13 July 2014, Lagos – Akpan Ekpo, a professor of economics, is Director General, West African Institute for Financial and Economic Management (WAIFEM). He speaks on the controversy surrounding the new monetary policy by the Central Bank of Nigeria (CBN) and the increase in minimum paid-up capital requirement for the operators of Bureau De Change (BDCs), from N10 million to N35 million.
As an economic expert, how do you describe the new monetary policy by the CBN on BDC operators?
To start with, the move by the CBN is to sanitise the foreign exchange market by curbing the nefarious activities of some Bureau De Change (BDC) operators which I believe is a good initiative. However, I want to look at the policy from two fronts. The first is that the minimum capital requirement of N25million for BDC operators, as announced by the apex bank, is too high. If you look at everything they have to pay, it is almost N60million. Secondly, the time given to them to raise the money is too short.
Looking at the capital requirement and the limited time they have to raise the money, what are the economic implications?
My worry is that Nigeria’s economy may experience scarcity of forex if the situation is not properly handled. The reason being that, some operators of BDC who are not able to raise the minimum capital may simply go underground and continue to operate illegally, while others would just merge and operate in smaller units. As such, there may be scarcity of forex in the system, which could automatically make the exchange rate to go up in the short/medium term, but, in the long-run, everything may stabilise.
The Governor of CBN on assumption of office said he would focus on bringing down interest rate to enhance rapid industrial development. Now the apex bank is suddenly going into regulation of BDC, while the expectation of many people is on reduction of interest rate to stimulate investments. Don’t you think the CBN is derailing from the most important issue in the economy?
Well, the reality is that CBN does a lot of serious research before coming up with any monetary policy. So, the new guideline on BDC may be based on such work. The monetary authority must have decided to regulate the activities of BDC because it is important for economic growth and development. But the question is, why should CBN be the only organisation giving Dollars to BDC?
For me, lending rate being brought down is a major issue in the economy not BDC. I hope the move by CBN is not an attempt to drive local BDC operators out of business to allow only few major banks do forex. If that happens, it could create monopoly in the system. I hope this new policy would not result into that, because what many people, especially investors want to see is how CBN tackles the challenge of high interest rate to boost investments in various sectors of the economy, in order to create jobs.
Are you saying that the CBN is the only place BDC operators get Dollar from?
At present, BDC operators in Nigeria only buy bulk Dollars from the apex bank, whereas in other countries, anybody could sell forex and get his commission. It means BDC operating in other countries could get forex from other sources, aside from the apex bank. So, the CBN should ensure flexibility in the system by allowing flexibility from where BDC get their forex, because BDC is important part of our financial system.
Another challenge is that Nigeria’s foreign exchange is driven by crude oil export but if the economy is diversified, we would get forex from other sectors. So, they should help to diversify the economy by supporting local industries to produce more goods for export, to earn more forex. Developing non-oil export sub-sector is very crucial because curtailing forex activities unnecessarily may create scarcity in the system.
As an economic expert, are you satisfied with the financial details in budget 2014?
For me, budgeting in this country is simply a nightmare. The reason being that, the necessary requirements in terms of theoretical as well as practical framework of budgeting appear very good on paper, but during implementation, the entire budget is in disarray.
For instance, 2014 appropriation bill was passed was into law about six months into the year, which means two quarters of the economy was not reviewed in the budget.
The economic implication is that the theme of the document, ‘Inclusive Growth and Job Creation’, equally lost six months of actualisation. Judging from the analysis in the financial document, it is clear that the rate of inequality is on the increase, with just 20 per cent of the population of over 160million benefiting from the resources in Nigeria.
Our economy is characterised by overlapping budget implementation as no budget cycle in this country ends on December 31, rather, the cycle usually ends in March of the new fiscal year. Obviously, the output loss within the six months lost in capital implementation of the 2014 appropriation bill has negative impact on economic growth and development.