The Nation Newspaper

Tag: Naira devaluation

  • When will prices begin to come down?

    When will prices begin to come down?

    The most recurrent response to my column last week on the appreciation of the Naira was a question: When will prices begin to come down? The question presupposes that Naira devaluation alone was responsible for rising prices. The investigation reported below shows otherwise.

    The good news, however, is that prices of some commodities have begun to adjust in line with the appreciation of the Naira, but only for certain products and only in certain areas. For example, Financial Derivatives Company Limited reported over the weekend that the prices of rice, flour, and noodles have begun to fall, although at varying rates. The Company’s Managing Director, Bismarck Rewane, added that prices will continue to reflect the Naira appreciation as more businesses begin to stock up at the new Naira/$ rate.

    However, investigations in Akure, the Ondo state capital, reveal limited corroboration, according to my team of investigators. The team investigated prices in various markets and stores, including three popular food markets (Isikan Market on Ondo Road, Shasha Market on Owo road, and the sprawling Oja Oba Market near the Oba’s palace); Supermarkets (notably, Shoprite, Ceci, and Vigeo); and various Household goods stores for electronics, electrical wares, plumbing, and furniture.

    Prices remain high everywhere. Prices of rice and flour have not adjusted for Naira appreciation in the Akure markets, but the price of noodles, especially the Indomie variety, has come down a little. It was also noted that certain items are cheaper in certain markets than in others. For example, fresh fruits and vegetables are cheaper in Shasha than in the other markets. Generally, Shasha prices are lower for foodstuff and meat products, because Shasha Market is a dropoff point for trucks bringing foodstuff from various locations. Even at that, Shasha prices now are higher than ever before. However, once foodstuff and fresh veggies make it to fancy shelves in Supermarkets, such as Shoprite, they get particularly overpriced. Prices of imported goods remain very high, much higher than similar goods produced locally. However, both are much higher than they were six months ago.

    Read Also; Nigeria’s security architecture stretched beyond elastic limits, says Tinubu

    The more interesting findings, however, are why prices are not being adjusted in line with Naira appreciation. Some retailers, such as local market women are not aware of Naira appreciation, while others are skeptical. One retailer insisted that the whole Naira appreciation story is a gimmick. Another one, more informed, thinks that we should wait to see if Naira appreciation will be sustained. “I don’t want to lower my price today and have to raise it again tomorrow”, he said. When I explained that even Goldman Sacks, a global financial institution, has praised the Central Bank Governor, Yemi Cardoso, for his policies, and even predicted that the Naira may exchange for less than N1,000/$1 by the end of the year, the response was that they don’t know the Nigerian government.

    Some of these responses have their basis in trust deficit in government (see Trust deficit in Nigeria, The Nation, March 13, 2024). Others demonstrate the poverty of information from the government to the people, especially the non-reading public and the illiterate market women. If politicians could reach this population for votes, then the government should find ways to inform them of impactful activities.

    Another interesting finding from the investigations is that the value of the Naira is only one of several factors responsible for rising prices. Another major factor is the high cost of fuel, following the removal of fuel subsidy. Fuel is needed for transporting goods to the market and for powering generators in the absence of regular power supply. For example, fish sellers and cool drinks sellers from roadside kiosks insisted that they needed to add the cost of transport and refrigeration to their prices in order to make some profit.

    Since high fuel cost is a direct result of the removal of fuel subsidy, it follows that what traders need is beyond palliatives. They want the government to find a way to moderate the high cost of fuel in order to bring down food inflation, just as it has moderated the exchange rate to enhance the value of the Naira. This could be achieved by doubling up on local refineries. In this regard, Dangote and Port Harcourt refineries are welcome developments. Already, Dangote is said to have lowered the cost of diesel. Hopefully, it will reflect in price tags soon.

