Traders at the Balogun market in Lagos Island selling Italian and Brazilian shoes, bags and other fashion items, say they are not making sales as a result of the exchange rate. At the moment, it is $1 to N199.2351.
Many of these traders import their items from Europe. Recounting their ordeal, majority of them said some of their goods are still abroad as the previous price they purchased those goods have increased by 10 per cent.
According to them, the high exchange rate is hindering them from bringing their goods into the country. These merchants explained that they often place orders, change the currency to the Dollar and send to the company they are purchasing from but the increment in exchange rate has become a barrier.
One of the traders, Mr Ikechukwu Ugwu, said he imports office shoes, particularly in the second quarter of the year, but that he would have to wait a while to see if the rate dollar would fall. “If I import shoes and start selling at N13, 000 or N15, 000, my customers will refuse to buy because the original price for the shoes is N8000 or N10, 000. The additional N7000 and N4000 mean a lot to customers and I will not sell to lose either,” he said.
Another importer Mr. Kenneth Okoye, an importer of cosmetics, said he could not put all his money in the business and later not yield good results. “How can I change money at such a ridiculous rate? I can’t risk it. Because this our business comes with little profit like N50, sometime with N200. Our customers who buy in bulk earn us more profit but for now they are not showing up because of the increased exchange rate. Bringing the goods in and not selling them will be a big problem to us, our customers are used to the old price, and they won’t accept the new price. We have however agreed that we will not import until the dollar rate returns to what it used to be,” he added.
Another importer of Italian party wears, shoes and bags Mr. Emeka Urama told The Nation Shopping that he didn’t intend to import soon. He said his customers would have to make do with what was available. He said items or designs and a set of jewelry which used to cost N20, 000, will go for N25, 000 while those that cost N30, 000 would rise to about N40,000.”
He added that the increase in exchange rate has affected demand.”Some of my customers that come from Abuja and Port Harcout to patronise me used to buy about 50 to70 different sets of jewelries. Now, they buy 30 or 35 different sets instead and this is not good for the business, he said.
Traders at the Balogun market in Lagos Island selling Italian and Brazilian shoes, bags and other fashion items, say they are not making sales as a result of the exchange rate. At the moment, it is $1 to N199.2351.
Many of these traders import their items from Europe. Recounting their ordeal, majority of them said some of their goods are still abroad as the previous price they purchased those goods have increased by 10 per cent.
According to them, the high exchange rate is hindering them from bringing their goods into the country. These merchants explained that they often place orders, change the currency to the Dollar and send to the company they are purchasing from but the increment in exchange rate has become a barrier.
One of the traders, Mr Ikechukwu Ugwu, said he imports office shoes, particularly in the second quarter of the year, but that he would have to wait a while to see if the rate dollar would fall. “If I import shoes and start selling at N13, 000 or N15, 000, my customers will refuse to buy because the original price for the shoes is N8000 or N10, 000. The additional N7000 and N4000 mean a lot to customers and I will not sell to lose either,” he said.
Another importer Mr. Kenneth Okoye, an importer of cosmetics, said he could not put all his money in the business and later not yield good results. “How can I change money at such a ridiculous rate? I can’t risk it. Because this our business comes with little profit like N50, sometime with N200. Our customers who buy in bulk earn us more profit but for now they are not showing up because of the increased exchange rate. Bringing the goods in and not selling them will be a big problem to us, our customers are used to the old price, and they won’t accept the new price. We have however agreed that we will not import until the dollar rate returns to what it used to be,” he added.
Another importer of Italian party wears, shoes and bags Mr. Emeka Urama told The Nation Shopping that he didn’t intend to import soon. He said his customers would have to make do with what was available. He said items or designs and a set of jewelry which used to cost N20, 000, will go for N25, 000 while those that cost N30, 000 would rise to about N40,000.”
He added that the increase in exchange rate has affected demand.”Some of my customers that come from Abuja and Port Harcout to patronise me used to buy about 50 to70 different sets of jewelries. Now, they buy 30 or 35 different sets instead and this is not good for the business, he said.
With the naira stabilising and oil price rising from an all-time low of $56 per barrel, things are looking up again. But there is no cause to cheer yet because of the rising inflation, reports COLLINS NWEZE.
Although the naira closed at N197 to the dollar at the interbank last week, it still exchanges at N210 at the parallel market. It has remained in that threshold for nearly six weeks.
With the last general elections peaceful and a gradual rebound in oil price, the naira is stabilising. But the downside is that inflation rose from eight per cent in December to 8.5 per cent in April.
At its weakest, the naira sold at a record low of N235.60 to the dollar, a decline of 30 per cent since November. The naira also dropped to N220 at the parallel market before the Central Bank of Nigeria (CBN) closed the Retail Dutch Auction System (RDAS) in February.
Also, the foreign exchange reserves fell by 10.04 per cent to $28.87 billion by March 4, from $33.94 billion a month earlier.
Although the currency stabilised at N197 to dollar at the interbank last week, many cannot say how that happened. But interventions from international oil companies (IOCs) cannot be ruled out.
Stakeholders’ speak
• Gwadabe
President, Association of Bureau De Change of Nigeria (ABCON), Alhaji Aminu Gwadabe, said some of the steps taken by the CBN has helped the market witness the absence of spurious demand and illegitimate transactions. He, however, said the market is currently witnessing adverse liquidity squeeze.
Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.
“While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.
Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.
He advised government to improve infrastructure, noting that such action would make Nigeria’s investment climate more attractive for foreign investors.
New measures
The CBN has reacted by fixing the rate at which banks can buy dollars from International Oil Companies (IOCs) at not more than N2 spread to its clearing rate, dealers said. The policy is the bank’s latest attempt to prop up the naira hit by the drop in oil prices.The CBN has pledged to stabilise the naira and has been deploying various measures. Dealers said the apex bank did not issue a formal circular on the directive, but instead resorted to persuasion, adding that the total outstanding dollar demand of about $600 million was not met.
Oil companies usually sell dollars through an auction to lenders to buy naira to fund their local operations.The CBN has also scrapped its bi-weekly currency auctions and a market body said it would sell dollars only at 197 naira, a move that amounts to a de facto devaluation of the currency.
This policy is part of what the CBN Governor, Godwin Emefiele, promised to stabilise the currency. He listed some of the challenges he is facing defending the naira, adding that the naira/dollar exchange rate has been under pressure over the last couple of months.
Explaining the difficulties in managing exchange rate stability, the CBN boss raised a poser: “What then can a Central Bank do to react to such a situation of falling reserves and pressurised exchange rates?
“One course of action would be to continue to deplete the foreign exchange reserves in trying to keep the official rate at a stable level. But there are several difficulties with this option.”
He said regardless of its critical nature in an import-dependent country such as Nigeria, the exchange rate operates like any other ‘price’ in the market.
The dollar/naira exchange rate is simply the ‘price’ of dollars in naira. The forces of demand and supply, he said, determine its movement. “When demand rises, the price rises. When supply falls, the price also rises as well. In recent times, Nigeria has faced a perfect storm of simultaneous dwindling supply of dollars and rise in demand. Both forces have led to a rise in the price of dollars, that is, significant reduction in supply of dollars to the market, even with constant output of crude oil production,” he said.
The other global factor, which has significantly reduced the supply of dollars in the market is related to the end of Quantitative Easing by the United States (U.S) Federal Reserve. At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the U.S economy on a monthly basis, through asset purchases. This programme came to an end in October last year, thereby significantly reducing the supply of US dollars in the global economy.
Another difficulty, which has contributed to the continuing depletion of Nigeria’s foreign reserves, and its capacity to defend the naira is that the combination of a fall in oil prices and the end of the Quantitative Easing programme by the US Federal Reserve have led to a depreciation of most currencies in the world against the dollar.
Previous steps taken by CBN
The CBN has directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions will henceforth be funded from the interbank foreign exchange market only.
In a circular to all authorised dealers, CBN Director, Trade & Exchange Department, O. I. Gbadamosi told stakeholders that the policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the CBN.
On the development, Head, Africa Strategy at Standard Chartered in London, Samir Gadio, said: “The importation of electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions importations shall henceforth be limited to the interbank market only.
“We’re seeing more foreign-exchange flexibility. Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”
BDCs policy
Last June 23, the CBN, among others, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000.
Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of Association of Bureau De Change Operators of Nigeria (ABCON)and both chambers of the National Assembly.
In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.
Naira crises complex
The misfortune of the naira seems complex. The thinking is that massive inflow of forex from surging oil prices and the boom in the capital market were responsible for the appreciation of the naira in the past few years. Unfortunately, oil prices have nosedived and Nigeria capital market is in a shambles. The fall in the price of oil has major consequences on government revenue, aggregate output, capital formation investment, employment, trade and fiscal balance.
The 2008 global financial meltdown also contributed to naira’s freefall. Chief Executive Officer, Financial Derivatives Bismarck Rewane, said Nigeria was unprepared for the shock. “The Nigerian economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.
Analysts said a gradual appreciation of the currency will require building confidence in the financial system and price of crude oil in international market. This is what is going to drive the exchange rate now and beyond. We cannot isolate what is happening in the global economy like the issue of diversification of energy sources.
Inflation statistics
National Bureau of Statistics (NBS) said the Nigeria’s Consumer Price Index (CPI), which measures inflation rate rose by 8.5 per cent yearly in March marginally higher than the 8.4 per cent recorded in February.
According to the latest CPI and inflation report from NBS, “This is the fourth consecutive month of a faster increase in the Headline index to reach the highest inflation rate recorded for the year. The Headline rate for March also equals last year’s high recorded in August.
NBS said while the pace of increase in food prices held firm for the second consecutive month, the faster increase in the Headline index was driven by increases in the non-food Classification of Individual Consumption by Purpose (COICOP) divisions which also reflected in the Core sub-index.
The report disclosed that food prices as observed by the food sub-index increased at relatively the same pace in March as in February; by 9.4 per cent.
“The pace of increases was weighted upon by a slower increase in the Bread and Cereals, Oils and Fats, Dairy and Confectionary groups. Faster increases were observed in all other groups which contribute to the Food sub-index,” NBS added.
NBS affirmed that monthly, food prices increased at a higher rate of 1.0 per cent, 30 basis points higher than the 0.7 per cent increase recorded in February.
The report further affirmed that the continued uptrend in the Headline inflation year-to-date mirrors their conservative float range of 9.5 per cent and 10 per cent for the 2015 fiscal year.
“Following the just concluded general elections which has reduced elevated political spending) and the CBN’s continued restrictive liquidity stance, we believe the biggest downside risk to inflation going forward is the pass-through consequence of a weaker naira.
