Dollar crisis: FG urged to harness foreign remittances, informal markets

The federal government has been advised to fine tune how foreign remittances are being managed in order to save the naira which has been depreciating. Some experts and traders who spoke to Daily Trust said apart from foreign remittances that are not captured in official quarters, multi-billion worth of transactions in US Dollar and the […]

The federal government has been advised to fine tune how foreign remittances are being managed in order to save the naira which has been depreciating.

Some experts and traders who spoke to Daily Trust said apart from foreign remittances that are not captured in official quarters, multi-billion worth of transactions in US Dollar and the Pound Sterling, among others, are being carried out on daily business in informal markets in many parts of Nigeria.

They said if these transactions are captured in the banking sector, the naira will be salvaged and foreign exchange reserve strengthened.

On-going illegalities

It was learnt that Nigeria is not benefitting from the huge reserve of foreign currency within the economy due to the illegality that exists in the black market.

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This is happening as Nigerians are facing one of the worst economic crises in years triggered by surging inflation, and the result of monetary policies that have pushed the currency to an all-time low against the dollar.

The naira has been in a downward spiral since June 2023, when President Bola Tinubu introduced a new foreign exchange regime in Africa’s largest economy.

Experts say domiciliary accounts make up more than a third of the deposits in the banking sector and a lot of it is not being used.

Nigeria’s foreign currency balances in commercial banks have become a topic of discussion in several quarters with some calling for a conversion of the “dormant” funds into naira to shore up the reserves.

Most recently, a former member of the House of Representative, Ibrahim Obanikoro (Eti-Osa Federal Constituency, Lagos State), called on the Central Bank of Nigeria (CBN) to close all domiciliary accounts for the next 12 months to ease the slide of the naira.

Obanikoro stated this in an online statement on Tuesday evening, where he said that he has come up with a bill that will serve the common good.

Foreign currency in circulation

According to Statista, in 2022, the personal remittances received in Nigeria increased by 0.7 billion U.S. dollars (+3.59 per cent) since 2021. In total, the personal remittances received amounted to 20.13 billion U.S. dollars in 2022.

The huge amount does not flow into the banking sector. The monies ended up in the local markets where they were stored as cash in private vaults.

The CBN last year attributed the free fall of the naira against the dollar to the diversion of diaspora remittances to the parallel market.

Folashodun Shonubi, the CBN acting governor, who spoke while delivering a lecture titled ‘Diaspora Remittances and Nigeria Economic Development’ at the National Institute for Security Studies in Abuja, said a lot of diaspora remittances arrived in Nigeria in dollars and end up in the parallel market without being officially documented.

He said; “With those remittances, the dollars have come in, we know the dollars have come in but we don’t see them in the official system. So, they must be going somewhere and somewhere.”

“And the challenge with the black market, unofficial market or parallel market or whatever names you call it, it is not regulated, and it becomes an easy place to have criminal activities.”

Shonubi said the amount of inflows coming through many unapproved channels and eventually ending up in the parallel market contributed significantly to Nigeria’s foreign exchange (FX) crisis.

Experts want operations digitised

Explaining the dilemma, a Fellow of the Chartered Association of Certified Accountants of England and Wales, Alhaji Kabiru Ahmad said: “There is a lot of illegality going on in the informal market, which is one of the major reasons the country is not benefiting from the foreign currency transaction that occurs there daily.”

He said the proliferation of Bureau de Change (BDC) with loose monitoring of their activities is compounding the woes of the naira.

“This is wrong, the government should not allow that, the local currency for domestic transaction is naira. In Egypt, you can’t go to any supermarket to spend the dollar or any foreign currency, they will tell you to go the bank and change your money to the Egyptian Pounds because the people are already aware that it is prohibited.

“Unfortunately, our informal sector, which is the BDC, is not properly guided, so it is only in Nigeria that you transact $1m through the BDC without any consequences. That should not be the case. BDC’s are supposed to be for only a small amount of money. That is where we are distorting our currency. I have said on many occasions that the government should cancel the licenses of BDC and let them reapply based on new guidelines.”

Also speaking on the development, a senior chief Economist at the SPM Professionals, Paul Alaje said the solution is for the government to digitize the purchasing process especially for all foreign currencies, and when that is done, most of the inflows that comes to Nigeria will be properly accounted for and it is going to boost the demand for the naira.

‘Banking policies not favourable’

In Kano, Katsina and Jigawa states, people from within and far flung places conduct businesses worth billions of naira, and sometimes using foreign currencies but outside the banking system.

In places like Dawanau International Grains market, Singer Consumables Market, WAPA Currency Exchange Market, and Wudil Cattle Market in Kano; Mai’adua Cattle Market in Katsina, and Maigatari Livestock Market in Jigawa,  a lot on informal businesses are being carried out on daily basis.

It was gathered that before official banking opening hours of 8 am, huge amounts of monies are being exchanged between buyers and sellers; and the situation is the same after closing hours.

A merchant in Dawanau told the Daily Trust that people believe in dealing with physical cash and that is why they keep their monies at home or in other safe places.

He said if the banking policy could be tweaked in such a way that people can deposit their monies with convenience and withdraw the same with ease, it will be a win-win situation.

Another operator of bureau de change in Kano,  Alhaji Sagir Bello said that the businesses being conducted in WAPA are usually conducted outside the banking sector.

Sani Aliyu, a cattle merchant in Mai’adua, said people from all parts of Nigeria converge on the market every Sunday.

“We also have merchants from Niger Republic and we deal in cash. We buy and sell using the naira and CFA…It is huge but informal,” he said.

The Head, Department of Economics, Sa’adatu Rimi College of Education, Kano Dr Murtala Muhammed Ahmed, said Nigeria’s financial policies are not favourable to traders.

He explained that there is a need for the federal government to look into its monetary policies and do the needful.

CBN measures to arrest proceeds of remittances

Nigerian banks, on February 13, 2024, announced that dollar transactions through international money transfer operators (IMTOs) will now be paid to customers in naira.

The policy is an offshoot of a recent guideline on the operations of IMTOs, issued by the Central Bank of Nigeria (CBN) on January 31, 2024.

Commenting on the implications of CBN’s directive, Ayokunle Olubunmi, head of financial institutions ratings at Agusto & Co., said customers who do not have an immediate need for the cash would be impacted most.

He said: “Most of the funds coming in are for individuals and some for small, medium entities (SMEs). Those who have immediate need for it might not really mind, but those who do not really need the cash might not be happy about it.

“However, this would be a bit challenging given the high inflation rate that we have. If the naira keeps devaluing, people would definitely want their inflows in foreign currencies.”