People & Money

“Our children would die of hunger” – Nigeria’s Forex Dealers Lament Dollar Scarcity

In May 2020, the Director of Nigeria’s Budget Office revealed that the country had lost around 80% of oil revenue due to the crash in oil prices triggered by the pandemic. Foreign portfolio investment (in Nigerian shares and bonds), a significant source of foreign exchange, has also declined by 75%.”

No economy in the world has been spared the blows of the new coronavirus outbreak. Major players as well as minors on the fringes of the global economy have taken some clobbering from the pandemic. But oil-dependent economies, particularly those with “legacy” poor policy sets and structural defects like Nigeria, have suffered even bigger blows from the virus that is visually represented like a sturdy club with spikes. 

Nigeria depends on revenue from oil for 90% of its foreign exchange and for about 65% of government revenue. In May 2020, the Director of the country’s Budget Office revealed that Nigeria had lost around 80% of oil revenue due to the crash in oil prices triggered by the pandemic. Foreign portfolio investment (in Nigerian shares and bonds), a significant source of foreign exchange, has also declined by 75%. 

Nigeria has had little room to manoeuvre. Borrowing at high-interest rates from commercial lenders between 2016 and 2018 has meant “strained sovereign external market access” at a time emerging markets have been able to continue borrowing in western economies to cushion the pandemic’s economic impact. 

The market awaits further CBN forex liberalisation amid dollar scarcity

As economic players wait to see if and when the Central Bank of Nigeria would, under pressure from the World Bank and the IMF, completely replace its multiple exchange rates with a single rate determined by (market) demand and supply and what the effect would be on forex inflow, Arbiterz spoke to a few forex dealers in Lagos about how the dollar scarcity is affecting their business.

It seems people with dollars are waiting for a clear sign that the naira’s value has plunged to the lowest before bringing out dollar savings to exchange for naira (the CBN’s interventions are blocking this signal). The reduction of travel to Nigeria due to the coronavirus pandemic has also cut the volume of forex traded in the parallel market by holidaymakers, business visitors, and others. 

The self-defeating nature of CBN’s policy of fixing the exchange rate through fiat is also revealed – some dealers freely admitted to buying forex meant to be sold directly to only travelers at the so-called official rate from “licensed” Bureaux de Change.

Also Read: “CBN Rate is a Joke” – Six Nigerians on Why They Prefer the “Tainted” Black Market

Adewale – Owner of Bureau De Change company (Ikeja)

Presently we get $10,000 from the CBN twice a week, usually on Tuesdays and Thursdays. So that’s $20,000 per week. It is hard to tell how much exactly we sell in total because we carry out a lot of transactions with dollars apart from the ones we get from the Central Bank. Also, demand and supply vary by the week. Apart from the CBN, we buy dollars from several people and cannot tell where the dollar is from. But I think most of them are just people travelling from abroad. They usually change different amounts with us, say about $5,000 to as high as $50,000 and even as high as $100,000. It depends on who the person is and how long they plan to stay in the country. We have some very big men as customers. But the trade volume has reduced notably at the moment, especially the dollar supply outside of CBN. I don’t know if people are hoarding dollars. Well, I can’t say but with the naira losing a lot of value. I think maybe people would naturally want to keep most of their hard currencies with the hope that the value will rise further. You know, that would mean they profit more. If the value of the local currency falls below the current level, I think people will most likely start bringing out their dollars to sell to take advantage and also before the rate starts to balance again.

Umaru – Forex Dealer (Ikeja) 

We buy most of our dollars from the Bureau De Change operators after they get from the CBN. Every week, I buy like $2,000-$3,000 and sell it all. Some of this is also from outside people like those just arriving from the U.S. or other countries that sell between $1,000-$1,500 to me. So in a week sometimes, I trade as much as $5,000. But things are not like that anymore oh. Dollars are now very scarce. As you are seated here if it was before many customers would have lined up and be disturbing me to answer them. But now we can stay all day without having up to five people bringing money to change. So we need to look for other ways of making money. Me as I am, I have other businesses that bring me money. With the way things are, if we rely only on trading money or currencies, our children would die of hunger.  That is how bad it is. It’s like some people who have the dollars are keeping them for now to gain more later because people believe the naira will still lose a lot of value. If that happens now, say the value of the naira drops again, you will start seeing people bring the dollars to sell.

Yakubu – Forex Dealer (Apapa)

I have been changing dollars for many years now and I don’t think it has ever been this bad. Not even the last time was this bad. The market is very dry now. Nothing is happening. We used to get a lot of dollars from these Bureau De Change people and most times from many people that are just coming into the country at the airport. But now, I hardly do up to three trades in a day. We just sit down and we gist throughout the day. I think it’s not that the dollar is that scarce in Nigeria. We know CBN is trying to manage what is available well but as for other people, maybe some have it but are keeping it. I don’t know for sure though but I said that because there are still a lot of people travelling in and out of the country since airports opened again. So I don’t really know. All I can say for sure is that business is not very friendly right now.

Also Read: Dollar Shortage Poses Major Risks to Nigerian Banks – Fitch

Kola – Bureau De Change Businessman (Victoria Island)

In a week, we get $20,000 from the CBN and sell everything. But apart from the Central Bank, we get too from other people – anybody like you can sell. Though it’s hard to tell where they are from, whether they’re traveling from abroad or Abuja, Port Harcourt, or anywhere else. We don’t know them and they usually sell huge volumes mostly during elections. I guess to use for campaigns. But right now, trade volumes have fallen very well. Many people are hoarding dollars at home probably waiting for the rates to move in their favour, especially as the CBN is closing for the year December 15. Among ten BDC operators, it’s hard to see any that sell at the official CBN rate.

Abdulahi – Petty Money Trader (Allen Avenue)

Walahi market no dey smile at all. As you see me standing at this Allen Junction, idle and just talking with my colleagues, that’s how I have been standing all week with the way the dollars have been scarce over the past few weeks. I used to change money for plenty of people in a day, like up to 10 or 15 sometimes but this year has been somehow. Now we see just three or four deals in a week. It’s really not funny. I have had to enter some other small businesses to make some money sha, just to survive this period. The hope is that things will turn around soon.

As of Tuesday, December 15, the exchange rate at the parallel market was trading at N475/$1 and N394/$1 at the Importers & Exporters (also called NAFEX) window.

Michael Ajifowoke

Michael is a budding media professional with more than two years of experience covering business, economy & tech. He spends his leisure reading about economics, finance, and international development.

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