“In addition, inflation might get heated by any action of the incoming government to pursue reforms that are expansionary in nature. We also note the inflationary consequence of a final removal of subsidy on petroleum, taking guidance from the recent press release by the president-elect, through a representative,” the report added.
Has the Central Bank of Nigeria (CBN) lost the battle for exchange rate stability? This is the question many are asking as the naira continues to fall, despite the CBN’s efforts to stabilise it. Although it closed at N197.8 to the dollar at the interbank last week, it still exchanges at N220 at the parallel market, making nonsense of the benefits of the CBN interventions, writes COLLINS NWEZE.
Ahead of this month’s elections, increased political risk, falling oil prices and lack of interest in investors’ frontier assets have put the naira under pressure.
At its weakest, the naira was quoted at a record low of N206.60 to the dollar last month, a decline of 20 per cent since November. The naira also dropped to N220 at the parallel market before the CBN closed the Retail Dutch Auction System (RDAS) last month.
This has depleted foreign reserves and shot inflation up to 8.2 per cent in January. The foreign exchange reserves fell 9.04 per cent to $30.87 billion by March 4, from $33.94 billion a month earlier. The CBN has used the reserves to support the ailing naira, which has been hammered by falling global oil prices and uncertainty over the delayed presidential elections due later this month.
Although the currency was able to stabilise at N197.8 to dollar at the interbank last week, many insist that it has indeed fallen from the Olympic heights. The interbank market is the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly, or through electronic brokering platforms.
Although it was unclear what stabilised the naira, interventions from International Oil Companies (IOCs) cannot be ruled out.
But the local currency suffered its biggest monthly fall in over five years last month, dealers said, citing concerns over political uncertainty and the CBN’s ability to manage a currency hammered by weak oil prices.
The naira shed 8.3 per cent to the dollar in February, which dealers said was worse than the 6.9 per cent fall in November after the CBN devalued the currency by eight per cent to save the foreign reserves.
New measures
Last week, CBN fixed the rate at which banks can buy dollars from International Oil Companies (IOCs) at not more than N2 spread to its clearing rate, dealers said. The policy is the bank’s latest attempt to prop up the naira hit by the drop in oil prices.
The naira crashed through the psychologically important level of N200 to the dollar last month in a rout triggered by weak oil prices and escalating tension over the postponement of a presidential election.
The CBN has pledged to stabilise the naira and has been deploying various measures. Dealers said the central bank did not issue a formal circular on the directive, but instead resorted to persuasion, adding that the total outstanding dollar demand of about $600 million was not met.
Oil companies usually sell dollars through an auction to lenders to buy naira to fund their local operations. The naira closed at N197 to the dollar on Thursday, firmer than N199.9 its ended on Wednesday. Dealers said the bank had beefed up inspection of commercial bank’s trading books to verify utilisation of its dollar sales.
The CBN scrapped its bi-weekly currency auctions last month and a market body said it would sell dollars only at 198 naira, a move that amounts to a de facto devaluation of the currency of Africa’s biggest economy.
This policy, is part of the CBN Governor Godwin Emefiele promised to stabilise the currency. He listed some of the challenges he is facing defending the naira, adding that the naira/dollar exchange rate has been under pressure over the last couple of months.
Explaining the difficulties in managing exchange rate stability, the CBN boss raised a poser: “What then can a Central Bank do to react to such a situation of falling reserves and pressurised exchange rates?
“One course of action would be to continue to deplete the foreign exchange reserves in trying to keep the official rate at a stable level. But there are several difficulties with this option.”
He said regardless of its critical nature in an import-dependent country such as Nigeria, the exchange rate operates like any other ‘price’ in the market.
The dollar/naira exchange rate is simply the ‘price’ of dollars in naira. The forces of demand and supply, he said, determine its movement. “When demand rises, the price rises. When supply falls, the price also rises as well. In recent times, Nigeria has faced a perfect storm of simultaneous dwindling supply of dollars and rise in demand. Both forces have led to a rise in the price of dollars, that is, significant reduction in supply of dollars to the market, even with constant output of crude oil production,” he said.
The other global factor, which has significantly reduced the supply of dollars in the market is related to the end of Quantitative Easing by the United States (U.S) Federal Reserve. At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the U.S economy on a monthly basis, through asset purchases. This programme came to an end in October last year, thereby significantly reducing the supply of U.S dollars in the global economy.
Another difficulty which has contributed to the continuing depletion of Nigeria’s foreign reserves, and its capacity to defend the naira is that the combination of a fall in oil prices and the end of the Quantitative Easing programme by the US Federal Reserve have led to a depreciation of most currencies in the world against the dollar.
Previous steps taken by CBN
The CBN has directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions will henceforth be funded from the interbank foreign exchange market only.
In a circular to all authorised dealers, CBN Director, Trade & Exchange Department, O. I. Gbadamosi told stakeholders that the policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the CBN.
On the development, Head, Africa Strategy at Standard Chartered in London, Samir Gadio, said: “The importation of electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions importations shall henceforth be limited to the interbank market only.
“We’re seeing more foreign-exchange flexibility. Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”
BDCs policy
Last June 23, the CBN, among others, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000.
Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of Association of Bureau De Change Operators of Nigeria (ABCON)and both chambers of the National Assembly.