    There is yet another problem affecting the costs of foodstuff. Desertification and climate change are affecting farmers’ productivity in the so-called food basket zone, including Benue, Kogi, and Nassarawa states. In Benue State, for example, dry season farming is no longer profitable. A recent report in Premium Times shows how a previously fertile land has turned arid due to extreme heat, caused by climate change (Nigeria’s ‘food basket’ faces new foes, Premium Times, April 6, 2024). As a result, farmers are left to lament poor yield, like this farmer, cited in the report: “How can you cultivate 32 hectares of yam farm and you will not even be able to get up to 100 tubers of yam that you will sell?’. You can imagine that whatever this farmer is able to sell from his farm will attract a high price tag, regardless of fuel cost and the value of the Naira. Here again is an invitation to the government to provide more than fertilizers to farmers. Those in the food basket zone and up North want the government to pay more attention to climate change and provide solutions to their farming problems.

    There are at least two striking conclusions from this analysis. One, more patience is required for prices to come down, because there are many factors at play that have been driving up prices. In this regard, it is important to view food inflation in Nigeria today against a global trend in the last 25 years. Virtually nowhere have prices come fully down once they go up.

    Two, it would appear that the government is expected to do everything, partly in the belief that it caused the present problems with its policies and partly because of the dearth of infrastructure as a result of government negligence over the years. This is where banks too should be under the spotlight for their contribution to the seriously challenged economy from which they have managed to make astronomical profits. The 2023 financial reports of just six banks —Access, Zenith, GTCO, UBA, Stanbic, and Wema—show that, despite serious economic challenges, they generated profits worth over N3 trillion! All on our back, one way or the other.

  • Naira devaluation inimical to economic devt, says don

    Naira devaluation inimical to economic devt, says don

    • Budget 2017 can’t end recession

    The Dean, Faculty of Business Administration, University of Uyo, Uyo, Akwa Ibom State, Prof. Leo Ukpong, has warned against naira devaluation, arguing that it will not help the economy to recover quickly from recession.

    Speaking at the weekend in Lagos, Ukpong who is also a Professor of Financial Economics,  said the devaluation of any country’s currency could either produce good or bad result depending on the structure of the economy.

    He said devaluation is not a policy option for the country now, warning that taking such decision will worsen naira’s woes.

    “For an export dependent economy, such as China, devaluation is good. In the case of Nigeria, I believe before we can evaluate the effect of devaluation on our economy, we must harmonise the foreign exchange market and strengthen our ability to produce what we currently import from other nations. Without that, the naira will continue to depreciate way into the foreseeable future,” Ukpong warned.

    He said hopes of Nigeria’s early recovery from the economic recession may be wishful thinking because certain parameters that should aid this were not built into the 2017 budget. The Federal Government believes the budget was designed to pull the economy out of recession.

    He explained that a careful review of the 2017 budget showed that it was not structured to get the economy out of the woods. According to him, to reverse recession, production of goods and services needed to be increased, and to produce goods and services, production facilities needed to be available while to increase services, production of physical goods is a necessary condition.

    “For example, on the expenditure sides of the 2017 budget, recurrent expenditure is approximately N2.70 trillion, while capital expenditure is N1.80 trillion. “This ratio of capital expenditure to recurrent expenditure of about 0:67 per cent is way below what is needed to pull an economy out of recession. At the minimum, this ratio should be about 1:20 per cent and definitely not below one. At the current rate, it will take us a minimum of one and half years to get back to a zero economic growth rate, which will be somewhere around the second quarter of 2019,” he explained.

    Ukpong noted that a combination of both short and long-term fiscal and monetary policy strategies should be deployed to stimulate the economy. For instance, for short-term fiscal policy, he said the National Assembly should  appropriate funds for investment in capital intensive projects such as road constructions and repairs. Such projects, he further explained, have the potential to quickly stimulate the economy. He also called for bailout or job retaining financial packages designed to help struggling labour-intensive firms to remain in operations.

    On the long-term fiscal policy strategy, the university don said a combination of tax, interest rates, and partnership packages should be designed to serve as incentives for both indigenous and foreign investors to invest in the manufacturing and related industries.

    For example, he said the government could extend long-term investment tax break to investors who are into building and production of parts for refineries, auto parts manufacturing, and construction equipment in the country.

    On monetary policy, in the short term, Ukpong advised the Central Bank of Nigeria (CBN) to use all available monetary policy tools such as Open Market Operation (OMO), interest rates adjustment, among others, to reduce job losses and unemployment.

    He said: “For example, interest rates need to be reduced to help reduce short term financing and other operating costs. In the long run, the CBN has to pursue a policy to reduce inflation, long term borrowing rates, and liberalised and harmonised the foreign exchange market to support sustainable long term economic growth.”

