(Bloomberg) — John Anigor had to scream at the dollar hustlers to get them to leave him alone.
Black-market hagglers peddling greenbacks in exchange for Nigerian naira surrounded the 46-year-old business owner as he made his way to the registered money changers on Broad Street in Lagos, Nigeria’s commercial center. Anigor wanted to buy U.S. currency so he could keep his clothing store stocked with Chinese fabrics, but they made it hard for him to pass. One of the traders followed Anigor into a building near the city’s main transportation hub and up the stairs to the exchange house, where he demanded a slice of the transaction as a finder’s fee.
“My bank said they didn’t have dollars,” said Anigor, squeezing his wallet under his arm as he left the money changers’ offices on March 2. “I paid 220 naira per dollar. In mid-November, I paid 180 naira per dollar to the same bureau de change.”
As a dollar shortage grips Nigeria following the plunge in the price of oil, the country’s biggest export, the line between legal currency exchange houses and a booming black-market business is growing thin. Policy makers, desperate to halt a 19 percent, seven-month plunge in the naira, started imposing restrictions on currency trading in December, a move that’s forcing many Nigerians, like Anigor, to navigate through hordes of black-market dealers to get to registered traders.
Trading Shrinks
Naira trading between banks has shrunk as much as 98 percent to as little as $10 million a day, according to Samir Gadio, head of African strategy at London-based Standard Chartered Plc. The economy is sputtering under the weight of the oil drop, a dollar shortage and an Islamist insurgency in the north before tightly fought elections this month. The International Monetary Fund cut its 2015 growth forecast for Nigeria to 4.8 percent, about half the average rate over the past 15 years.
To support the naira, Nigeria has depleted foreign-exchange reserves to the lowest since Bloomberg began compiling records in July 2010. The Central Bank of Nigeria in January blocked the nation’s 2,500 exchange houses from buying foreign currency from lenders. Bureaus must sell greenbacks within a range of 3.5 percent of what they paid for them at weekly auctions run by the central bank.
“We’ve been removed from our biggest source for dollars,” Aminu Gwadabe, president of the Association of Bureau de Change of Nigeria, said by phone from Lagos. “That’s putting the BDCs under pressure,” he said, using the shortened name for exchange houses, or bureaus de change.
Wider Band
The money changers want the band at which they’re allowed to sell dollars to widen to 6 percent above or below the rate the regulator uses, Gwadabe said. That will save their businesses and make it easier to stamp out black-market trading, he said. Each bureau can buy about $30,000 a week from the central bank, giving them control of a significant part of Nigeria’s foreign-exchange market, Gwadabe said.
Some bureaus are using traders on the black market as agents to make wider margins on their foreign currency, Muhammed Usman, one of the dealers on Broad Street, said in an interview.
Black-market traders charge more for dollars and skip the paperwork required by the exchange houses.
Policy makers haven’t only targeted money changers in their efforts to shore up the local currency. They’re also using a range of rules to prevent speculation and stop people from hoarding dollars on the concern that the naira will weaken.
JPMorgan Threat
Foreign-exchange turnover started sliding after mid-December after the regulator ordered banks to hand over their foreign-exchange positions to the central bank on a daily basis, having previously allowed lenders to hold 1 percent of shareholder funds in overseas currency. They increased the limit to 0.5 percent in January after JPMorgan Chase & Co. said the lack of liquidity could force it to reconsider including the country’s local debt in indexes tracked by more than $200 billion of funds.
The central bank in February scrapped twice-weekly foreign-exchange auctions at which the naira was sold to banks at a subsidized rate in a band that varied a maximum of 5 percent on either side of 168 per dollar. That effectively devalued the currency for the second time in three months as the regulator allowed the naira’s exchange rate to be determined only in the openly traded interbank market, rather than a pegged value at the sales.
Increase Supply
Those steps followed a system introduced Feb. 13 that prevented local dealers from buying foreign currency without proving it was needed to fulfill planned transactions.
The central bank is supporting exchange houses that can demonstrate genuine dollar demand and will increase supply if regulators see a need, Ibrahim Mu’azu, a spokesman for Abuja-based central bank, said by phone on March 13. Importers should rely on banks for foreign currency and not exchange houses, which are meant for smaller transactions, he said.
“Banks were banned from selling dollars to the BDCs because the process was abused,” Mu’azu said. Bureaus should also try soak up dollars from travelers returning from abroad, he said.
The lack of greenbacks may drive the naira to 230 per dollar on the black market, the BDC association’s Gwadabe said. The naira advanced 0.4 percent to 198.52 per dollar as of 4:20 p.m. in Lagos on Tuesday. That pared losses over the past six months to 18 percent, the most among 24 African currencies tracked by Bloomberg.
Wrong Diagnosis
“The Central Bank of Nigeria continues to misdiagnose the pressure on the naira,” ignoring that tumbling oil prices have hurt the country’s terms of trade and resulted in assets being sold off, Gareth Brickman, a market analyst for Johannesburg-based ETM Analytics, said in a March 11 note. The bank’s actions “will not engender confidence in policy credibility.”
The price of oil, which accounts for 90 percent of export earnings and 70 percent of government revenue, has tumbled more than 50 percent since June.
Pressure on government finances comes as the conflict with Boko Haram insurgents in northern Nigeria led officials to delay national elections scheduled for Feb. 14 by six weeks, compounding investor concerns with the vote that’s likely to be the most closely contested since the end of military rule in 1999. The group killed at least 1,600 people in January and more than 4,700 in 2014, double the number in 2013, according to Bath, U.K.-based risk consultancy Verisk Maplecroft.
Election Uncertainty
“With the uncertainties surrounding the elections over by April, dollar inflows may rise and the central bank may be more able to support the BDCs and the market,” Usman Onoja, the chief executive officer of Lagos-based Lovonus Bureau de Change, said by phone.
Anigor said he can’t wait until after the elections, when he expects controls on currency transactions to loosen. Without the ability to import fabric, he said his company will fail. He said he tried in November to follow the advice of his Nigerian bank by drawing dollars while on a business trip to China. When he was unable to, he said he resorted to the bureau de change.
“My business has to continue,” Anigor said, raising his voice in irritation.
To contact the reporter on this story: Emele Onu in Lagos at [email protected]