In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.
Naira crises complex
The misfortune of the naira seems complex. The thinking is that massive inflow of forex from surging oil prices and the boom in the capital market were responsible for the appreciation of the naira in the past few years. Unfortunately, oil prices have nosedived and Nigeria capital market is in a shambles. The fall in the price of oil has major consequences on government revenue, aggregate output, capital formation investment, employment, trade and fiscal balance.
The 2008 global financial meltdown also contributed to naira’s freefall. Chief Executive Officer, Financial Derivatives Bismarck Rewane, said Nigeria was unprepared for the shock. “The Nigerian economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.
Analysts said a gradual appreciation of the currency will require building confidence in the financial system and price of crude oil in international market. This is what is going to drive the exchange rate now and beyond. We cannot isolate what is happening in the global economy like the issue of diversification of energy sources.
Policy makers speak
Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.
The official devaluation of the naira, she said, allows the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.
“While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.
Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.
He advised government to improve infrastructure, noting that such action would make Nigeria’s investment climate more attractive for foreign investors.
The naira, yesterday, strengthened by 1.13 per cent against the dollar on the interbank market in thin trade, supported by dollar flows from two International Oil Companies (IOCs), traders said. The naira closed at N199.7 to the dollar compared with N202 on the interbank market on Friday.
The Central Bank of Nigeria (CBN) had set its intervention rate at N196.8/N197.8 to the dollar on, but the regulator had not yet sold dollars to lenders by afternoon. The Nigerian unit of Royal Dutch Shell sold an undisclosed amount of dollars while Eni sold $15 million, lending support to the naira.
Recently, the naira has suffered its biggest monthly fall in over five years last February arising from concerns over political uncertainty and the CBN’s ability to manage a currency hammered by weak oil prices.
“There was not much of activity in the market today, apart from dollar sales by the two oil companies which boosted liquidity a bit and supported the naira,” said a trader. Traders expect the local currency would be driven by availability of dollar inflows through anticipated month-end sales by oil companies during the week.
Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion, Yvonne Mhango, said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.
She said that while Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability.
A former British Prime Minister, Harold Wilson is often quoted as saying, ‘a week is a long time in politics”. The battle hardened intriguer from his long experience in politics certainly knew what he was talking about. The shifting quicksand of politics can throw everything upside down in the twinkle of an eye, not to mention six weeks!
Wilson’s aphorism looms large within the context of today’s chess game involving the elections in Nigeria. The postponement of the election has thrown all the hitherto careful permutations upside down. The contrived ‘postponement’ was conjured to do just that in the first place. This is because apart from the party in government at the centre, everyone else is cash-strapped. How to fight an unanticipated war of attrition over the next six weeks will certainly tax the ingenuity of those in charge of the exchequer of the main opposition party. It’s going to be hard!
Unfortunately, for a battered economy, it’s going to be, even much harder. For a start in what is now a state-of-siege, no sane investor is going to make any far reaching decision. It would be crazy to do so. And you don’t need a political risk analyst to tell you why, any more than you need a weatherman to tell you which way the wind is blowing.
The ‘unintended’ circumstances arising out of the postponement are beginning now to reveal itself, much like the proverbial chicken coming home to roost. For example the Central Bank of Nigeria (CBN) during the week intervened in defence of the Naira by selling foreign exchange (FX) outside of its official band for the second time, a sign that the apex bank could weaken the currency to save its fast shrinking foreign reserves. Already the Naira has crashed through the psychologically important level of 200 to the dollar.
The worst of course is yet to come. How to prevent a free-fall of the currency during the contrived six weeks haitus is going to task the ingenuity of the hard-pressed CBN and its Monetary Policy Committee. It’s also going to be very punishing for the man in the street who has been immortally referred to by the television commentator Frank Olize as ’ the common man’. This makes us to go back to yet another one of Harold Wilson’s aphorism. Pressed as to the worth of the British pound sterling after the devaluation of 1966, the wily-old fox retorted that well, ‘the pound in your pocket is still worth a pound’.
This was arrant nonsense of course and Prime Minister Wilson who had been an Oxford Don at a very early age knew so. After the devaluation, the pound had shrank and living standards predictably went down. This brings us to ask what exactly is the worth of the naira in your pocket now. Well, it hasn’t been worth that much since, the ill-advised devaluation of 1986 which heralded the structural adjustment programme.
It’s been a downward spiral ever since for an import dependent economy. Living standards have plunged to such an extent that the N18,000 a month “minimum wage” means just that, “minimum” this is as in the bare-bottom minimum needed not to exist but to subsist. Take out rent, school fees, food, transportation and all manner of added on and it’s more like economic genocide on the part of those who brought us to this sorry state placed within the context of a major oil-producing country. Those who have led us to this stage in reality ought to face an international economic war crimes tribunal. It’s that serious.
As the incomparable reggae star, Bob Marley intoned, “in the midst of water, the fool goes thirsty”. In this light, paradoxically, the propaganda machine of the federal government expect us to believe that after the disputable ‘rebasing’ of the economy, we are really better-off, than presumably we where, let us say four years ago. This of course is the height of intellectual dishonesty.
Perhaps, this is why the federal government’s operators were so furious at the endorsement of General Buhari by the highly rated Economist magazine of London. They were, as it were hoist on their own petard. Having spent so much time and effort cultivating the international credit agencies and organs such as the Economist, they have suddenly found out that you can’t fool all of the people, all of the time. In the meantime it is getting worse for the government as other highly rated organs such as the equally authoritative New York Times have also become highly critical and disapproving.
