Introduction
I have never changed money in Nigeria's Black (Parallel) Market, and don't intend to any time soon. Nevertheless, back in August 2000, on my last trip to Nigeria, I went with one of my many hosts to an open site in Ikeja, Lagos State to watch him exchange a few hundreds of his own dollars.
As we drove up to this open foreign exchange market (this was at about 7 pm), quite a number of at least 2 dozen people were sitting around, and very quickly a Mallam (whose turn it appeared was to attend to the next customer) came to us to ask quite directly what denomination we had and how much we were willing to exchange. "500 US dollars" my host said. "115 Naira" the Mallam said the Dollar to Naira exchange rate (I don't quite remember the exact amount that he said). "120 Naira or I will leave," my host said.
Without much further haggling, the Mallam ran into this non-descript White house just beyond the open yard, and came back with a bundle of Naira under his Babanriga, and handed the bundle to my host, who counted quickly and saw that it was N118. He handed all the money back, and we made to leave, but the Mallam quickly said, "Ah, oga" - and brought the rest of the money out to give my host. At that point, my host counted quickly further, then surrendered his 500 dollars, and the quick deed was done.
Just like that.
I know that the Black Market is legal in Nigeria, but when we left the eerie scene, I had to ask my host again: "Is this legal?" He said "Yes. Don't you see all newspapers quote parallel market rates all the time?" "But how do you know that his Naira are real, not fake, and how does he know that all the dollars you gave to him are not fake?" There was no immediate response, but I think that there was a matter of faith on both sides. Certainly, finger-testing $500 (5 $100 notes) could not have been a big problem for the Mallam, but how my host could so quickly be sure that all the N60,000 bundle that was handed to him was kosher is still a mystery to me. [I could relate another situation where all the dollars handed to a close friend in a similar parallel market exchange were not kosher - but I won't!]
Relative approaches to the Black Market
I relate this encounter in preparation to asking the question: should the Black Market in Nigeria be so openly and legally done, and has it not considerably hurt the value of our Naira over the years?
Should it not be BANNED once and for all NOW and a concerted effort be employed to run ALL of its operators out of town?
Can a country be so helpless about controls of its own currency for even the government to appeal to its parastatals not to engage in changing money in the Black market any longer, as president Obasanjo was recently reported to have "appealed", or more accurately "banned" such activity? Or when the governor of our Central Bank makes optimistic statements about the appreciation of the Naira in the parallel market?
Why must our president unilaterally ban government officials from patronising a market if it is legal? Otherwise, why is legislation not enacted to BAN it right away, hence making government patronage of such an activity a moot point?
Why do I ask these? For one, trading in the Black Market in Europe, Asia and most Latin American countries is completely ILLEGAL and has been so for as long as we know. It must be for good reason. If we look at the foreign exchange rates of their currencies, they have largely not had large mood swings, and if they had, certainly not due to the parallel market, but due to occurrences such as wars, etc..