    He said the pegging of the 2017 budget on crude oil price of $44.50 by the NASS as against the $42.50 proposed by the executive will narrow the projected budget deficit gap. This lower projected budget deficit would be interpreted by the financial markets to mean potential lower borrowing by the government. Furthermore, higher crude oil price benchmark, Ukpong stressed, will also lead to expected higher federal revenue allocation to the different states.

  • NACCIMA kicks against EU’s call for naira devaluation

    NACCIMA kicks against EU’s call for naira devaluation

    The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has kicked against further devaluation of the naira as being suggested by the European Union (EU). It is akin to prescribing death for survival, the group said.

    Its Chairman, National Economic Recovery Committee, Prince David Iweta, who spoke in Lagos,said any further devaluation of the naira without a vibrant export base is a call on the Federal Government to embark on a suicide mission.

    Last week, an EUofficial, Mr. Fillipo Amato advised the Federal Government to consider naira devaluation as a way of getting the country out of recession.

    Prince Iweta, who is also the first Deputy President, Southsouth Chamber of Commerce, said thepolicy of the Central Bank of Nigeria (CBN) has seen the value of the naira dip from N197 to about N320.

    He lamented that an essential commodity, such as petrol cannot access foreign exchange (forex) at the rate of N320 to the dollar, adding that owing to what is called floating rate, the naira is floating at between N450.00 and N500.00 to the dollar, adding that this has led to hyper-inflation and dearth of forex.

    He said: “I request that Mr. Fillipo Amato to channel 50 per cent (22billion Euros) of the 44billion Euros launched on September 14 under the European External Investment Plan(EEIP) to Nigeria.

    “This will support the private sector initiative as guarantees for plant and machinery to produce non-oil commodities for export out of Nigeria that will create jobs and earn forex that will strengthen our naira instead of devaluation.

    “The EU should as a serious business collaborate more with the private sector directly for effective and successful use of funds mobilised for private sector developmental activities in Africa through private sectors bodies such as NACCIMA, and not through government and its agencies as such funds evaporates without achieving its purposes.”

  • Naira weakens slightly against dollar at parallel market

    Naira weakens slightly against dollar at parallel market

    The naira weakened slightly against the dollar at the parallel market on Friday as it exchanged at N321 to the dollar.

    The News Agency of Nigeria (NAN) reports that the Nigerian currency lost N1 to the dollar from N320 rate on Wednesday.

    The naira also fell against the pound sterling and the Euro on Friday to N452 and N362, respectively from their previous rates of N450 and N360.

    The naira still maintained N197 to the dollar at the official CBN segment of the market.

    Traders said that activities in the market were still low due to late implementation of the 2016 budget.

    They said that the budget would indicate the direction of the economy in 2016.

  • Anyaoku backs Buhari’s stance on naira devaluation

    Anyaoku backs Buhari’s stance on naira devaluation

    Former Commonwealth Secretary-General Chief Emeka Anyaoku yesterday in Ibadan endorsed President Muhammadu Buhari’s stand against the devaluation of the naira.

    Anyaoku spoke at the presentation of Olusola Sanu’s memoirs: Audacity on the Bound: A Diplomatic Odyssey.

    He called on Buhari to maintain his stance and assemble a team of economic experts on the issue.

    Anyaoku, however, stressed the need to take the nation out of its economic crisis.

    He bemoaned the exploitation of the Nigeria presidential system by new generation politicians, whom he blamed for the nation’s woes.

    “I have worked with the old political leaders, who during their time were hardworking, brilliant and known for high  integrity.

    “The new generation has exploited the presidential system. The president, governors and local government chairmen now parade over 3,000 special advisers.

    “Some state governors that cannot boast of strong revenue also have up to 30 advisers.

    ” A local government chairman now operates presidential system at council level,” he said.

    Anyaoku who quoted copiously from the work, described the book as an instructive material for future generations.

    He said Sanu was one of the brightest administrators in Nigeria, who lived a life of hard work and integrity

    Similarly, Gen. Yakubu Gowon, ex-Head of State, hailed Sanu for his brilliant performances in the positions he occupied.

    Gowon said the book would  boost the capacity of young career diplomats.