The government’s economic platform propaganda has now been found out to be a classic text-book case of ‘growth without development’. Rebase as many times as you like, for the person on the street, economically he or she is worse off today than they were four years ago. This is why the election propaganda on the governments’ side is based on religion and ethnicity. This is all very convenient. For it is intended to detract from the real issue, which is ‘are you better off today, than you where four years ago?’
Outside of the corridors of power of course, no one is better off. For example with a depreciating currency driving up the price of building materials, the prospect of owning one’s own home for the mass of the people is looking ever more like a mirage. The side effect of course is that the landlord is going to increase his/her rent. The multiplier effect of the ruinous economic policies based on management ineptitude, corruption and sloth is already being painfully felt by the man in the street.
Denied of a living wage, assuming of course that there is any wage in the first place, people have become resistant to the Buhari is an Islamist battle-cry of the government’s spin- doctors. The hard-pressed and the dispossessed who are thinking of the next meal, rent and school-fees are not likely to be persuaded by cheap sloganeering and propaganda.
In the next six weeks it’s going to get nastier. Originally it was felt that a six weeks postponement would buy time to spew out more propaganda. This strategy with the amount of money available to the ruling party looked good on paper. However, the other side of the coin is that a depreciating currency has made people to look at their wallet, the ‘naira in their pocket’. Unfortunately, for those who contrived the postponement, the naira in their pocket in terms of what it can buy is going to be worth even less by March 28. The only trick left is to cut petrol prices again. But can they? And to what immediate effect? It is worth noting that the price cut has resulted in a price war amongst retailers in neighbouring Ghana which has benefited the common man. Predictably in cronyism-fired Nigeria directed by ‘paddy-paddy’ government, this has not happened.
Postponing the election for six weeks in order to gain lost ground has back-fired on those who contrived it. For the ‘opposition’ or should we say the government in-waiting, it’s actually an opportunity to continue to pound upon a central theme whis is: are you better off today than you where four years ago? No prizes for guessing how the mass of the people across religion, tribe and social status are going to reply. They will certainly say ‘we won’t get fooled again’.
Manufacturers have always been hit by shrinking profit margins and low return on their investments. While rising cost of production due to harsh operating environment is blamed for this, the fall in oil prices and devaluation of the naira added a dangerous twist to manufacturers’ woes. Most of them, who depend on foreign inputs, are buckling under the strain, forcing them to lay-off staff. Assistant Editor Chikodi Okereocha reports that the situation has also induced a rise in prices of consumer items.
It’s no longer a matter for conjecture. The widely predicted turbulence from the slide in oil prices, which started mid-last year, and subsequently led to the devaluation of the naira, has started. Manufacturers especially those who depend heavily on imported raw materials for production, such as those in food & beverage, building & construction, pharmaceutical, and brewery sectors, are now under severe pressure, as skyrocketing cost of production makes locally manufactured products un-competitive. Coming on the heels of plans to commence the implementation of the Economic Community of West African States (ECOWAS) Common External Tariff (CET) this year, manufacturers are apprehensive that this would further erode the competitiveness of locally manufactured products.
The ECOWAS CET, when implemented, will allow goods from any other part of West Africa into Nigeria without the imposition of any tax, import duty or levy. However, there fears that CET would throw the nation’s borders open to influx of goods from within the West African region thus exposing local industries and products to unequal competition. Such fears are justifiable considering that Nigeria’s economy thrives on importation, which makes the naira susceptible to international changes in monetary value.
Based on this, it is easy to see why private sector operators especially manufacturers are losing sleep over the unprecedented slide in the value of the naira following the crash in oil prices. At first, manufacturers buy their inputs or raw materials from abroad mostly in dollars. With the devaluation of the naira, it means that they now pay more naira for each unit of raw materials they import including machineries, spare parts and all other import-dependent procurements. Secondly, manufacturers who borrow from banks to import raw materials now do so at higher interest rates, sometimes between 25 and 30 per cent.
The Nation learnt that many manufacturers are already finding it extremely difficult to finance their import bills, while those who manage to do so contend with shrinking profit margins. Operators in the Small and Medium Enterprises (SMEs) sector are more adversely affected. This has been the case since June last year when oil prices started tumbling, forcing sharp drops in accruals to the foreign exchange reserves. This ultimately led to the devaluation of the naira by the Central Bank of Nigeria (CBN), a move that has thrown manufacturers into confusion because of the falling exchange rate of the naira against other major foreign currencies. .
For instance, as at February 15, 2015, naira exchanged at N204 to the dollar. The naira-dollar exchange rate was higher at the black market, selling as high as N209. Two days later, February 17 precisely, naira exchanged for N214 to a dollar. Similarly, the pound sterling sold for 314 to the naira at the Bureau De Change (BDC) segment and N310 at the black market. According to Bloomberg, the naira has tumbled 17 per cent over the past three months and may further decline to an exchange rate of N263 to the dollar, despite attempts by the Central Bank of Nigeria (CBN) to stem the slide.
