With three months left before the deadline set for Bureau De Change (BDC) operators to meet new capital requirements, compliance remains elusive as operators cite stringent conditions. This is raising concerns over the retention of their operating licences.

In May 2024, the Central Bank of Nigeria (CBN) released new operational guidelines for BDCs, which became effective on June 3, 2024.

The guidelines require all existing BDCs to reapply for new licenses under one of two categories—Tier 1 or Tier 2—and meet the capital requirements for their chosen category within six months.

For Tier 1 BDCs, the minimum capital base is set at N2 billion, while Tier 2 BDCs must have at least N500 million. Additionally, operators must pay non-refundable license fees of N5 million for Tier 1 and N2 million for Tier 2.

However, three months into the process, there has been no significant movement towards recapitalisation, mergers, or acquisitions within the sector.

“Nobody is ready to pay that amount,” a BDC operator told BusinessDay anonymously. The source said the BDCs have lodged their complaints to the CBN but the apex bank has ignored them. The conditions do not favour us. “It is too stringent. Going into mergers and acquisitions will not profit anybody”, he said.

Although Aminu Gwadabe, president of the Association of Bureau De Change Operators of Nigeria (ABCON), could not respond as of press time, he said in June 2024 that the CBN has not responded to the association’s inquiry seeking clarity on the implementation of the guidelines.

He said the financial requirements amid policy uncertainty, lack of clarity, and increasing naira depreciation make compliance with the new rules unattainable.

He warned that the stringent new requirements could have severe unintended consequences. “I am worried that the unintended consequences might lead to throwing more formalised operators to the informal sectors.”

In an appeal to the Central Bank, Gwadabe urged reconsidering the new guidelines. “On behalf of our members, we appealed to the management of the apex bank to review and re-evaluate the conditions in the new guidelines to avoid driving existing players into extinction, facilitating money laundering, increasing unemployment, and worsening the fragile insecurity situation in the country.”

The CBN in a statement in March 2024, said in the exercise of the powers conferred on it under the Bank and Other Financial Institutions Act (BOFIA) 2020, Act No. 5, and the Revised Operational Guidelines for Bureaux De Change 2015 (the Guidelines), it has revoked the licenses of 4,173 Bureaux De Change Operators.

The statement signed by Sidi Ali, Hakama acting director, corporate communications, reads, “The CBN is revising the regulatory and supervisory guidelines for Bureau de Change operations in Nigeria. Compliance with the new requirements will be mandatory for all stakeholders in the sector when the revised guidelines become effective.”

In the first quarter of 2024, the apex resumed dollar sales to BDCs. On Friday, the CBN increased liquidity in the foreign exchange market by selling U.S. dollars to Bureau De Change (BDC) operators at a rate of N1,580 per dollar.

According to a statement issued by W. J. Kanya, acting director of the Trade & exchange department, each eligible BDC will be allocated $20,000 at the approved rate. In turn, BDCs are authorised to sell to end-users at a margin not exceeding one percent above the purchase rate from the CBN.

Despite Nigeria’s external reserves growing by 8.36% in the past year following the surge in remittances and international financial inflows, the naira continues to lose value against the U.S. dollar, declining by 50.80% over the same period.

According to the Central Bank of Nigeria (CBN), the country’s foreign currency reserves rose to $36.79 billion by July 31, 2024, up from $33.95 billion recorded the previous year.

This has been driven by a surge in remittances and various international support packages, including a $3.3 billion AfreximBank oil facility and $2.25 billion from the World Bank Group.

The CBN reported that total direct remittance inflows increased by 129.46% to $553 million in July 2024, compared to $241.22 million in July 2023.

Remittances had similarly climbed by 22.66% in the prior year, reflecting the importance of diaspora funds in boosting Nigeria’s foreign exchange reserves.

Despite these gains, the naira has faced severe depreciation. At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the currency tumbled from N791.42 per dollar in July 2023 to a staggering N1,608.73 per dollar as of July 2024.

In the parallel market, the naira’s performance was similarly poor, dropping from N867 per dollar in 2023 to N1,610 per dollar by July 2024.

The CBN has attributed the pressure on the naira to a combination of factors, including reduced availability of U.S. dollars and rising demand for foreign currency for personal and commercial transactions.

Nigeria has seen a massive surge in demand for foreign exchange to fund education, healthcare, and personal travel, further straining its reserves. Over the past decade, demand for dollars for these sectors reached nearly $40 billion.