    “I am sure Sanu will never forget his exploits as an ambassador to Ethiopia,” he said.

    The News Agency of Nigeria (NAN) reports that the book has 514 pages, divided into 21 chapters.

  • Naira devaluation will hurt the poor – Oshiomhole

    Naira devaluation will hurt the poor – Oshiomhole

    Debate on whether or not to devalue the naira continued on Thursday with Edo State Governor,  Adams Oshiomhole, joining the discussion.

    The governor, who did not hide his disdain for a weaker naira, said devaluation of the local currency will hurt the poor.

    Oshiomhole, who spoke at the maiden edition TheCable Colloquium with theme: The Naira on Trail: To Devalue or Not? said the rich, who constitutes about five per cent of the population, portfolio investors and collaborative private sector operators canvassing for devaluation will benefit from the decision.

    He said devaluation of the naira at this time when Nigeria’s productive base is very low and the desire for foreign goods is rising will be a big mistake.

    The governor said previous devaluations never benefitted the poor and workers, whom he described as the best economists because of their prudent management of the N18, 000 minimum wage in the face of declining naira value against world currencies.

    But the Managing Director, Financial Derivatives of Nigeria Limited, Bismark Rewane, said naira devaluation is the solution to Nigeria’s economic woes.

     

  • Pros and cons of naira devaluation

    Pros and cons of naira devaluation

    The naira devaluation debate has been on in the last one year. Recently, President Muhammadu Buhari stoked the fire when he insisted that devaluation for an import-driven economy like Nigeria’s will be suicidal. His position has not stopped those, especially international investors, who believe that devaluation is the only way out for Nigeria. COLLINS NWEZE writes on the intricacies of devaluation.

    The number of those for or against naira devaluation keeps rising.

    Though the naira goes for N304 to a dollar in the parallel market and N197 at the official market, a difference of N107, those seeking further devaluation of the currency against the wish of President Muhammadu Buhari and the Central Bank of Nigeria (CBN) Governor Godwin Emefiele are not relenting.

    For the second time in almost one year, Buhari said the government would not devalue the naira because it will not benefit the citizens.

    The President, who spoke in Kenya, said export-driven economies could devalue their currencies and not an import-dependent economy like Nigeria. Devaluation, he said, would result in further inflation and hardship for the poor and the middle class in Nigeria. He said he had no intention of bringing further hardship on the poor who, he believes, have suffered enough.

    In France last September, he said: “I do not think it is healthy for us to get the naira devalued. The Central Bank is providing ample foreign exchange (forex) to essential services and industries.”

    Likewise, Emefiele is insisting on exchange rate stability. To him, the CBN is committed to safeguarding the value of the naira and it has instituted policies to achieve the objective.

    He said the devaluation advocates forget that naira owes its stability or otherwise to some factors, chief of which is the price of crude oil in the international market.

    Nigeria has been hit hard by the fall of crude prices globally, prompting CBN to impose strict forex rules to save its reserves and avoid what would be the third devaluation in a year.

    Last June, CBN restricted forex access for the import of 41 items ranging from rice and toothpicks to steel products and glass. The restrictions did not go down well with investors, that have called for a relaxation.

    Bureau de Change operators have condemned the clamour for further depreciation of the naira by international organisations. Rising from their maiden BDC Owners Forum in Lagos, they pledged to support the CBN to ensure the continued stability of the naira. The decision followed deliberations on recent developments in the BDC subsector and the forex market.

    Despite the government’s pledge, the apostles of devaluation insist that naira must devalued because of fall of oil price, which poses challenges to the economy.

     

    The stand of devaluation advocates

    For the Head, Africa Strategy at Standard Chartered Bank, Samir Gadio, though a further devaluation of the naira may not happen soon, an adjustment is imminent.“

    Despite the Central Bank of Nigeria’s resolve, markets observers believe that it will eventually succumb to pressures and devalue the currency (again),” he said.

    Also, Bond Fund Manager, Standard Life Investments, Kieran Curtis, said a further devaluation would restore the economy to competitiveness and promote more capital inflows.

    “It will take a combination of weaker currency and higher inter-est rates to get us back to Nigeria,” he said, arguing that when Nigeria is compared to other oil exporters, it hasn’t had enough of a currency adjustment.