The current exchange rate regime brought about by the depreciating value of the naira is said to be partly responsible for the current low tempo of activities at the ports. The Nation learnt that import volume has dropped. The Area Controller, Lilypond Command of the Nigeria Customs Service (NCS), Comptroller Mustapha Atiku, said that the depreciating value of the naira and the coming general elections have combined to work against international trade especially importation of consumer goods into the country.
The Area Controller, who spoke at a press conference, last week, said the situation affected the revenue target of the Service. Atiku said, for instance, that out of a monthly target of N1.9 billion, the command collected only N852 million in January and has so far collected N198 million in February. He expressed doubt over the command’s ability to realize in February what it collected in January.
Throwing more light on the lull in importation activities, the Commercial Officer of Lilypond Container Terminal, Mr. Kayode Daniels, disclosed that the low level of activities was not peculiar to Lilypond, but also prevalent at other terminals including the nation’s premiere port, Lagos Port Complex, Apapa. He attributed the low business activities to a drop in volume of imported cargo into the country. He said, for instance, that the volume of imported cargo by Mearsk Line was 30 per cent less than what they did in 2014.
“Market is slow; market is stagnant. We have done extensive market research with our customers and we find out that market is not moving. It is slow. Their (importers’) complaint is that their warehouses are still stocked and there was no way they could import. More so, people are not spending and when people don’t spend, it will be difficult to bring in imports. So these are the challenges that are leading to the drop in volume,” he said, assuring that the terminal has identified some customers who could help in boosting cargo volume so that the command will realize its revenue target.
However, while Customs is worried over failure to meet its revenue target, a more disturbing scenario stares Nigerians in the face: rising cost of consumer items and job losses caused by naira devaluation. “As far as the pharmaceutical sector is concerned, more than 98 per cent of raw materials used by the pharmaceutical industry are all imported and of course, this affects the prices of goods people consume within the country. So, the prices of drugs will definitely go up a bit,” President, Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA), Dr. Ifeanyi Okoye, told The Nation in an interview.
Okoye, who is also Managing Director/Chief Executive Officer, Juhel Nigeria Limited, a pharmaceutical manufacturing company, blamed this on Nigeria’s mono-economy that is almost entirely dependent on proceeds from oil. “It’s a problem and we know where it came from. The nucleus of the problem actually is the fact that we have been operating as a mono economy, depending solely on oil. Because of that, as the price of oil started coming down our naira started fumbling. And the impact on the economy has to be there because people have to re-strategise,” he said, advising that “People should go for what they really want; there is no room for unnecessary expenses.”
While operators in the pharmaceutical industry may be forced to increase the prices of drugs, Fast Moving Consumer Goods (FMCG) companies, building materials companies, food processors, breweries among others, said they have already been forced to increase the prices of their products because of rising cost of production. “We are forced to raise the prices of our products because our cost of production has gone up significantly due to the devalued naira, but also our customers who have been affected by the downturn in the economy may now be unable to buy up these products, leading to increased inventory in our factories and all the attendant problems,” one of the manufacturer who declined to have his name in print, stated.
Perhaps, the most disturbing fallout of the economic crisis induced by naira devaluation is the mass retrenchment now sweeping across the sectors. Already, no fewer than 100 Nigerians working in Nigerian Bottling Company Plc (NBC), part of the Coca-Cola Hellenic Bottling company (CCHBC), have lost their jobs. The affected workers, who cut across all sections of the establishment, The Nation learnt, have already received their sack letters. Other workers who constitute the about 6,000 Nigerians in the company’s employ are jittery as about 1, 800 workers of Coca-Cola worldwide have been lined up for sack in line with the company’s restructuring exercise intended to keep the beverage firm afloat ij face of prevailing macro-economic circumstances.
Workers in Flour Mills Nigeria Plc are also apprehensive over possible loss of jobs. Already, no fewer than two million direct and indirect job cuts are expected, as the food & beverage sector face unpre3cedented increase in the price of wheat and Value Added Tax (VAT). According to the Group Managing Director/CEO of Flour Mills Nigeria Plc, Mr. Paul Gbededo, the current high price of wheat and government’s plans to increase VAT from five per cent to 10 per cent have put the jobs of over 125,000 direct employees and 1,800,000 indirect employees in the sector on the line.
With global oil lay-offs said to have topped 100,000 at the last count, workers in the Nigerian oil & gas industry are also apprehensive. Such fears and apprehension are sequel to earlier warnings by experts that oil companies may lay off workers due to the drop in oil price in the global market. “Right now, a lot of companies are trying to lay off workers due to falling oil price. It is going to be pretty rough in a couple of months to come. The best thing to do now is to go back to the banks to talk on how to restructure our finances so that people will not default. If oil price continues to fall, investors are not going to invest again,” Director, Advisory, Oil and Gas, PriceWater House Ltd. Mr. Ritch Wingo, said.
These problems are coming despite assurances by the authorities, including Minister of Finance/Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala and CBN Governor Godwin Emefiele, that there is no cause for alarm, crashing oil price and naira devaluation will not harm the economy.
The Minister said, for instance, that government had put in place strategies to deal with the situation, part of which was the development of scenario-based approaches to cushion the unfavourable effects of falling oil prices. Such approaches, she added, was comprehensive and supported by extensive consultations with global analysts such as the International Monetary Fund. Besides, she said short to medium term strategies mainly targeted at the poor and vulnerable had been developed.
Notwithstanding the assurances, developments in the last two months are proofs that hard times are indeed, here for Nigerians.
