Business day has unravelled what could very well be the biggest FX racket since the days of military dic ta tor Sani Abacha.
Investigations reveal that face less agents in Nigeria are exploiting the country’s multiple exchange rates to devastating effect and they allegedly have the backing of regulators.
Business day has learnt that these agents, hand picked by the Central Bank for oil and non-oil exporters who need naira to settle domestic administrative obligations from workers’ salaries to overhead costs, could be making exchange rate gains of over N32 billion annually.
Here’s how the racket plays out.
When an exporter notifies the CBN of intentions to buy naira, the regulator recommends an agent who will man age the transaction. The agent then accepts dollars from the exporter in exchange for naira at an exchange rate of N306 per US dollar. This faceless agent then heads to the black market to sell same dollars at N360, helping himself to a gain of N54 per dollar.
Business day estimated these faceless agents to be making no less than N32 billion annually. That’s how much they pocket from crude oil exporters alone.
The figure could increase an other 5 percent if non-oil ex porters are factored in, given that oil exports account for 95 percent of dollar inflows into the country while non-oil exports take up the remaining 5 per cent.Five per cent will equate to N1.68 billion for a total of N33.68 billion.
The amount these agents make on a yearly basis is enough to build 6,400 housing units in Nigeria’s hinterlands. That’s assuming each unit costs N5 mil lion. It is also enough to provide eight ultra modern hospitals, at an average cost of N4 billion each, across the country.
The inferences are being made because housing and health care are two of the most critical yet under- funded sectors in Nigeria.
In making our assumptions, Business day obtained the financial report of indigenous oil company, Seplat, to extract its administrative expenses and render it as a percentage of total revenues.
Seplat’s estimated full-year 2018 revenue is $757 mil lion. In the nine months ended Sept 2018, the company’s revenue was $568 million. That gives a monthly av er age of $189 mil lion.
The company’s general and administrative expenses totalled $55 mil lion in the nine-month period. The monthly average comes to $18 mil lion. To roughly es ti mate full-year administrative expenses, we added $18 million to $55 mil lion and arrived at $73 mil lion.
It means 9.6 percent of Seplat’s revenue went to ad min expenses.
We assumed that the IOCS spent $505 mil lion in administrative expenses in Nigeria. This we derived by applying Seplat’s administrative expense as a per cent age of revenue – 9.6 per cent on the total Joint Venture share of the IOCS.
The NNPC in its September 2018 report stated that the IOCS’ JV share totalled N581 billion between September 2017 and 2018, while the Federal Government claimed N924 bil lion, which implies a sharing formula of 61 per cent for the FG and 39 per cent for the IOCS.
The report was based on an ex change rate of N306 per dollar, which means the IOCS’ share in dollar terms was $1.9 billion.
To estimate how much of that amount is likely committed to administrative expenses, we calculated 9.6 per cent of $1.9 billion, which gave $505 million. We arrived at this figure after adopting the Seplat model, wherein 9.6 percent of total revenue is spent on administrative costs.
Seplat’s admin costs of $73 million added to the IOCS’ $505 million equals $578 mil lion. At an exchange rate of N306 per dollar, it means the IOCS and Se plat may have spent N176 billion on admin expenses in 2018. When the N360 per dollar exchange rate is factored in, the amount swells to N208 bil lion, leaving a difference of N32 bil lion.
Given that our conservative estimate leaves out the transactions of other indigenous companies, it is safe to assume these faceless agents make no less than N32 billion an nu ally in exchange rate gain.
Our estimate also leaves out non oil exports, which when roughly estimated translate to a total of N33.68 billion, as stated earlier in the story.
“The FX arbitrage in the country is hardly the best kept secret,” a source who did not want to be named told Business day.
“Every bank chief executive officer knows about it, but the fear of the regulator keeps them mum ,” the source said.
Two other sources confirmed they were also aware of the deal ings.
“Every large importer of dollars who goes through the official channel is a victim,” one of the sources said.
“The arbitrage opportunity is the reason why the N306 rate still exists, when most market transactions happen at the N360 rate,” the second source said.
Treasury sources tell Business Day that the practice has forced some exporters to circumvent official channels in order to get a market-re effective rate for their dollars. That has curbed dollar supply, piling pressure on the exchange rate.
To address the rising tide of exporters boycotting offcial channels, the Central Bank has threatened to sanction the banks.
According to sources familiar with the matter, the CBN is convinced that the banks could be help ing some of their clients divert their dollars and is bent on discouraging that.
“The CBN is penalising banks whose clients don’t bring their dol lars through official channels,” a source said. “The banks argue that it is not their fault if clients are bent on diverting their money.”
The diversion threatens to take the country back to a period in 2016 when exporters and Nigerians in the diaspora side-stepped official channels because of the country’s long standing naira peg of N199 per dollar.
The black market rate at that time was as high as N300 per US dollar, yet the CBN force fully exchanged dollars at the N199 rate, deny ing in di vid u als and businesses, whose costs were anchored on the black market rate, of a spread of N101.
The impact was an acute dollar shortage that contributed to Nigeria’s worst economic recession in 25 years.
“It is perhaps the biggest FX racket since the days of Abacha,” one of our sources said.
In the early 1990s, Abacha gave dollars away to his cronies at an official ex change rate of around N20 per dollar when the parallel market rate was anywhere between N70 and N80 per dollar, creating an arbitrage op por tu nity of between N50 to N60 per dollar. https://www.pressreader.com/nigeria/business-day-nigeria/20190204/281479277655120https://businessday.ng/exclusives/article/exposed-the-sleazy-face-of-n306-updated/cc Lalasticlala |