    The naira was devalued in November 2014 during the Monetary Policy Committee (MPC) meeting. The midpoint of the official window of the foreign exchange market was moved from N155/dollar to N168/dollar. The Committee also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent.

    Despite these moves, many analysts believe that further devaluation of the naira is imminent and that it will boost the inflow of foreign capital and enhance economic growth. For instance, the International Monetary Fund (IMF) had predicted that the Gross Domestic Product (GDP) growth for last year would be about 4.8 per cent from 6.3 per cent last year.

    Still, Nigeria has some indicators in its favour. Though to the detriment of local firms, its foreign exchange reserve position remains healthy.

    Analysts have predicted that foreign investors will likely remain wary of Nigeria until there is stability and enduring policies and a further naira devaluation leading to a dollar surge in the interbank market.

    Gadio added: “Even though international investors want a piece of Nigeria, they will stay away, because, right now, they expect to make a 10 per cent loss on the foreign exchange side since devaluation is likely to happen.”

    Morgan Stanley analyst, Martin Rats, said the global oil and gas industry reaction is like what happened in the slump of 1986, almost 30 years ago, when Saudi Arabia triggered an oil price slide by making a bid for market share.

    Then, like now, “as the oil groups cut spending, the wider workforce shrank and costs in the supply chain tumbled. The majors shored up cash flow and, in time, investors reacquired faith in their dividends,” he said.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke, said a strong positive correlation exists between the exchange rate and crude oil price.

    Nigeria’s crude oil – Bonny Light, which traded at $110.2 per barrel in January, last year, hitting $114.6 per barrel by June same year, is now trading below $35 per barrel. “With the discovery of the shale oil, crude oil prices are projected to moderate in coming years. In addition, the threat by the US to reduce oil imports constitutes a downside risk on crude receipts of Organisation of Petroleum Exporting Countries’ (OPECs’) members. Consequently, the CBN must establish a “real” and “sustainable” value for the naira as the opportunity cost of “substantial” support for the naira increases,” he explained in a report titled: Naira trending towards 2015.

    Chioke said Nigeria’s dependence on crude oil (70 per cent of total foreign exchange earnings) makes economic growth susceptible to price shocks.

    Executive Director, Treasury and International Banking, United Bank for Africa (UBA) Plc, Femi Olaloku, said dwindling oil prices around the globe poses serious challenges to a developing economy like Nigeria’s, hence, the need for the government to also consider various diversification options. For him, further devaluation of the naira is imminent, as such would make the importation of goods into the country more expensive, encourage local manufacturing and inflow of foreign capital.

     

    MPC speaks

    The Monetary Policy Committee (MPC) held its first meeting of the year between January 25 and 26. It reviewed the economic and financial market conditions in 2015 as well as the outlook for the year.

    The meeting was held against the backdrop of a challenging global economic situation — underscored by the heightened geopolitical tensions, China’s growth concerns and persistently declining oil prices — resulted in a volatile price opening across all financial markets at the begining of the year.

    Equally, it led to dimmed global growth prospect with the International Monetary Fund trimming its 2016 global growth forecasts by 200 basis points to 3.4 per cent.

    The drop in oil prices also led to reduced foreign exchange earnings as well as lower revenues for Nigeria’s government.

    This has compounded the Balance of Payment (BoP) position of the country as well as the assumptions under which the 2016 budget was drawn up and anchored.

    The oil price fall, which ensued  after sanctions on Iran were lifted indicated the need for more domestic policy adjustments to restore confidence and stabilise macroeconomic condition. This informed expectation that the last MPC meeting would be centred on the current forex challenges as all the other monetary policy tools seem to have been implemented to full effect.

    The Committee, however, decided not to alter any of the policy variables suggesting more policy harmonisation with fiscal authority and the bank’s desire to fine-tune its foreign exchange management framework to buoy liquidity in the market.

    This could mean the apex bank is considering a more flexible exchange rate mechanism but it remains yet to be seen how that would be implemented without giving up on the Naira/Dollar peg as statements emanating from the Presidency last week further suggest that the authorities are not favourably disposed to an official weaker currency.

