Nigeria flirts with severe dollar scarcity as DSS raids parallel market – Businessday

By JOHN OMACHONU, LOLADE AKINMURELE, additional reporting by Chuka Uroko, Joshua Bassey, Stephen Onyekwelu and Bala Augie.

Nigerian businesses and individuals used to sourcing their dollars from the popular  “black market” on the   streets of the country’s major cities are in for harder times as the Department of State Security (DSS) targets black market operators.

The DSS arrested several of the street side dealers of dollars on Wednesday and Thursday after they were accused of flouting a directive from the Central Bank of Nigeria (CBN) that they should not sell their stock of dollars above N400 and N410 to the US$.

When BusinessDay visited one of the popular black market foreign exchange points  in Apapa, Lagos, which is usually a beehive of activity, the place was unusually calm.

“We are scared because the BDC owners have said that anybody that sells above N410 will be arrested and moreover, there have not been dollars since Monday,” said Muhammad Abubaker, a money changer, in an interview with BusinessDay.

BusinessDay learnt that some bureau de change (BDC) operators who sold their dollar stock above N400 to the US$ were arrested in Abuja and Lagos.

“It is primordial and crude to think of bringing convergence between official and parallel rates by force. Every liberalised market thrives on the forces of demand and supply. Rather, concerted efforts should be made at increasing dollar inflows through sale of assets, concessioning, loans to boost the dollar supply side,” said an industry source who pleaded anonymity.

Bismarck Rewane, an economist and CEO of consulting firm, Financial Derivatives Company (FDC) also said that the attempt to get BDCs to sell dollars at a specific price without taking into consideration available demand, as an  “ effort in futility.”

“Prices are not fixed in a market, the moment you do that, you damage the credibility of the market,” Rewane added in a telephone interview with BusinessDay.

One trader told BusinessDay that the move was “ridiculous and an abnormal.I do not know of any liberal market that goes to this extent to defend its local currency,” he said.

Some other analysts say the move to peg the rates at which BDC’s sell dollars may worsen the dollar shortages in the already illiquid Nigerian foreign exchange market and create “another black market within a black market.”

This, according to them, is because the natural law is that money goes to where it is maximally priced.

“Foreign exchange traders may hoard their stock consequently, making it more expensive, as trade migrates to secret venues,” said Rafiq Raji, managing director and chief economist at consulting firm, Macro Africa Intel, in a twitter response.

If dollar shortages intensify, it could see inflation stretch an 11-year high of 17.9 percent recorded in September. It also translates to more woes for the manufacturing sector, which is in recession due to the lack of sufficient dollars to import raw materials.

“This action would further dry up dollar liquidity and feed into an already swelling demand backlog,” said Zeal Akaraiwe, the CEO at financial advisory firm, Graeme Blaque Group, in an interview on CNBC Africa.

The CBN has struggled to stop the naira’s slide against the dollar on the black market, where importers go to buy dollars, due to severe hard currency shortages in Africa’s biggest economy.

The bank has kept the official naira rate to the dollar artificially high, effectively driving hard currency dealing away from commercial lenders and towards the black market, the real benchmark.

“In the long-run, the only way the official currency rate in Nigeria can be sustainable is if oil prices rise to $70-75, which is not likely when the US president wants to boost US shale production,” said Chares Robertson,  chief economist at Renaissance Capital, in response to emailed questions.

The current CBN dollar peg policy has created complications in the market, which have resulted in major financial institutions also coming under the hammer for alleged infractions.  Standard Chartered Bank was said to have been fined N2 billion for the infraction, with the suspension of the bank’s treasurer.

But Dayo Aderugbo, Head, Corporate Affairs and Brand & Marketing of the bank, said last night, that the transactions were in compliant with CBN regulations.

“Standard Chartered is committed to complying with all local laws and regulations. As is the case with all our foreign exchange transactions,  we believe this transaction is compliant with the applicable regulations and policies.  We continue to engage with the Central Bank of Nigeria officials on this matter, in an effort to reach an amicable resolution,” Aderugbo said.

Aminu Gwadabe, president of the Association of Bureau De Change Operators of Nigeria (ABCON) says that the members are ready to cooperate with government and law enforcement agencies in ensuring convergence of the different rates of the naira.
Gwadabe acknowledged that the problem has been that of hoarding, which has been creating scarcity.

“What the leadership of the association is doing is enlightenment on the need to play the game according to the rules”, he said, adding that doing contrary would force them out of the market.

On whether the members would have enough dollars to sell at the envisaged N410/N420 to the US$, Gwadabe said, “Members are ready to sell whatever that is available.”

Attempts to get the CBN’s comment on the arrest of black market operators failed   as Isaac Okorafor, the apex bank’s head of communications did not respond to emailed questions and telephone calls.
The naira was exchanging for N315 to the US$ as at 2pm in Lagos, at the official window on Thursday, according to Bloomberg data.