There has always been a demand for United States Dollars in Nigeria for several reasons such as personal travel allowance (PTA) and business travel allowance (BTA). The inevitable currency fluctuations between the USD and the NGN make dollar arbitrage in Nigeria a viable business opportunity, presenting brokers the opportunity to make a profit by buying the dollar at a lower price and selling it when the exchange rate goes up. You may wonder whether this practice is legal in Nigeria. Read on to find out if dollar arbitrage is legal in Nigeria.
Is Dollar Arbitrage Legal in Nigeria?
At the time of writing this article (April 2023), there is no enacted Act of the National Assembly or Law of a State that defines dollar arbitrage as a crime or offense in Nigeria. More so, no written law contains any kind of penalty for engaging in dollar arbitrage in Nigeria. Given this, dollar arbitrage is legal in Nigeria. However, Bureaux De Change (BDCs) that are in the business of exchanging the USD for the NGN and vice versa, is governed by the CBN through the CBN Revised Operational Guidelines for Bureaux De Change in Nigeria 2015.
What is the Position of the Law on Dollar Arbitrage in Nigeria?
There is currently no law that prohibits, bans, or criminalizes dollar arbitrage in Nigeria. Also, there is no penalty ascribed for dollar arbitrage in Nigeria in any written Nigerian law. Section 36(12) of the 1999 Constitution of the Federal Republic of Nigeria states:
Subject as otherwise provided by this Constitution a person shall not be convicted of a criminal offense unless that offense is defined and the penalty, therefore, is prescribed by a written law; and in this subsection, a written law refers to an Act of the National Assembly or a Law of a State, and subsidiary legislation or instrument under the provisions of the law.”
Based on the quote above, dollar arbitrage in Nigeria is legal. However, Bureaux De Changes which are businesses where people exchange the dollar currency (and other foreign currencies) for the naira and vice versa, need to be registered and run per the CBN Revised Operational Guidelines for Bureau De Change in Nigeria 2015.
Understanding the Practice of Dollar Arbitrage in Nigeria
Dollar arbitrage is a form of forex strategy where an arbitrage trader profits from the difference in exchange rates between the USD and another currency, say the Naira. Dollar arbitrage could be performed by an individual or as a business. When it’s carried out as a business, it is referred to as Bureau De Change (BDC).
In the case of Bureaux De Change, they are required to first get registered and receive a license from the CBN per the provisions of the CBN Revised Operational Guidelines for Bureaux De Change in Nigeria 2015. Operating a BDC without being duly registered is illegal in Nigeria. Before now, registered BDCs received $20,000 from the CBN weekly, but two years ago, CBN stopped doing that, instead instructing the BDCs to source for foreign currencies from other sources.
According to the provisions of the CBN Revised Operational Guideline for Bureaux De Change in Nigeria 2015, the exchange rates of the BDCs ought not to be above 3.5% of the CBN-approved rate. This is not the case, however. For example, the CBN selling exchange rate as of 14th April 2023 is USD1 = NGN459.93, but on the black market, USD1 = NGN735. In view, BDCs make a profit of N275.07 on each USD.
For individual arbitrage traders, there are several options available for them to source for the USD. One way they could get USD at a rate close to the approved CBN rate is to register with a foreign exchange broker platform which would allow them to buy and sell foreign currencies. Here, they would use their Naira to buy the USD from these foreign exchange platforms, then study the currency exchange market to know when to sell the USD for the Naira. The time when the USD is usually sold for the Naira is when the NGN falls short of the USD, thereby making a profit.
Individual arbitrage traders could also be freelancers or remote workers who get paid in dollars into their domiciliary accounts, after which they would get the USD from a deposit money bank in the country, and then sell it at the black market for the Naira for a profit. There is another way some arbitrage traders get USD from deposit money banks at the official exchange rate by exploiting some loopholes in the system. They do this by applying for personal traveling allowance (PTA) and/or business traveling allowance (BTA) to get USD, then they would forfeit their travels and sell the obtained USD at a higher rate to others. This method is usually frowned upon, but there it isn’t a crime yet, as no law expressly states so.
Dollar arbitrage in Nigeria is a thriving business. According to a statement made by the former CBN governor, Sanusi Lamido Sanusi, many billionaires we know today in Nigeria made easy billions of Naira by buying the USD low and selling it high. However, as much as dollar arbitrage is a worthwhile venture to delve into, arbitrage traders are expected to have a good understanding of the attendant risks of the business. Understanding the currency exchange market would help them know how to trade currencies at the right time so they don’t register massive losses.
Conclusively, dollar arbitrage in Nigeria will continue to be a business for years to come. It presents tremendous opportunities to become successful, however, every arbitrage trader must understand the risk involved to help them develop strategies and tactics to prevent losses. Keeping up with world events and economic indicators that can affect the exchange rates of the USD to the NGN is the right way to go as it makes making informed decisions on when to buy and sell currency pairs.