    On the MPC’s decision, Currency Analyst at Ecobank Nigeria, Olakunle Ezun, said the committee’s decision to hold policy steady was based on several competing domestic and external factors. These factors, he said, include the  weakening of the economy driven by sustained low oil prices; the need to moderate domestic interest rates so as to encourage indigenous businesses to borrow; stabilisation of the financial system in the aftermath of the Treasury Single Account (TSA) withdrawals and J. P. Morgan delisting of Nigeria; and the effect arising from the normalisation of monetary policy in the US.

    Ezun explained that without a larger bulwark of forex reserves to rely on, the CBN is under pressure from the sustained low oil price to devalue the naira. It is possible that the CBN can hold the rate at N197 to dollar, but for how long?

  • Pros and cons of naira devaluation

    Pros and cons of naira devaluation

    The naira devaluation debate has been on in the last one year. Last Thursday, President Muhammadu Buhari stoked the fire when he insisted that devaluation for an import-driven economy like Nigeria’s will be suicidal. His position has not stopped those, especially international investors, who believe that devaluation is the only way out for Nigeria. COLLINS NWEZE writes on the intricacies of devaluation.

    The number of those for or against naira devaluation keeps rising.

    Though the naira goes for N304 to a dollar in the parallel market and N197 at the official market, a difference of N107, those seeking further devaluation of the currency against the wish of President Muhammadu Buhari and the Central Bank of Nigeria (CBN) Governor Godwin Emefiele are not relenting.

    For the second time in almost one year, Buhari said the government would not devalue the naira because it will not benefit the citizens.

    The President, who spoke in Kenya, said export-driven economies could devalue their currencies and not an import-dependent economy like Nigeria. Devaluation, he said, would result in further inflation and hardship for the poor and the middle class in Nigeria. He said he had no intention of bringing further hardship on the poor who, he believes, have suffered enough.

    In France last September, he said: “I do not think it is healthy for us to get the naira devalued. The Central Bank is providing ample foreign exchange (forex) to essential services and industries.”

    Likewise, Emefiele is insisting on exchange rate stability. To him, the CBN is committed to safeguarding the value of the naira and it has instituted policies to achieve the objective.

    He said the devaluation advocates forget that naira owes its stability or otherwise to some factors, chief of which is the price of crude oil in the international market.

    Nigeria has been hit hard by the fall of crude prices globally, prompting CBN to impose strict forex rules to save its reserves and avoid what would be the third devaluation in a year.

    Last June, CBN restricted forex access for the import of 41 items ranging from rice and toothpicks to steel products and glass. The restrictions did not go down well with investors, that have called for a relaxation.

    Bureau de Change operators have condemned the clamour for further depreciation of the naira by international organisations. Rising from their maiden BDC Owners Forum in Lagos, they pledged to support the CBN to ensure the continued stability of the naira. The decision followed deliberations on recent developments in the BDC subsector and the forex market.

    Despite the government’s pledge, the apostles of devaluation insist that naira must devalued because of fall of oil price, which poses challenges to the economy.

     

    The stand of devaluation advocates

    For the Head, Africa Strategy at Standard Chartered Bank, Samir Gadio, though a further devaluation of the naira may not happen soon, an adjustment is imminent.“

    Despite the Central Bank of Nigeria’s resolve, markets observers believe that it will eventually succumb to pressures and devalue the currency (again),” he said.

    Also, Bond Fund Manager, Standard Life Investments, Kieran Curtis, said a further devaluation would restore the economy to competitiveness and promote more capital inflows.

    “It will take a combination of weaker currency and higher inter-est rates to get us back to Nigeria,” he said, arguing that when Nigeria is compared to other oil exporters, it hasn’t had enough of a currency adjustment.

    The naira was devalued in November 2014 during the Monetary Policy Committee (MPC) meeting. The midpoint of the official window of the foreign exchange market was moved from N155/dollar to N168/dollar. The Committee also widened the band around the midpoint by 200 basis points from plus or minus three per cent to plus or minus five per cent.

    Despite these moves, many analysts believe that further devaluation of the naira is imminent and that it will boost the inflow of foreign capital and enhance economic growth. For instance, the International Monetary Fund (IMF) had predicted that the Gross Domestic Product (GDP) growth for last year would be about 4.8 per cent from 6.3 per cent last year.

