By Omodele Adigun, Bimbola Oyesola and Olabisi Olaleye
The decision of Nigerian banks to cut off their Automated Teller Machine (ATM) card services as well as hard currency- denominated online transactions may have distabilised the army of Nigerian students studying overseas, the sick in foreign hospitals and the Diaspora community in general. Since the suspension, many Nigerians has since misconstrued the step as subtle implementation of the earlier plan to suspend foreign exchange allocation for medical bills and overseas school fees.
For instance, majority of the students who were hitherto using their debit cards to withdraw money abroad for their upkeep were not only shocked, but frustrated when the platform ceased to work.
John Uchendu, a businessman and father of a third year medical student in one of the universities in the United Kingdom recounted his son’s ordeal.
“I opened an account for my son here (in Nigeria) and gave him the debit master card, which he normally uses to withdraw money for his upkeep every month. But last week, I posted money into the account, the equivalent he would have to withdraw for his feeding, only for him to call me that he was unable to withdraw,” said Uchendu.
Meanwhile by that time, he had nothing left on him. It was some hours after I got his call, that the bank sent a mail to me that it has suspended usage of its debit master card for any form of international transaction. To me that was an afterthought as nobody had the information or a kind of warning before the action was carried out,” he added.
Uchendu lamented that he was forced to seek assistance from a relative who offered to give his son the money, but at black market rate.
“I had no choice, than to accept as I would not want to subject the boy to unnecessary pain or hardship. Afterall, the exchange by the bank too has not been at the Central Bank of Nigeria (CBN) official rate”, he said.
He, however, warned that Nigerian students would be the worst hit by the current decision of the banks, as many parents are already finding it difficult to live with the payment of the current high school fees due to the the scarcity of foreign exchange.
Another parent, Oludeyi Sofela confirmed that accessing forex to pay for his daughter, who is studying engineering in the United States of America has been an Herculan task.
He said, “My daughter was around for the holiday since June, and by the end of July, we applied for Form M to enable us pay part of her school school fees. Since then, we have left the money in the account of the bank, now this is October, she has since returned and all we hear is that the processing is on. It’s quite frustrating. The advantage she had is that she is in her third year, if not she would not have been allowed into the class and with this exchange in the black market, I don’t know where one would have gotten the money.”
Sofela said with the hike in the money transfer services, all efforts at getting funds to students abroad may have finally been dashed.
He noted that few weeks ago, both the Western Union and Moneygram exchanged $1 to N300 and with little service charge from the bank, but now the exchange has risen to about N420.
Another Nigerian, Georgiana Adebowale, who was caught unawares while shopping in Kenya narrated her experience:
“I went to the KCB Mall in Kenya and bought some things to the tune of 4,110 shillings but the transaction was not approved. I thought, it was a network issue and went to another store and the story was the same,” said Adebowale.
“What I wanted to purchase were important and I had to call a Kenyan friend who offset the bill for me. It was quite embarrassing. You can imagine the way the attendants were looking at me. It was just an embarrassing situation that I found myself.”
Recall that the hint about the current ordeal was first dropped after the Bankers’ Committee meeting in Abuja last February by the Director of Banking Supervision of the CBN, Tokunbo Martins, who said banks had resolved that most of the foreign exchange demands would be deployed to developing the real sector.
Her words: “You know it is something that affects all of us and I think that the watchword is belt-tightening. It is the pain we may need to go through today in the short term, so that there will be long term development in the country, whether it is infrastructure or manufacturing,” she added.
So, it is something that CBN is looking at and it is something the Bankers’ Committee is looking at. If you think about it, the pressure on forex now – from school fees abroad – is significant. At what point should we begin to look inwards? The pressure on medicals is significant. At what point should we begin to look inwards? She queried.
Corroborating her, the Managing Director of Access Bank, Herbert Wigwe, said: “The problem is that it tends to crowd out the critical foreign exchange that should be used in the real sector to import raw materials, to support industries, to encourage employment. So, there is a question around how far we are going to allow this to continue. Shouldn’t we redirect these resources towards the real sector as we should?”
But shortly after that , the apex bank came out with a clarification that it had not banned the allocation of foreign exchange for education and medical bills.
“The Central Bank of Nigeria (CBN) wishes to clarify to the general public that it has not stopped the allocation and sale of Foreign Exchange for purposes of paying school fees and settlement of medical bills overseas,” Ibrahim Mu’azu, its then director of Corporate Communications, said.
But President Muhammadu Buhari came out with the bombshell the following month when he said the nation could no longer afford to allocate foreign exchange for those who decided to train their children overseas.
In an interview with Al Jazeera, the president said:
“Those who can afford foreign education for their children can go ahead but Nigeria cannot afford to allocate foreign exchange for those who decided to train their children outside the country. We can’t just afford it. That is just the true situation,” Buhari said.
However, reliable sources from the banks said the debit cards’ suspension was in reaction to CBN directive that the banks should use the interbank forex rate for charging customers on foreign currency-denominated transactions.
On October 14, several banks announced the suspension of the cash withdrawal from Automatic Teller Machines and PoS terminal transactions overseas using naira debit cards. A source confided in Daily Sun that during the last Bankers’ Committee meeting in Lagos, the regulator directed the banks to add only N5 profit margin to the official inter bank rate on all forex-related transactions carried out with naira debit and credit cards.
