Naira will keep falling if we don’t prioritise Made-in-Nigeria products over imports- Gwadabe, ABCON president

The naira’s free-fall in recent times has been nothing short of calamitous, plunging to its worst-ever performance in history in 2024. 

Investors, once bullish on Nigeria’s currency, are now jittery, with analysts projecting that the naira’s slide could accelerate in 2025.

As the naira’s journey continues to be fraught with instability, AMINU GWADABE, president of the Association of Bureau de Change Operators (ABCON) has revealed the hurdles BDC operators are facing while navigating turbulent markets. 

Gwadabe, in an interview with Business a.m’s ONOME AMUGE, spoke on the naira’s rollercoaster ride, the trials and tribulations facing BDCs, and the prospects for the industry, shedding light on the path forward in these uncertain times. EXCERPTS: 

The naira was recently rated the worst-performing currency in sub-Saharan Africa by the World Bank, depreciating 43 per cent year-to-date as of August 2024. How did we get here? What do you think are the factors that led to the Naira’s abysmal weakness? 

If you look at it from a historical perspective. The naira used to be even stronger than the dollar, and one of the reasons it started to weaken to its current level is because of Nigeria’s inability to attain self-sufficiency.  The sovereignty of every country lies in the strength of its currency, not in its weakness.

We have abundant natural resources but rather than being a ‘production economy’, we have become a consumer economy. We rely heavily on imports. About 95 per cent of our needs are imported.

This is a country where half of the monthly allocation that is supposed to go to services ends up in the exchange market, purchasing dollars.

Also, if you look at our externalisation of values, our values have been externalised to an extent that Nigerians do not want to buy Made in Nigeria products. As long as we continue to prioritise foreign goods over our own manufactured products, there is no way our local currency will be strong.

Another issue has been the decay in infrastructure. For the past 20 years till date, only 20 per cent of the capital expenditure has been implemented and executed. As a result, transportation is expensive. Transporting a container from Lagos to Maiduguri is more expensive than transporting it from Sweden to Lagos because of poor infrastructure. Investments follow infrastructure. If you don’t have infrastructure, no foreign investor will be interested in investing in your economy.

The same thing also applies to the cost of energy. Now, many companies have already left this country to neighbouring countries like Ghana, because of the cost of energy and volatility of the naira.  So, every year, our earning capacity is going down and our inflationary rate keeps going up. Tell me, how can your currency get value when you have an inflation rate of 33.8 per cent?

The Central Bank of Nigeria has implemented consecutive interest rate hikes to attract foreign investment and address inflation. Do you believe that this policy has had a positive impact on the value of the Naira?

To the external investors, it’s a win-win, because they will earn more revenue, but there is a big challenge in mitigating its effectiveness. One of the challenges is that most of these investments that are coming are not coming as direct investments. They are going into portfolio investments (To stocks and shares), where it is volatile.  Instead of going to where the money will be productive, it is going to the stock market where the average citizen does not see the improvement because it is not a real sector investment. It is “an invisible” investment where the growth will be very difficult to see.  To date, I  have not seen any significant results. Instead, it is making the cost of borrowing very high, because once you increase the CBN rate, the commercial banks will not hesitate to increase their lending rate.

That is why instead of the expected average rate growth of GDP that even the World Bank and IMF targeted for Nigeria to achieve, we are not going to achieve it. We have a shrinking growth. Surrounded by rising interest rates, energy costs, and insecurity that are militating against us achieving a stable exchange rate and balanced economic growth.

Given your expertise in the foreign exchange market, what fiscal policies and executive actions would you recommend to the government to strengthen the naira? 

The first step is fiscal discipline. There are a lot of leakages creating serious problems in the foreign exchange market.  The government should take all measures to ensure they block leakages because leakages are one of the major factors contributing to volatility in the foreign exchange market.

Another step is that we should look inward.  Way back in the 1980s when we had backward integration, Nigerians were producing tyres from rubber gotten in the South, producing clothing sourced from cotton sourced from the North, amongst other viable productions. So, we should go back to that model of backward integration instead of continuing to depend on imported products.

