CBN to the BDCs isn’t sustainable in the long run, after all. Moreover, according to the CBN, it’s only in Nigeria that currency exchange operators depend on government for hard currency supply. In any case, what can’t be denied is that, the scheme never served the economic purpose for which it was introduced.

Against the backdrop of the virtual absence of standard economic enterprises in the country that produce goods and deliver services competitive enough to compete in international markets hence generate and inject the much needed hard currency into the country’s economy, the scheme was supposed to facilitate access to foreign exchange from the CBN to enable local enterprises to import machineries, tools, raw materials and other elements necessarily needed for industrial production of goods, and to also enable other local businesses and firms to import indispensable foreign goods that aren’t produced locally to meet domestic needs.

It was also intended to serve genuine retail end users who need foreign exchange to pay for various goods and services paid in foreign exchange that does not exceed US$5,000 per transaction. Unfortunately, however, like other economic and financial schemes designed to stimulate proportionate micro and macro economic growth in the country, the CBN’s foreign exchange supply scheme was also grossly abused and indeed bastardized.

But contrary to the CBN governor’s attempt to put the blame entirely on the BDC operators in his press statement when he announced government’s decision in this regard last Monday, the reality is that, the corruption-ridden process of accessing foreign exchange from the CBN involves many government officials, civil servants, law enforcement agents and, of course, their accomplices among the BDC operators some of whom are not even Nigerians, as there are also some Indians, Lebanese and other foreigners who use some unpatriotic and corrupt Nigerians as fronts to access foreign exchange from the CBN.

Besides, contrary to general assumption that the people commonly seen at Wapa, Kano, Ikeja, Lagos, Zone 4, Abuja or any other foreign exchange market in the country are BDC operators, the real BDCs operators who actually own the necessary licenses to access foreign exchange from the CBN are mostly rich business owners, government officials, civil servants and politicians who for obvious reasons wouldn’t be seen doing business out there.

They are largely rent-seeking business owners who by hook or by crook obtained as many BDC licenses as possible, which enabled them to access as much foreign exchange as possible from the CBN, used the funds to smuggle contraband merchandise into the country, imported luxury goods for personal use and made huge profits by selling the balance to those so-called ‘yan canji in various foreign exchange markets in the country. Most of such so-called ‘yan canji, therefore, including many, if not most of, shop owners in such markets are actually fronts, middlemen, commission agents or glorified touts.

Moreover, huge chunks of such foreign exchange end up in foreign countries as millions of US dollars were being trafficked almost on a daily basis from particularly Kano and Lagos airports to Dubai in the United Arab Emirates where it’s sold to make more profits. This is an open secret because it was being perpetrated with the connivance of many airport officials and even law enforcement agents including many EFCC personnel for that matter.

Anyway, now that the CBN, which remains virtually the sole source of foreign exchange supply in the county has stopped selling foreign exchange to BDCs, the resulting rapid depreciation of the naira is bound to accelerate further and consequently, inflation, which is already unbearable is bound to keep going up uncontrollably as there appears to be no possibly viable measures to check it at least for now and probably for the foreseeable future.

Though, obviously this situation presents a very tricky dilemma for the federal government especially considering the persistent fall in crude oil prices in international markets, it needs to, as a matter of urgency, come up with viable measures to check the persistent fall in the value of the naira and tackle the resultant worsening inflation. This is very imperative because if left unchecked, the ensuing economic crisis will definitely spin out of control and eventually undermine government’s economic recovery endeavours.