This we gathered had forced the banks to stop all foreign transactions on their payment cards. As banks said they had been sourcing dollars at rates above N400 per dollar to run their card services.
Even before the embargo on the foreign ATMs, it was gathered that most banks had reduced their daily ATM withdrawal limit from the $300 stipulated by Bankers Committee to $100 due to their inability to source dollars to fund the business.
And as if to take a cue from the President on dealing with round tripping, the CBN said bank customers who spend above the $50,000 annual forex would be barred from the forex market.
Ms. Martins, stated this after the 329th Bankers’ Committee meeting in Lagos.
According to her, “In the CBN’s move to manage the demand for forex, there was a rule that people were not allowed to withdraw more than $50,000 annually on their naira debit cards.For a while, the policy has been abused by bank customers, and the CBN has not taken any step to that effect. We have decided to take the step now to enforce the rule. So, we want members of the public to remember that that rule is in place.
“All your accounts are linked to a particular Bank Verification Number. Now, that the BVN only allows you to withdraw only $50,000 per annum, if people continue to breach that rule, they will lose access to the forex market.”
To get out of the forex quagmire, experts have urged the Federal Government to seek a $10billion currency support line from its trading partners; set a limit for the falling Naira, fix infrastructure and pursue the diversification drive with vigour”.
Mr. Johnson Chukwu, the Managing Director of Cowry Assets Management Limited, advises the Federal Government to seal bilateral or multilateral loans to buffer the currency since the CBN can not do so.
His words: “The only thing government can do is to enter into agreement with a multilateral financial agency or a bilateral financial agreement with one of our trading partners to provide financial support, budget support or currency support line of a minimum of $10 billion to the government through the Central Bank so that the government will be in a position to meet legitimate demand for forex. The key thing is that confidence has been punctured. Investors , both local and international, complain that we dont have the reserves to meet all the maturing obligations or all our obligations. So they are not bringing in their money. If we want that change, we need to get a currency or budget support line that is huge enough, that is large enough to ensure that we, as a country, can meet all foreign currency obligations as they are unfolding.As of today, CBN can no longer convince both international and local investors, that it has the muscle to do that. So it has to leverage on entities such as multilateral financial agencies like the World Bank, the IMF,bilateral partners like China or any of them to give the investing public that confidence that the country have the resources to meet all its obligations.”
He, however, warns: “If the situation persists, the contracting economy will accelerate, so you are going to have a high level contraction.If we do not stop the deterioration in the exchange rate because most companies can no longer afford to bring in their raw materials and equipment they need for manufacturing purpose.The cost of consumables is going to adjust upward to the level that majority of Nigerians can no longer afford to buy basic necessities of life.”
Professor Garba Sheka, Professor of Economics at Bayero University, Kano, advised that Nigerians should shun patronage of foreign goods in order to conserve the scarce forex.
In Good Morning Nigeria, an NTA programme, the universituy don also urged that diversification should be pursued vigorously.
His words: “There should be vigorous campaign to enlighten Nigerians to start patronising goods made in Nigeria. That will reduce our import dependence significantly.
Again, we should set a target. We should not allow the currency to float like that. The CBN should have a target like the US and other countries have.
W e should not allow the market forces to determine the currency rate completely. We should also reject completely or drop the idea of selling the national assets in order to support the economy. I dont think that is a very good advice .It is a very wrong advice, and I think government would not take that.
To boost the value of the Naira is a question of diversifying the economy. Of course, diversification requires huge amount of money to put the infrastructure in place.Then to come up with good policies so that prices of our manufactured goods and other goods can be competitive in the world market.
As for Professor Olanrewaju Olaniyan of Economics Departmnet of the University of Ibadan,the monetary authority should close the exchange rates gap between the
official and black market.
“Once you have the gap between the official rate and black market rate at that large,which is close to 35 per cent of the value, then it gives opportunity for arbitrage. People understand that they can make profit by just buying that particular currency, holding for some time and sell it.So the solution to that is that we need to close that gap. Unfortunately, the ability of policies to close that gap is also limited during the structure that we have now. The economy is stagnant and there is high inflation.So both policies have to be worked out very carefully and keenly for us to be able to reduce that.
It will not be in the interest of the economy to go extremely floating it now because at the rate at which the Naira is going, if we completely float it, the Naira will soon hit something like N800 to N900 per dollar. But even when the CBN can not afford to float and still peg, you still require your reserves as a background so that it can hold forte for you. One thing we need to do is to find a way of shoring up that our reserves in such a way that we can do that. Those are the quick things that I know that we can do now, but the longer ones are to diversify; increase agric output. But agric output essentially has problem in the sense that the farmers are extremely poor, and they are not poor because they are not producing. They are poor because the farm produce aggregate prices are extremely low.There would still be need at a point in time for government to assure farmers that they will get value for their efforts.
Diversification is key in the longer terms.And for us to diversify into manufacturing that can give us these foreign currencies, our infrastructure has to be improved.In the last couple of years, we have seen some improvement.This improvement must translate into the perception of the manufacturers .