We have abundant natural resources in this country. Instead of value addition, we leave it as a primary product. A lot of Chinese are in Nigeria, exporting our resources as primary commodities without value addition. They will go back to China, process the commodities and sell them back to us at 10 to 15 times the price they bought them. Looking at backward integration is very important.

Another thing that we should do is diversify our sources of foreign exchange.  Till now, our revenue Is largely dependent on one source, which is oil. So, anytime the price of crude oil goes down, Nigeria will “catch cold”, because our revenue will go down and it will affect our capacity to grow. We should look at other sources, not only oil exports.

We should also look at diaspora remittances. The World Bank gave an estimate of about 20 to 21 billion dollars coming into this country annually. The latest statistics by the CBN also showed a year-on-year jump in remittances. We have an average of 15 million Nigerians who are staying abroad and they are bringing in this money. Unfortunately, most of these monies are being externalised in financing banned/smuggled items.

Most of these proceeds of remittances are externalised and are sometimes even used in financing money laundering and terrorism. There should be a proper mechanism/framework that the government should implement, that will democratise the system and make it open and accountable. India, for instance, generates about 30 to 40 billion dollars of diaspora remittance annually through the Bureau de Change. They use these proceeds for infrastructure. Nigeria should also leverage the Bureau de Change so that they can democratise the proceeds of diaspora remittances, instead of allowing them to be captured by few people. Huge liquidity is being diverted by few people, as a result of a lack of democratisation of the process of the framework operating it.  We need to deepen the framework of the proceeds of diaspora remittances by leveraging the Bureau de Change.

Considering the rapid advancements in the financial sector, including the proliferation of digital currencies, what steps is ABCON taking to safeguard BDC businesses and keep them at the forefront of the industry?

The association under the current executive council of which I am the president is coming from the financial sector, and have long seen where the future is going in the financial sector.

We have written to the Central Bank of Nigeria on many occasions, demanding automation of our operations. The narrative of our automation journey started in 2016 when we launched how to first, digitalise our recording system and registers in an automated form. We started that journey in 2016, believing that the world is going digital.

Back then, our members used to go to CBN branches to send their daily reports using a kind of archaic technology. But now, our members can send their reports online in real-time to the CBN and the Nigerian Financial Intelligence Unit (NFIU).

The digitalisation of BDC transactions has been a long-standing challenge until the CBN’s recent introduction of new guidelines in May 2024, allowing BDCs to engage in digital transactions. Historically, the BDC business model was primarily cash-based, and BDCs were not permitted to maintain domiciliary accounts or engage in online (real-time) money purchases.

We have seen some improvements now with the current leadership of the CBN through their new guidelines where they say that the Bureau de Change can become a cash-out point for  International Money Transfer Service Operators. They also say that you can do card payments which are more of digital currencies, which is a shift from the usual business model that the BDCs are used to.

As an association, we are also working towards ensuring that BDC operations stay in touch with the current innovative digital trends in the financial space.  We have seen that not only the Bureau de Change but conventional banking is gradually being threatened by the advent of cryptocurrency. It is a threat to the entire conventional financial institution.  It may surprise you to know that there are over 250,000 crypto agency agents in Nigeria. To show you the level of adoption, Nigeria is the second country in the world in terms of cryptocurrency adoption.

Nigeria’s inflation rate is worrisome, the exchange rate is worse. Many people are now using cryptocurrency as a store of value.  There used to be a kind of conflict between security agencies, regulators and cryptocurrency operators. But you can see now that there is adoption. Also, the Security Exchange Commission has started approvals to some crypto companies because that is the future.

Nigeria’s cryptocurrency adoption is growing per annum by at least nine per cent, and there are projections that in the next 10 years, we will have not less than 90 to 100 million Nigerians that have adopted cryptocurrency. It is going to be a radical shift.

As an association, it is part of our agitation that each and everyone; both the government, regulators and financial security agencies, should come together and expand and make license institutions like the Bureau de Change to participate in the crypto space.