The Central Bank of Nigeria (CBN), has closed the Retail Dutch Auction System (RDAS) foreign exchange windows because of undesirable practices by those it called economic agents.
By scrapping the RDAS, a key part of its currency-management system, the CBN has effectively devalued the naira for the second time in three months.
A statement from the CBN yesterday signed by Ibrahim Mu’azu, Director, Corporate Communications Department of the CBN, said by this decision, “henceforth, all demand for foreign exchange should be channeled to the Interbank Foreign Exchange Market.”
The apex bank in the statement had noted that “with the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the bank has observed a widening margin between the rates in the interbank and the RDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.”
This the CBN said “has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public” as a result it had to wield this big stick to protect the Naira.
The statement further said that “it has become imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.”
He said the managed float exchange rate regime, which the CBN had adopted following the liberalisation of the foreign exchange market, has for the most part been successful in ensuring exchange rate stability in line with its mandate, but giving the infractions committed by the so called economic agents, the CBN, he said, had no choice but to take this decision with effect from yesterday.
However, stakeholders in the financial sector have since reacted to the policy shift. For instance, the Head, Macro Research Africa at Standard Chartered Bank, Razia Khan said the policy is “positive news, and should help create more transparency in the Nigerian market.”
Khan warned that with oil prices currently at levels where foreign exchange reserves will be difficult to replenish, the CBN’s appetite for continued support of the interbank foreign exchange rate will be closely monitored.
“With Nigerian foreign exchange reserves under pressure as a result of weaker oil prices, markets had anticipated eventual unification of Nigeria’s different exchange rates. Following the announcement in February that presidential and parliamentary elections would be postponed to March 28, Nigerian markets were subject to greater volatility,” she said in a note released yesterday.
Khan said that with foreign reserves under pressure, and amid growing concern that a wide RDAS-interbank spread would encourage ‘round-tripping’, the CBN will now stop RDAS auctions, therby effectively discontinuing its foreign exchange subsidy for certain categories of demand.
But the President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gbadabe said the policy is ill-timed. He told The Nation that the policy will push rate at the interbank to N250 to dollar and that will increase the already existing panic in the sector. “It is not the right time to cancel RDAS now that there is panicking in the forex market,” he said.
In 1973 when the Yakubu Gowon post-civil war government introduced the Naira, it was at par with the West African currency board pound sterling that we were then using along with The Gambia and Sierra Leone. Ghana as an independent country under Osagyefo Dr. Kwame Nkrumah had withdrawn from the West African common currency in 1957. This was one of the regrettable but understandable decisions of Nkrumah to assert his country’s independence and new status but which from privilege of hindsight set West African economic integration years back. The pound sterling we were using until 1973 when we changed to the Naira was at par with the British pound. The result was that there was no reason in the world for Nigerians to have foreign accounts as a hedge against the fluctuating local currency. But how things have changed . The increase in national revenue following stupendous growth of the oil industry after the civil war in 1970 guaranteed the strength of the Naira. Even though there was corruption in the Yakubu Gowon admnistration, it did not reach the current prevailing epidemic, endemic and industrial level of today.
For years after the introduction of the Naira, it remained stable to the extent that the mad drive to have foreign money by Nigerians was not there. I remember when I was Director of the National Universities Commission’s office respectively in Ottawa, Canada and later in Washington DC in the United States from 1978 to 1982, I refused to take my salaries in dollars because there was no advantage or benefit from availing myself of that opportunity. I was merely living on my foreign service allowance. The point I am making is that the Naira remained strong and respectable and convertible. I remember that while recruiting Americans and Canadians for our then new universities in Jos, Port Harcourt, Calabar, Benin, Sokoto, Bayero Kano, Ilorin, Yola and Bauchi, we used to just multiply the Naira salaries paid to Nigerian professors by two to get the American equivalent. In other words, one Naira converted to two American dollars. A professor in Nigerian universities then earned N16,000 per annum which was respectable US$32,000.
The national currency of a country is a symbol of a country’s power and pride. When as in post-First World War Germany, the Reichmarks became worthless as a result of Germany’s humiliating Versailles diktat, it led directly to the rise of Adolf Hitler and his determined campaign of righting the wrong of Versailles. We are in this country reaching a point where the national currency is becoming an embarrassment and a symbol of our current weakness in the face of internal and external challenges to our sovereignty.
I remember the late 1980s when after ruining the country, the Shagari regime was overthrown because of its spendthrift nature and uncontrolled corruption, the Naira began its downward spiral. When Babangida took over government from the duo of the no-nonsense Idiagbon and Buhari, the International Monetary Fund moved in with its one-remedy-fits-all policy of structural adjustment programme which the Buhari regime had refused. It was during the Babangida regime that the exposed nature of Nigeria’s economy became apparent. Babangida was forced first to float the Naira which was then changing at four Naira to a dollar when he took over government. I remember the personal financial loss I suffered when in 1991, I left Nigeria to assume duty as ambassador in Germany, my savings suffered a depreciation of almost 100 percent. The Naira by 1991 was changing at 10 to a dollar and by the time the Structural Adjustment programme imposed on the country had run its full course, the economy of the country had been destroyed and with it the middle class had been wiped out. Those who had money before were then reduced to penury and there began the fashion of owning foreign accounts against the future. If the situation were stable this would have been totally unnecessary because in most cases these accounts earn little or no interest at all. From this period onwards, the Naira continued to reflect the inherent weakness not just of the Nigerian economy, but of the Nigerian state itself.