Table 1 below shows this for 30 non-African countries between 1980 and 1999, none of which closes its eyes to ANY Black market within its borders. On the other hand, Table 2 also shows the historical treand for both official and parallel market exchange rates for 30 African countries.
Table 1:
Official Exchange Rates Per USA Dollar ($) in selected non-African Countries
|
Country |
Currency |
1980 |
1990 |
1994 |
1995 |
Mid-1999 |
Ratio* |
|
|
1 |
2 |
3 |
4 |
5 |
6 |
|
Austria |
Schilling |
20.7 |
14.5 |
12.1 |
11.0 |
13.3 |
0.643 |
|
Demark |
Kroner |
6.5 |
5.8 |
6.8 |
6.2 |
7.2 |
1.108 |
|
France |
Franc |
5.1 |
5.1 |
5.4 |
5.0 |
6.4 |
1.255 |
|
Germany |
Deutschemark |
2.8 |
2.2 |
1.7 |
1.6 |
1.9 |
0.679 |
|
Greece |
Drachma |
30 |
175.6 |
296 |
242 |
314 |
10.467 |
|
Sweden |
Kronor |
4.8 |
4.5 |
8.5 |
7.5 |
8.5 |
1.771 |
|
Switzerland |
Franc |
1.8 |
1.7 |
1.5 |
1.3 |
1.6 |
0.889 |
|
UK |
Pound |
0.4 |
0.55 |
0.68 |
0.66 |
0.63 |
1.575 |
|
Russia |
Rouble |
1.3 |
1.5 |
1231 |
3232 |
24.3 |
18.692 |
|
USA |
Dollar |
1 |
1 |
1 |
1 |
1 |
1 |
|
Argentina |
Peso |
0.25 |
0.25 |
0.99 |
0.99 |
1 |
4 |
|
Brazil |
Real |
405.5 |
650.6 |
0.85 |
0.8 |
1.8 |
? |
|
Canada |
Dollar |
1.05 |
10.5 |
1.34 |
1.38 |
1.48 |
1.41 |
|
Mexico |
Peso |
1.01 |
2.5 |
3.1 |
3.5 |
9.5 |
9.41 |
|
Venezuela |
Bolivar |
4.5 |
4.0 |
102 |
170 |
607 |
134.9 |
|
Australia |
Dollar |
0.89 |
0.88 |
1.62 |
1.31 |
1.5 |
1.69 |
|
India |
Rupee |
8 |
15 |
31.1 |
33.8 |
43.4 |
0.417 |
|
Japan |
Yen |
290 |
150.5 |
109 |
99 |
121 |
0.42 |
|
Malaysia |
Ringgit |
0.6 |
1.2 |
2.6 |
2.5 |
3.8 |
6.33 |
|
Philippines |
Reso |
2.6 |
3.6 |
27.3 |
23.8 |
38.0 |
14.6 |
|
Singapore |
Dollar |
1 |
1 |
1.6 |
1.5 |
1.7 |
1.7 |
|
Indonesia |
Rupiah |
1.25 |
1.3 |
2102 |
2267 |
6875 |
5500 |
|
Iran |
Rial |
0.6 |
1 |
1.35 |
1.4 |
1.8 |
3 |
|
Iraq |
Dinar |
0.06 |
0.06 |
0.25 |
0.3 |
3.75 |
62.5 |
|
Saudi Arabia |
Riyal |
2.5 |
3.4 |
3.7 |
3.8 |
3.8 |
1.52 |
|
South Korea |
Won |
260 |
350 |
808 |
795 |
1158 |
4.45 |
|
China |
Yuan |
3.75 |
4.45 |
5.79 |
8.68 |
8.25 |
2.2 |
|
Taiwan |
Dollar |
7.75 |
8.25 |
26.7 |
26.3 |
32.3 |
4.17 |
|
Thailand |
Baht |
7.9 |
8.4 |
15.4 |
25 |
36.9 |
4.67 |
|
UAE |
Dirham |
5.01 |
3.75 |
3.68 |
3.68 |
3.75 |
0.75 |
|
|
|
|
|
|
|
|
*Ratio = (5)/(1). A ratio lower than 1 implies an appreciation of the currency relative to the dollar over the years stated
Table 2
Historical foreign exchange rates for 30 African countries
1. Official exchange
2. Parallel (Black) market exchange rate
|
Country |
Currency |
|
1980 |
1990 |
1993 |
1994 |
1999 |
Ratio* |
|
|
|
1 |
2 |
3 |
4 |
5 |
6 |
|
CFA Counts 14 countries |
CFA Franc |
1 |
211.3 |
272.3 |
283.2 |
555.2 |
620 |
2.93 |
|
|
2 |
2099.5 |
281.8 |
288 |
586 |
625 |
2.98 |
|
Botswana |
Pula |
1 |
0.8 |
2.6 |
3.3 |
3.6 |
6.1 |
7.63 |
|
|
2 |
0.9 |
2.7 |
3.5 |
3.8 |
4.8 |
5.33 |
|
Zimbabwe |
Dollar |
1 |
0.6 |
2.5 |
6.5 |
8.2 |
38.3 |
63.8 |
|
|
2 |
1.1 |
3.3 |
7.7 |
9.4 |
16 |
14.5 |
|
Kenya |
Shilling |
1 |
7.4 |
22.9 |
58.0 |
56.1 |
70.3 |
9.5 |
|
|
2 |
8.2 |
23.3 |
91.7 |
66.8 |
70 |
8.54 |
|
Zambia |
Kwach |
1 |
0.8 |
30.3 |
452.8 |
669.4 |
2388 |
2985 |
|
|
2 |
1.3 |
121.2 |
531 |
805.4 |
- |
619.5 |
|
Uganda |
Shilling |
1 |
0.1 |
428.9 |
1191 |
979.4 |
1454.8 |
14548 |
|
|
2 |
75.7 |
685.8 |
1515.8 |
1292.8 |
1230.5 |
16.3 |
|
Ethiopia |
Birr |
1 |
2.1 |
2.1 |
5.0 |
5.5 |
7.9 |
3.76 |
|
|
2 |
2.8 |
6.0 |
13.3 |
12 |
8 |
2.86 |
|
Ghana |
Cedi |
1 |
2.8 |
326.3 |
649.1 |
956.7 |
2647.3 |
945.5 |
|
|
2 |
15.9 |
360.8 |
665.7 |
976.4 |
2700 |
169.8 |
|
Nigeria |
Naira |
1 |
0.5 |
8 |
22.1 |
22.0 |
92.3 |
184.6 |
|
|
2 |
0.9 |
9.3 |
56.8 |
71.7 |
105 |
116.7 |
|
Guinea |
Franc |
1 |
19 |
660.2 |
955.5 |
976.6 |
1105 |
58.2 |
|
|
2 |
41.7 |
693.3 |
1156.9 |
1074.1 |
1150.5 |
27.6 |
|
Liberia |
Dollar |
