1. Good afternoon ladies and gentlemen and welcome
to the Central Bank of Nigeria (CBN). The Management of
the Bank has called this Press Conference to give you
updates on recent developments in our Foreign Exchange
Market as well as the decisions we have taken to ensure
that we continue to strive to attain our mandates as set out
in the CBN Act of 2007. In order to do so, let me first give
you a brief overview of both the global and domestic
contexts.
2. As we all know by now, Nigeria has been dealing with
the effects of three serious and simultaneous global
shocks, which began around the third quarter of 2014.
These include:
- The over 70 percent drop in the price of crude oil,
which contributes the largest share of our Foreign
Exchange Reserves;
- Geopolitical tensions along critical trading routes in
the world including between Russia and Western
Powers, Saudi Arabia and Iran, etc; and
- Normalization of Monetary Policy by the United
States’ Federal Reserve Bank.
3. In the aftermath of these shocks, growth in the global
economy in the first two quarters of 2015 was less than
envisaged thereby leading to a weak outlook for the rest of
the year. Indeed, estimates of global growth for 2015 have
been revised from almost 4 percent to 3.1 percent. The
challenges of these global developments are having
lopsided effects in many emerging and developing
countries. Within this context, and especially when
juxtaposed with comparable countries, the Nigerian
economy remains moderately robust. Nonetheless, these
strong global headwinds are impacting the domestic
3
economy considerably. In 2015, GDP growth decelerated
from 3.9 percent in the first quarter to 2.4 percent in the
second quarter. However, it has increased slightly to 2.8
percent in the third quarter.
4. Although headline inflation remained single digit, it
stayed slightly above the Bank’s tolerance range of 6—9
percent, having risen marginally from 9.3 percent in
October to 9.4 percent in November 2015. A breakdown of
the inflation dynamics indicates that the underlying
pressure derives largely from the lingering base effects of
unfavourable energy prices and exchange rate passthrough,
which may have been exacerbated by delayed
harvests.
5. Following the drop in crude prices from a peak of
US114 barrel in July 2014 to as low as US$33/barrel in
January 2016, the country’s reserves has suffered great
pressure from speculative attacks, round tripping and front
loading activities by actors in the FX market. This fall in oil
prices also implies that the CBN’s monthly foreign
4
earnings has fallen from as high as US$3.2 billion to
current levels of as low as US$1 billion. Yet, the demand
for foreign exchange by mostly domestic importers has
risen significantly. For example, the last we had oil prices
at about US$50 per barrel for an extended period of time
was in 2005. At that time, our average import bill was
N148.3 billion per month. In stark contrast, our average
import bill for the first nine months of 2015 is N917.6 billion
per month, even though oil prices are now less than
US$35 per barrel. The net effect of these combined forces
unfortunately is the depletion of our foreign exchange
reserves. As of June 2014, the stock of Foreign Exchange
Reserves stood at about US$37.3 billion but has declined
to around US$28.0 billion as of today.
6. To avoid further depletion in the reserves, the CBN
took a number of countervailing actions including the
prioritization of the most critical needs for foreign
exchange. In this regard, and in order of priority, we
decided to provide the available but highly limited foreign
exchange to meet the following needs:
- Matured Letters of Credit from Commercial Banks
- Importation of Petroleum Products
- Importation of critical Raw Materials, Plants, and
Equipment, and
- Payments for School Fees, BTA, PTA, and related
expenses
7. In total disregard of the difficulties that the Bank is
facing in meeting its mandate of “maintaining the country’s
foreign exchange reserves to safeguard the value of the
Naira”, we have continued to observe that stakeholders in
some of the subsectors have not been helpful in this
direction. In particular, we have noted with grave concern
that Bureau de Change (BDC) operators have abandoned
the original objective of their establishment, which was to
serve retail end users who need US$5,000 or less.
Instead, they have become wholesale dealers in foreign
exchange to the tune of millions of dollars per transaction.
Thereafter, they use fake documentations like passport
6
numbers, BVNs, boarding passes, and flight tickets to
render weekly returns to the CBN.
8. Despite the fact that Nigeria is the only country in the
world where the Central Bank sells dollars directly to
BDCs, operators in this segment have not reciprocated the
Bank’s gesture to help maintain stability in the market.
Whereas the Bank has continued to sell US Dollars at
about N197 per dollar to these operators, they have in
turned become greedy in their sales to ordinary Nigerians,
with selling rates of as high as N250 per dollar. Given this
rent-seeking behaviour, it is not surprising that since the
CBN began to sell foreign exchange to BDCs, the number
of operators have risen from a mere 74 in 2005 to 2,786
BDCs today. In addition, the CBN receives close to 150
new applications for BDC licenses every month.
9. Rather than help to achieve the laudable objectives
for which they were licensed, the Bank has noted the
following unintended outcomes:
- Avalanche of rent-seeking operators only interested in
widening margins and profits from the foreign
exchange market, regardless of prevailing official and
interbank rates;
- Potential financing of unauthorized transactions with
foreign exchange procured from the CBN;
- Gradual dollarization of the Nigerian economy with
attendant adverse consequences on the conduct of
monetary policy and subtle subversion of cashless
policy initiative; and
- Prevailing ownership of several BDCs by the same
promoters in order to illegally buy foreign currencies
multiple times from the CBN.
10. More disturbing, though, is the financial burden being
placed on the Bank and our limited foreign exchange. The
CBN sells US$60,000 to each BDC per week. This
amount translates to US$167 million per week, and about
US$8.6 billion per year. In order to curtail this reserve
8
depletion, we have reduced the amount of weekly sales to
US$10,000 per BDC, which translates into US$28.4
million depletion of the foreign reserve per week and
US$1.476 billion per annum. This is a huge hemorrhage
on our scarce foreign exchange reserves, and cannot
continue especially because we are also concerned that
BDCs have become a conduit for illicit trade and financial
flows.
11. In view of the above, the Management of the Central
Bank of Nigeria has reached the following decision, which
take immediate effect:
a) The Bank would henceforth discontinue its sales of
foreign exchange to BDCs. Operators in this segment
of the market would now need to source their foreign
exchange from autonomous source. They must
however note that the CBN would deploy more
resources to monitoring these sources to ensure that
no operator is in violation of our anti-money
laundering laws;
9
b)The Bank would now permit commercial banks in the
country begin accepting cash deposits of foreign
exchange from their customers.
12. In closing, let me note very importantly that these
measures are not intended to be punitive on anyone or
any group. Rather it is meant to ensure that the CBN is
better able to carry out its mandate in an effective and
efficient manner, which guarantees preservation of our
scarce commonwealth, and that our hard-earned financial
system stability remain intact to the benefit of all
Nigerians.
Thank you and let me take questions.
Source