    Still, Nigeria has some indicators in its favour. Though to the detriment of local firms, its foreign exchange reserve position remains healthy.

    Analysts have predicted that foreign investors will likely remain wary of Nigeria until there is stability and enduring policies and a further naira devaluation leading to a dollar surge in the interbank market.

    Gadio added: “Even though international investors want a piece of Nigeria, they will stay away, because, right now, they expect to make a 10 per cent loss on the foreign exchange side since devaluation is likely to happen.”

    Morgan Stanley analyst, Martin Rats, said the global oil and gas industry reaction is like what happened in the slump of 1986, almost 30 years ago, when Saudi Arabia triggered an oil price slide by making a bid for market share.

    Then, like now, “as the oil groups cut spending, the wider workforce shrank and costs in the supply chain tumbled. The majors shored up cash flow and, in time, investors reacquired faith in their dividends,” he said.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke, said a strong positive correlation exists between the exchange rate and crude oil price.

    Nigeria’s crude oil – Bonny Light, which traded at $110.2 per barrel in January, last year, hitting $114.6 per barrel by June same year, is now trading below $35 per barrel. “With the discovery of the shale oil, crude oil prices are projected to moderate in coming years. In addition, the threat by the US to reduce oil imports constitutes a downside risk on crude receipts of Organisation of Petroleum Exporting Countries’ (OPECs’) members. Consequently, the CBN must establish a “real” and “sustainable” value for the naira as the opportunity cost of “substantial” support for the naira increases,” he explained in a report titled: Naira trending towards 2015.

    Chioke said Nigeria’s dependence on crude oil (70 per cent of total foreign exchange earnings) makes economic growth susceptible to price shocks.

    Executive Director, Treasury and International Banking, United Bank for Africa (UBA) Plc, Femi Olaloku, said dwindling oil prices around the globe poses serious challenges to a developing economy like Nigeria’s, hence, the need for the government to also consider various diversification options. For him, further devaluation of the naira is imminent, as such would make the importation of goods into the country more expensive, encourage local manufacturing and inflow of foreign capital.

     

    MPC speaks

    The Monetary Policy Committee (MPC) held its first meeting of the year between January 25 and 26. It reviewed the economic and financial market conditions in 2015 as well as the outlook for the year.

    The meeting was held against the backdrop of a challenging global economic situation — underscored by the heightened geopolitical tensions, China’s growth concerns and persistently declining oil prices — resulted in a volatile price opening across all financial markets at the begining of the year.

    Equally, it led to dimmed global growth prospect with the International Monetary Fund trimming its 2016 global growth forecasts by 200 basis points to 3.4 per cent.

    The drop in oil prices also led to reduced foreign exchange earnings as well as lower revenues for Nigeria’s government.

    This has compounded the Balance of Payment (BoP) position of the country as well as the assumptions under which the 2016 budget was drawn up and anchored.

    The oil price fall, which ensued  after sanctions on Iran were lifted indicated the need for more domestic policy adjustments to restore confidence and stabilise macroeconomic condition. This informed expectation that the last MPC meeting would be centred on the current forex challenges as all the other monetary policy tools seem to have been implemented to full effect.

    The Committee, however, decided not to alter any of the policy variables suggesting more policy harmonisation with fiscal authority and the bank’s desire to fine-tune its foreign exchange management framework to buoy liquidity in the market.

    This could mean the apex bank is considering a more flexible exchange rate mechanism but it remains yet to be seen how that would be implemented without giving up on the Naira/Dollar peg as statements emanating from the Presidency last week further suggest that the authorities are not favourably disposed to an official weaker currency.

    On the MPC’s decision, Currency Analyst at Ecobank Nigeria, Olakunle Ezun, said the committee’s decision to hold policy steady was based on several competing domestic and external factors. These factors, he said, include the  weakening of the economy driven by sustained low oil prices; the need to moderate domestic interest rates so as to encourage indigenous businesses to borrow; stabilisation of the financial system in the aftermath of the Treasury Single Account (TSA) withdrawals and J. P. Morgan delisting of Nigeria; and the effect arising from the normalisation of monetary policy in the US.

