Giving meaning to retailend of Nigerian FX market

In a recent television interview, I was asked a question that I was not given the opportunity to explain properly to the listening audience. One of the anchors, Rufai Oseni made a claim that the Central Bank of Nigeria (CBN) has provided a $4.7 billion (actually $4.1 billion) subsidy in the Nigerian foreign exchange (FX) market. This is slightly misconceived, because it was not put in the proper context.
It then occurred to me that many in the viewing audience will take that wrong information and not understand what that $4.7 billion represents. It prompted me to write this piece to give a clarification.
The $4.7 billion is actually the funding of the retail end of the market, which is crucial to price discovery in the Nigerian FX market. Every market has a long tail and the retail end of the market is usually the closest to the consumer. The bureau de change (BDCs) segment, or the organised FX black market, is now what constitutes the retail-end of this market. They are like what the neighbourhood mom and pop store does, for many daily household items. Imagine you want to buy a tin of milk in the morning, you know that it is cheaper in the supermarkets but choose to buy it at the nearby neighbourhood store, even though it is priced higher, your convenience is what matters most at this point. This is why they are sometimes called convenience stores. This is not different in the case of the Nigerian foreign exchange market.
Consumers who want to buy FX for travel, healthcare, school fees and even for small trading needs, are not averse to paying a little premium. They do not want to go to the banks, and be asked to provide documentation and fill out forms. The bureau de change segment of the market is the most accessible and for the same reason, the most frequently patronised part of the FX market by users. Despite its small size, it is the most sensitive to price and sets the rate for the entire FX market.
This is what makes this segment most important. So, ignoring it as part of the FX market will provide a distortion in the actual rate of the Naira. The $4.7 billion Rufai Oseni was referring to in his question is mostly what was infused into the market by the CBN and sold to the bureau de change operators. The good news is that they bought at the market price like everyone else. So, to refer to it as a subsidy was stretching it.
In an article I published in January 2025, titled “Key To Moderating Naira Exchange Rates”, I urged the CBN to allow to stay, their experiment of selling $25k to the bureau de change operators at the official widow of the FX market because I thought it was a good strategy that will ensure FX supply to this very important segment of the market; and will moderate the naira exchange rate, because we have observed that this end of the market has the tendency to stoke up prices. I also called on the CBN to remain consistent and let the market determine the rate at which the naira should exchange for the dollar. They should not be swayed by the pressure of the rising rates for the naira. I had argued that the price discovery process was the only way to truly determine the rate of exchange for the naira. That was why I told Rufai Oseni during the interview that there was no scientific way to determine the price of the naira. Those who claim to know that the rate should be N1100 or N1200 and not N1500 are all speculating.
There is a worldwide currency market where currencies are traded everyday. If anyone accurately knows the price of currencies, there will be no market for them.
The naira raced to N1900 at some point and thankfully, the CBN kept its nerve and did nothing. It became apparent that the distorting price for the naira was coming from the retail end of the market, sometimes called the “Black Market”; essentially the bureau de change segment, where speculation was also plentiful. I said if the CBN should fund this segment of the market, and make it liquid, the speculators will disappear with time. The CBN soon responded, and started to sell FX to the bureau de change operators at the official market rate. We immediately started to see the naira rate recede and it has now stabilised.
So, the $4.7 billion Mr. Rufai referred to as CBN subsidy to the market actually was what is used to fund the retail end of the market, which is a very important part of the market that determines the rate of exchange for the naira. This $4.7 billion figure is also very tiny. As a percentage of the Nigerian FX market today, it represents less than 10 percent. The market is very liquid and accommodates all who want to buy; gone are the days when large manufacturers who wanted to buy FX had to seek preferential allocations. Everyone can now buy from the market, because there is a market price that everyone knows.
This is not the first time I am advocating for this segment of the market to be funded so as to moderate prices. In 1998, I wrote an article for the Nigerian Guardian Newspapers that I titled, “The quagmire of the Nigerian Foreign Exchange Market.”
I had called for the CBN to think of funding the black market somehow. There were no BDCs then, this was when the discussions about licensing BDCs were going on. So, my input here is not new.
There was also another aspect of the interview that requires clarification. Ruben Abati also insinuated during the interview that I might be writing these articles because I support the present government and maybe looking for some favours. I support the present government for their economic policies. I can see that they are the right policies and have started to work. But my economic views have remained the same for the last 30 years that I have written for Nigerian newspapers.
If any one reads my articles in the Business a.m. newspaper these last few years, that was what I wrote under the column heading, “Economics and Markets” . It was so titled, appropriately, to show where my focus is on; and you will find that my views are consistent.
I believe in market mechanisms. I believe the tilting to the markets is the most efficient way to run an economy and I know from my understanding of economics, that the price function of the markets is a powerful tool, to correct anomalies in economic policies.
So, Abati’s claims that my conclusions in the article under review were “wonky” can not stand in the face of the known economic parameters that economists use for measuring an economy’s progress, which everyone knows are the empirical facts he was asking for.
The Nigerian economy is growing at 3.31 percent, inflation is trending down, the naira exchange rate has stabilised, government revenues are going up, and balance of payment is positive, even though exports of non-oil products, are growing slowly, the fact that the naira now has a market price, has driven out speculators, over-invoicing manipulators, and the horde of government favoured preferential allotments; this has all contributed to smaller FX outflows and have all eliminated one of the biggest corruption avenues in the Nigerian economy.
I take on board the genuine complaints about the hardships and suffering of the masses, and I have urged the government to focus on those areas and provide relief, while the economy stabilizes and grows quickly to really take the majority out of poverty.
Nigeria is now on the right track, the patience I call for, is only for a little while, we can not expect magic to happen and correct the mis-steps of the many years of delayed reforms.