1 |
1 |
1 |
1 |
1 |
41.9 |
41.9 |
|
|
2 |
1.1 |
5.5 |
40 |
45 |
60.5 |
55 |
|
Libya |
Dinar |
1 |
0.3 |
0.3 |
0.3 |
0.3 |
0.4 |
1.33 |
|
|
2 |
0.5 |
1 |
1.7 |
1.6 |
2.3 |
4.6 |
|
Egypt |
Pound |
1 |
0.7 |
1.5 |
3.4 |
3.4 |
3.4 |
4.86 |
|
|
2 |
0.8 |
2.6 |
3.4 |
3.4 |
- |
4.25 |
|
Algeria |
Dinar |
1 |
3.8 |
9 |
23.3 |
35.1 |
66.6 |
17.5 |
|
|
2 |
10.9 |
29.8 |
106.8 |
128.7 |
135 |
12.4 |
|
Mauritus |
Rupee |
1 |
7.7 |
14.9 |
17.6 |
18 |
25.2 |
3.27 |
|
|
2 |
7.8 |
15.7 |
18.3 |
18.4 |
24 |
3.08 |
|
|
|
|
|
|
|
|
|
*The CFA countries (the 14 members of the CFA Zone were: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Cote d'Ivoire, Equatorial Guinea, Gabon, Mali, Niger, Senegal and Togo. Guinea-Bissau became the 15th member on August 1, 1997) have their currency pegged to the French Franc, but in January 1994, the CFA franc was devalued by 50 per cent to CFA Fr100 to the French franc
Sources:
- African Development Indicators 2000; World Bank, DC, USA
- London Economist Intelligence Units WOrld in Summary
If we eliminate the two highest outlier 1999/1990 exchange ratios (official: non-Africa - Indonesia and Brazil ; official: Africa - Uganda and Zambia ; parallel: Africa - Ghana and Zambia) , we see that the average devaluation ratios for the remaining 24 countries in each category are as as follows:
Non-African countries: Official: 10.5 devaluation ratio
African countries : Official: 48.7 devaluation ratio
Parallel: 11.5 devaluation ratio
If one understands that the official position is invariably to overvalue a country's currency while the parallel market would tend to reduce that value relative to foreign currency (the dollar in this case), then the trend in Table 2 clearly shows that the devaluation by the parallel market has almost invariably been tracked by that of the official rate, with the official African exchange rate actually on average trying to over-correct (by a factor of 5) for its seeming under-valuation of its own currency.
Clearly, for those who have both the local and foreign currency OUTSIDE the traditional (and hence easily monitored) banking system - including both drug and other corruptly-acquired foreign cash denominations - it is convenient to create an environment for currency speculation, particularly when the impression or reality of difficulties of obtaining foreign exchange through the normal official banking system exists.
Attempts by governments to "close the gap" between the official and parallel markets in order to use ordinary market forces to "drive out the parallel market " almost invariably have led to another cycle of parallel market devaluation followed by yet another official attempt to close the gap, etcheram, ad nauseum
In short, in this official/parallel market situation, we have the tail wagging the dog, and at the same time, the dog trying to bite the tail in a never-ending circle of death.
Until and unless this chain is broken by OFFICIALLY banning the Black currency market, this recurrent devaluation of the respective currencies due to parallel market influences will continue unabated. This first step towards control of our currencies, of course, does not absolve the government in ensuring other worthy fiscal and monetary policies to tame its financial economy.
Epilogue
My conclusion, therefore, is that the Black (Parallel) Market should be banned throughout Africa, and certainly in Nigeria, because we cannot allow criminal activity to guide official policy while allowing such activity to continue openly with impunity. It is not allowed elsewhere, so why must we hoodwink crime officially in Africa?
These are questions that inquiring minds want to know.
Guides