    Ezun explained that without a larger bulwark of forex reserves to rely on, the CBN is under pressure from the sustained low oil price to devalue the naira. It is possible that the CBN can hold the rate at N197 to dollar, but for how long?

  • Buhari rejects naira devaluation

    Buhari rejects naira devaluation

    President Muhammadu Buhari on Wednesday in Nairobi said that he was yet to be convinced that Nigeria and its people will derive any tangible benefit from an official devaluation of the Naira.

    He spoke at an interactive meeting with Nigerians living in Kenya.

    President Buhari, in a statement by the Senior Special Assistant on Media and Publicity, Garba Shehu, maintained that while export-driven economies could benefit from devaluation of their currencies, devaluation will only result in further inflation and hardship for the poor and middle classes in Nigeria’s import-dependent economy.

    He said that he had no intention of bringing further hardship on the country’s poor who, he said, have suffered enough already.

    President Buhari said that proponents of devaluation will have to work much harder to convince him that ordinary Nigerians will gain anything from it.

    The President also rejected suggestions that the Central Bank of Nigeria should resume the sale of foreign exchange to Bureaux de Change (BDCs), saying that the Bureau de Change business had become a scam and a drain on the economy.

    “We had just 74 of the bureaux in 2005, now they have grown to about 2,800,”  President Buhari noted.

    He alleged that some bank and government officials used surrogates to run the BDCs and prosper at public expense by obtaining foreign exchange from government at official rates and selling it at much higher rates.

    The President said: “We will use our foreign exchange for industry, spare parts and the development of needed infrastructure.

    “We don’t have the Dollars to give to the BDCs. Let them go and get it from wherever they can, other than the Central Bank,” President Buhari told the gathering.

    The President reaffirmed his conviction that about a third of petroleum subsidy payments under the previous administration was bogus.

    “They just stamped papers and collected our foreign exchange,” he said.

    The President appealed to Nigerians studying abroad to bear with his administration as it strives to address the challenges they are facing as a result of new foreign exchange measures.

    He said that he was optimistic that the Nigerian economy will stabilize soon with the efficient implementation of measures and policies that have been introduced by his administration.

     

  • ANAN president kicks against naira devaluation

    ANAN president kicks against naira devaluation

    •Foreign reserves drop to $30.1b

    The Association of National Accountants of Nigeria (ANAN) President, Anthony Nzom, has advised the Federal Government not to further devalue the naira.

    He spoke against the backdrop of ongoing arguments on the fate of the naira. “We have to be careful about further devaluation of the naira, especially when people outside the country are encouraging us to do certain things,” he said.

    Nzom spoke after a forum with ANAN Walk Against Corruption for a Healthier Economy and Longevity as its theme. More than 2,000 members of the association participated at the forum.

    “Further devaluation of the naira in the interest of who? He asked rhetorically. He recalled that in the 1990s, the naira was exchanging at N80 to a dollar, saying today, the naira had been further devalued. He suggested that to fight corruption, no Nigerian should have a foreign account, adding that there should be no undergraduate studies abroad.

    On the Treasury Single Account (TSA), the ANAN president said those giving excuses about the TSA did not want to accept change. “Change is the only thing people do not accept. People want to see if government will soft-pedal. ‘These are people with hidden accounts here and there,’’ he said.

    According to him, the TSA does not stop agencies from paying salaries. “Let us see how, when and who the monies are going to. I support what the government is doing,’’ Nzom said. He said President Muhammadu Buhari could not alone fight corruption, adding that everybody should be involved.

    He also called for a reduction in food importation, saying Nigeria was blessed with various foods. He also spoke about elimination of tribal differences, adding that people could use such attitude to corner the financial resources of the nation.

    The ‘Health Walk’, he said, showed that the association was improving yearly. “We would carry that improvement to our places of work and build that strong team expected of accountants and resist any temptation. If we do this occasionally, we would have good health, ’’ Nzom said.

    Meanwhile, the foreign exchange reserves fell to $30.13 billion by October 27, down 0.84 per cent from a month ago, the Central Bank of Nigeria (CBN) data showed at the weekend.

    Foreign reserves were down 22.43 per cent year-on-year from $38.86 billion a year ago, the data showed. The fall in reserve resulted in the sale of dollars by the CBN to defend the naira, which has been hit by the plunge in oil prices.