The use of the American dollar as a reserve currency in the world is a symbol of American hegemony in the world, a hegemony that has made the last century the American century. The Chinese Yuan may in course of time and all things being equal rise to the same prominence in the world’s economic medium of exchange. There was a time in the 1970s when the naira was acceptable all over West Africa and also in the bazaars of Sheperd Bush in London! Gone are those days when Nigeria, victorious from a civil war and loaded with wealth was not only helping Africa’s fighting forces of colonialism in Southern Africa, but was also dispensing monetary largesse in the West Indies. We can only remember those halcyon years with nostalgia.
The precipitous fall of the naira is always during the time of crisis at home when those who feel they may lose out in the struggle for power resort to carrying their loot abroad and therefore were ready to change their unearned income to foreign currency at any available rate. This phenomenon is not unique to Nigeria; it is simply a manifestation of under development. This is why black or parallel markets of currency exchange are only found in underdeveloped economies.
We have now more or less reached a point of no return in the destruction of the national currency when it crossed the 200 to a dollar mark. It is not just because the price of oil has fallen, serious as this is, it is because of total mismanagement of the economy by the so-called expert from the World Bank whose contribution in a time of plenty was publishing what states and local government earned as if this was neuro science! This so-called World Bank expert continued telling her employers in Abuja what sacrifice she was making without telling them the benefits that were accruing to her. Now, the chicken has come home to roost and it is dead silence from the guru of World Bank who has now ensured that we are again prostrate for another Bretton Woods institutions treatment. This World Bank Trojan horse has delivered.
If we survive the current economic and political problems, we will again be dictated to by outsiders masquerading as dogooders on the way out of the woods and we may by then be so economically weak that we we would have no choice than to bite the bullet. It is then that social Armageddon may be visited on this country and saints and sinners may be swept away in the blind fury of people’s uncontrolled anger. We may yet avoid this if we defend the naira through disciplined management of our foreign trade. We are importing too many things we do not need. Why are we importing all these wines one sees in every corner of our our country? Why are we the second largest consumer of champagne in the world outside France? Why do we allow our plutocrats to indulge themselves in buying planes and we are boasting that it is a sign of how big our economy is? This shows complete disconnect between us and our rulers. We can half our import bill, encourage local production of rice and substitute wheat with other cereals and generally assist efforts of imports substitution and local industrialization. The result of this will be reduction of our need for foreign exchange and even at current earnings, we would have surplus and be able to defend the naira at a respectable exchange rate. If and when we transit to a much more disciplined regime with no tolerance for rampant corruption, we should have a currency that reflects our aspiration as a medium power in the world and one that is dominant in our continent.
The Central Bank of Nigeria (CBN) has stopped banks from reselling dollars bought at the Retail Dutch Auction System (RDAS) to other lenders.
It is all to stop the scare forex from being used for purposes other than what the funds are meant for.
Besides, the move, it was leant, is aimed at curbing currency speculation and strengthening the naira against the greenback.
The naira on Friday gained 0.6 per cent to N204.30 per dollar but has lost five per cent over the past eight days, the most weekly basis since December 2008.
The policy shift, experts said, is also expected to ensure that banks do not violate the Letters of Credit (LCs) by diverting the RDAS funds obtained via customers’ LCs to unauthorised purposes.
The RDAS or official foreign exchange (forex) window allows banks and other authorised dealers to place forex bids on behalf of individual clients who qualify to buy forex at the official auction.
Unlike the Wholesale Dutch Auction System (WDAS) scrapped in September 2013 over widespread abuse, the RDAS allows the CBN to monitor more accurately various sources of forex demand and any potential duplication of demand in the system to address speculation in the market, which has put naira under pressure.
The naira has been under pressure in recent months as crude oil prices continue to fall. Last November’s eight per cent devaluation of the currency over falling Brent crude oil prices has not brought any stability. The CBN is, therefore, adopting a pragmatic approach to exchange rate and reserve management to protect the naira as weaker oil prices persist.
CBN spokesman Ibrahim Muazu told Reuters the apex bank sold dollars in a special intervention on Friday and that it will continue such sales on a “need basis” to satisfy demand in the interbank market and curb speculative attacks, which he blamed for the naira’s weakness.
Muazu said that the bank was not planning to devalue the currency again, but was studying dollar demand closely.
“Our target is to stabilise the market in the interest of investors and the economy. We will do everything to ensure that we meet demand,” Muazu said.
“It’s not likely we would raise the band on the naira any time soon. We are looking deep into the areas of demand. If speculators are not there then the situation would return to normal,” he said.
The naira has crashed through the psychologically important level of 200 to the dollar last week in a rout triggered by weak oil prices and escalating tension over the postponement of a presidential election.
The CBN tightened policy in November while simultaneously devaluing the official RDAS rate to more realistic levels (at the time). Access to foreign exchange through the RDAS window was also limited to safeguard foreign exchange reserves.
Besides, the apex bank a fortnight ago, sold $30,000 to each of more than 2,500 bureau de change operators. The fund is an addition to the weekly sales to operators. The move is aimed at increasing dollar liquidity in the system said and bringing stability to the naira.
Despite these measures, the naira has slumped 17 per cent against the dollar in the past three months, the most among 24 African countries.
