The dominance of Bureau De Change (BDC) market has unpleasant implication for the manufacturing sector, as it sourced foreign exchange (forex) at the BDC window at high cost. The Manufacturers Association of Nigeria (MAN) has stated
The perspective of the association on the Central Bank of Nigeria’s (CBN) new policy on forex allocation to BDCs was made known in a statement by the Director General, Segun Ajayi-Kadir, where he noted that the major challenge of the forex allocation to BDC segment is that the operators always lacked the ability and will to continuously adhere to set guidelines. Most times, he said the operations of the BDCs drifted into round tripping and other financial incongruities which negate the overall objectives of creating the BDC forex market, adding that the end result was always the escalation of the premium of forex in BDC compared to official window and further depreciation of the naira.
The MAN boss explained that observation of the forex market scenario showed that in 2019, CBN forex allocation to BDC was about $12.65billion and only $1.33billion to the interbank , while the premium of BDC rate to that of interbank averaged 17 per cent in last three quarters of the year. He posited that the trend may suggest that forex operations of the BDCs market has gone out of control, adding “the dominance of the BDC market has unpleasant implication for the manufacturing sector; manufacturers source forex at the BDC window at exorbitant cost, notwithstanding the consequent implication on cost of production and competitiveness of the sector.”
The association further noted that MAN had made various submissions on the need for the apex bank to collapse the various forex windows into a single official window.
“We believe that a single forex window will eliminate the excesses of middlemen, save the value of the naira and allow for available forex to be allocated productively using the official banking protocols.
“Consequently, the current directive of the CBN corroborates with our view and may just address the maladroit activities of the operators in the BDC market.”
However, the DG emphasised that much of efficiency and effectiveness of the new guidelines would be determined by how insistent the CBN and commercial banks will be to ensure that forex gets to genuine users.
“For instance with the new policy, manufacturers will depend solely on the interbank market for their forex needs. We hope the banks will provide seamless process and timely execution of forex application by manufacturers.”
Following the new policy, Ajayi-Kadir called for appropriate review of the forex policies and guidelines to support manufacturing at this precarious time.
“The issues of usage of forex, exclusion of items from the official forex window and the concessional forex allocation to critical manufacturing should be reviewed to ensure a production enabling forex management in the country.”
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