Sourcing for Dollar Matters
Economist: Brilliant Citizen, where are you rushing to?
Brilliant Citizen: (Looking upset and anxious) Oh, I need to source for dollars right now. I am almost in a crisis.
Economist: Calm down, you don’t need to panic over that.
Brilliant Citizen: How can you say I don’t need to panic. I have called over five of my “Aboki” sources and they stated they don’t have. How can I not panic?
Economist: Why not take the option of going to the bank to get the money. That’s what the CBN stated as the source for dollars now.
Brilliant Citizen: You can’t be serious, these banks. If you go there, they will ask you for all sorts of documents and at the end some may not give you the required amount. I tried them a long time ago.
Economist: Well, recently the Central Bank of Nigeria (CBN) has mandated that they supply Foreign Exchange (FX) to citizens with genuine needs — personal & business traveling, schools fees, medical expenses …
On Wednesday, 28th July, 2021, the CBN announced the discontinuation of selling FX to Bureau De Change (BDC) operators. Prior to this, the CBN sold FX to BDCs every week towards ensuring supply of forex in the country. The Government believes BDC operators are contributing to the increasing disparity between the official rates and parallel market rates.
Brilliant Citizen: Is this the first time the CBN coming up with this? Please leave me to look for my dollars.
Economist: Ok, just don’t kill yourself over it. Things are expected to ease off when the banks set up the teller points across branches and the CBN provides the banks with more FX.
Brilliant Citizen: Can you imagine the small businesses that need FX for importing raw materials? It could take ages to get from the bank! What of the family that needs it for medical expenses urgently? I don’t think this solution is a good one. Hasn’t this happened before when the BDCs were not funded by the CBN? What was the impact then?
Economist: Yes, it has. Unfortunately, the result was not good. In January 2016, CBN stopped the sale of dollars to BDCs and the exchange rate increased from N268/1USD to N495/1USD by the end of the year in the parallel market.
Sources: CBN, Aboki FX
Brilliant Citizen: You see what I am saying, this exchange rate can double over time if we are not careful. Let me quickly go and source for the dollars I need. But really, how are we to cope?
Economist: We are hoping the banks can quickly bridge the gap that this stoppage of direct FX sales to BDCs brings. Yet, it is important to solve the root causes of FX shortages.
Brilliant Citizen: The root cause is the government, right?
Economist: The issues with shortage of FX are multidimensional. Firstly, there is continuous demand for FX but limited supply. Many factors have reduced the supply including reduced foreign investment (attributed to high security concerns, and unpredictable changes in government policies) and the reduction in oil revenue. Whereas the demand for dollars has remained high as a result of the country’s high reliance on imported goods for consumption and insufficient local production.
Brilliant Citizen: So, what do we need to do?
Economist: The Government needs to sort out the things within its control (security, diversification of the economy and policy clarity) to attract the inflow of dollars to the country. Citizens and businesses need to rely less on imported goods.
Brilliant Citizen: We are on a long thing! Please what can I do in the short term?
Economist: Personally, you need to earn income in FX. Think of a service/ product you can provide that requires FX payment.
Brilliant Citizen: Hmm, interesting. It will be great to earn in FX “ooo”. Where are the opportunities?
Economist: Invest in FX to earn interest/ dividends, write a book and sell on amazon, develop an online course and sell globally, learn skills required in global markets and provide the services.
Brilliant Citizen: Thank you for sharing. I will think about it and start something.
Economist: Good to hear. Do let me know how it goes. All will be well in Nigeria.
Brilliant Citizen: Amen “ooo”.
Special thanks to Wale Olusi and Abraham Afariogun for their contribution to this article.