In addition to remittances, Nigeria has also benefited from a rise in capital importation and foreign direct investment (FDI), which have collectively pushed net foreign exchange inflows to $25.4 billion in the first half of 2024 — a 55% year-on-year increase.

Despite the increase in reserves, experts argue that Nigeria’s efforts to stabilize the naira have been insufficient.

Charlie Robertson, head of macro strategy at FIM Partners, pointed out that Nigeria’s currency and interest rate dynamics are attracting investors, but at a modest rate compared to other nations like Egypt, which has secured over $20 billion in foreign investments in the same period.

Robertson also highlighted that while Nigeria’s approach focuses on improving trade balance without external financial aid, the lack of sufficient external support has created vulnerabilities that leave the naira exposed to continued depreciation.

While the CBN remains hopeful that ongoing policy reforms and inflows from diaspora remittances will eventually stabilize the currency, analysts remain cautious.

The demand for dollars far outweighs the supply, creating a vicious cycle that continues to erode the naira’s value.

As the US Federal Reserve signals potential interest rate cuts, there is growing optimism that Nigeria’s struggling naira could receive a much-needed boost.

The Federal Reserve Chair, Jerome Powell, hinted at a possible rate reduction during the Jackson Hole Symposium on August 23, 2024, suggesting that the time for policy adjustment may be near.

Since the Central Bank of Nigeria (CBN) floated the naira in June, allowing market forces to determine its value, the currency has lost nearly 100% of its value, creating immense economic pressure on the country.

Inflation has soared to 33.40% as of July 2024, and the cost of living for millions of Nigerians has worsened.

However, Powell’s suggestion of a shift in US monetary policy has triggered a wave of optimism in global financial markets, potentially offering some relief for Nigeria’s currency.

A rate cut from the US Federal Reserve would weaken the dollar, potentially easing the downward pressure on the naira.

This move is seen as an opportunity for emerging markets, including Nigeria, to experience more favorable exchange rates. As the dollar becomes less attractive to investors, currencies such as the naira could stabilize or even strengthen.

Ibrahim Bakare, a professor of Economics at Lagos State University, said, “A weaker dollar could help ease some of the pressures on the naira. Lower US interest rates make the dollar less appealing, leading to depreciation, which could allow the naira some breathing space.”

Market experts have also expressed hope that this shift in US monetary policy could lead to increased foreign investment in Nigeria. Lower interest rates in the US often push investors to seek higher yields in emerging markets.

As Nigerian assets become more attractive, increased demand for the naira could help stabilize the currency.

“If the Federal Reserve cuts rates, we could see a shift in capital flows towards markets like Nigeria, supporting the naira and easing the current currency depreciation,” said a Lagos-based investment banker.

Despite these positive projections, the road ahead remains uncertain. The naira closed at 1,570.14 per dollar on Friday, according to the Nigerian Autonomous Foreign Exchange Market (NAFEM), showing little improvement despite CBN interventions, including the sale of $815 million to businesses in early August to boost dollar liquidity.

The Central Bank’s hawkish stance, maintaining an interest rate of 26.75%, aims to contain inflation but has done little to reverse the naira’s sharp decline.

Many economists believe the Fed will reduce rates by 25 to 50 basis points in upcoming meetings in September and December. While this presents a hopeful outlook, the pace and timing of these cuts remain critical to the naira’s future trajectory.

“The Fed’s policy adjustment could bring relief, but the impact will depend on the speed and scale of their rate cuts,” said Tobi Ehinmosan, a macroeconomic analyst at FBNQuest Capital.

He cautioned that while a weaker dollar could stabilize the naira, sustained improvements in Nigeria’s foreign exchange market are needed to achieve lasting change.

In addition to exchange rate stabilization, a rate cut by the Fed could also have broader economic benefits for Nigeria. As imported goods become cheaper with a weaker dollar, inflationary pressures might ease, offering relief to Nigerian consumers who have been grappling with high costs.

Samuel Sule, CEO of Renaissance Capital Africa, stated, “If the dollar weakens, we could see lower prices for imported goods, providing some respite to consumers and contributing to a more stable inflation rate.”

Though hopes are high, analysts stress the importance of Nigeria addressing its own economic challenges, including foreign exchange liquidity and policy consistency. While the potential for a stronger naira is on the horizon, the CBN will need to maintain its interventions and ensure that the supply of foreign currency is adequate to meet demand.