Travelex a global Foreign Exchange dealer with presence all over the world recently got the approval of Central Bank Of Nigeria (CBN) to sell Dollar directly to the public. They have commenced the sales the sales of Foreign Exchange (FX) to BDCs and international travelers.
The Apex bank following earlier directives to banks to sell all FX inflows to BDCs has further directed through a circular to authorized dealers that all agent to approved International Money Transfer Operators (IMTOs) should sell foreign currencies accruing from inward money remittance to licensed BDCs. Nigerian diaspora remittance is estimated at $21billion annually and analyst is of the opinion that injection of such funds to the local FX market will help to strengthen the Naira against the Dollar.
Travelex had on Friday resumed sales of dollars directly to travelers at #356 to a dollar. Their office at the Muritala International Airport was besieged by hundreds of travelers who had to cope with with rates between #470 to #472 to a dollar price from BDCs. Some of the travelers were however disappointed as they could not produce their BVN card which is a major document required for the transaction.
Traveled also on Friday commenced weekly sales of $15,000 to each of the 3,000 licensed BDCs.” The move which is expected to provide FX worth over $45million in the the local FX market and strengthen the Naira against the dollar”. According to Aminu Gwadabe. The president of association of Bureau De Change Operators of Nigeria.
He said “ remittance has direct positive and significant impact on consumption, investment and demand in the country as it can be used to address short run output, short and even long run growth. Remittance tends to be stable and increases during periods of economic downturn and natural disasters.
Nigerian Banker examines the long run effect of this development on unemployment, Inflation, interest rates, exportation and the current economic recession in the country.
Effect on Unemployment
Nigeria unemployment rate which rose from 8.2% in July 2015 to 13.3% in the second quarter of 2016 and may have reached as high as 18% by end of September 2016 is expected to be affected positively by this new development.
Nigerian economy is highly dependent on importation. Most manufacturers had to either reduce production or short down their production completely in the wake of Dollar scarcity and depreciating Naira with its impact on employment as staff were laid off.
This however is expected to change as Dollar becomes available and Naira gain strength and importation of raw materials and machine rises becomes cheaper.
Effect on Inflation
Consumer Price Index (CPI) rose to 17.6% in August 2016 from 9.6% in January 2016 as dollar scarcity and Naira depreciation bites harder and their increasing effect on the cost of production as most manufacturers and importers had to source for FX at rates of over 200% to remain in business. Part of this cost is passed on to consumers by way of increased prices. This trend is also expected to abate as more dollar is made available to the market.
Effect on Interest Rates
CBN had to maintain its benchmark interest rate at 14% in September in other to control inflation and support the Naira. This move was made to make bank deposit attractive and loan interest high in other to discourage spendings. Spending is a motor fuel for inflation just as high bank deposit rate increases propensity to save and reduces demands for imported items.
CBN is however expected to reduce its benchmark interest rate and allow the economy to expand as prices of items drops and people goes back to work.
Effect of Exportation
Exportation of farm produce and raw materials from Nigeria which perhaps has been the only benefactor of the devalued Naira may be adversely affected. The non export figures which rose significantly in the wake of the depreciating Naira will slowed down as most exporters who may have earned more Naira for every dollar worth of export may be discouraged by smaller Naira earned from every dollar worth of items sold.
The economic recession presently being experienced may be over sinner than expected .
A famous African proverb says “when the stomach is hungry the mind starts to think”
“The recent move by the CBN on diaspora remittances into Nigeria estimated at $21billion dollars annually is consequent upon the need to source alternation ways of earning Foreign Exchange as the price of crude oil (Nigeria major source of FX) has fallen rapidly in recent times”. Felix Eshiebor a keen observer and a Business Manager in an old generation bank.