Cryptocurrency is a tsunami that everybody should be prepared for and belong to. It should be done in a centralised and transparent form. Don’t allow a monopoly to control it.

It’s just like the foreign exchange market now. Once you have a monopoly, you create scarcity and it is one of the factors that is affecting the availability of dollars in Nigeria because monopolies are sitting on the sources.

Regulators should recognise the critical role BDC operators can play in leading the adoption of digital transactions. With approximately 1,500 eligible BDCs, liberalising and empowering them would create a substantial increase in liquidity for the Nigerian economy. The potential impact of this liberalisation is significant, and I believe it would surprise even the most sceptical observers.

Though there are abuses here and there, the most effective monetary transmission mechanism instrument in terms of foreign exchange stability remains the Bureau de Change, which has been proven over time.

I am not saying that the bureau de change has no blame. We have some certain blames, more especially, in terms of compliance with regulatory and supervisory commitments.

To address this, ABCON has been collaborating with the NFIU, and the CBN and also updating our members and letting them know their obligations and roles in the financial sector.

Working with them is the only thing that scares the illegal economic behaviours in the foreign exchange market.

It is germane to allow the Bureau de Change to adopt a digital currency to help deliver the change. The government should help make their capitalisation less cumbersome by giving them the right support and collaborating with them.

Countries are collaborating with stakeholders. As far as I am concerned, no policy will be effective without significant input from the stakeholders that are within that sector. Don’t just sit and assume. Work with the people that are on the field. If not, you will find that implementing and making a success of these policies will become an impossible task to achieve.

Earlier this year, ABCON publicly announced its plans to collaborate with the Securities and Exchange Commission on harmonising Nigeria’s digital currency and P2P forex sectors. Could you provide an update on the progress of this initiative?

Yes, we are collaborating with the SEC to form a digital platform. When the CBN saw the angle we were going, they put a clause in their new regulation that a Bureau de Change is not allowed to engage in that field. These are some of the consequences we are seeing.

Amid ongoing discussions about the naira, some analysts have posited that the naira could weaken to N2000 per dollar by January 2025. Given your knowledge of the market and experience in the sector, what is your projection for the naira by 2025? 

Honestly, I am forced to believe that narrative. Part of the burden that the country is facing is foreign debt. We keep on accumulating foreign debt with a 20 per cent implementation of capital projects.

The naira’s outlook appears dire unless the government takes decisive action to increase liquidity. There are numerous platforms abroad holding billions of dollars, but restrictive policies often prevent us from accessing these resources. To truly unlock the naira’s potential, the government must break existing monopolies and democratise the system.

There are a lot of people now who want to import dollars to this country and they’re not given the licence. Nigeria is a blessed country. There are opportunities for whoever wants to come and do business, but to get approval in this country is very difficult.

So, honestly, I’m forced to believe in that narrative that the dollar will hit N2,000 to $1 by 2025 if there are no cogent solutions to address it.

One of the solutions is for the government to work with the Bureau de Change. We have the expertise and incentives to effectively manage the foreign exchange market, bringing transactions that currently take place in unregulated spaces under government oversight. With BDCs in the spotlight and subject to monitoring, the CBN would have access to transparent, accurate data that can be used to inform policy decisions and drive positive outcomes in the currency market.

In your opinion, what should BDC operators do to enhance their performance and maintain relevance in the currency market? 

Despite the challenges posed by the current situation, BDC operators shouldn’t lose hope.  They should remain focused on the opportunities that the new dispensation is bringing to their table.

The market is going to be broken down. The monopoly will be broken down. Let’s remain united. Let’s make sure we come together and then put together a bigger picture that will enhance our visibility, enhance our compliance, and enhance our regulatory outlook so that the regulators’ perceptions and generalisation of criminalisation will stop.

There are a lot of good people in the system. We shouldn’t allow the bad ones to continue to give us a bad image. Let’s improve our status with the regulatory agencies and also the security agencies. Then, we have the better bargaining power to negotiate with the regulators and security agencies.