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Naira Fall: A Journey Of New Learning Curve Begins


There is no end to learning. The fall of the naira is an opportunity to learn something new and move forward. The learning process starts from attempting to answer one or more questions.

First of all, how did Nigeria get to this mess? How can we get out of it? The attempt to answer these questions is the learning curve that will take Nigeria to a greater height.

The director, Monetary Policy Department, Central Bank of Nigeria (CBN), Moses Tule, made a very good attempt at answering the questions during the last CBN seminar for finance correspondents and business editors in Ibadan.

For him, every Nigerian has a case to answer as the solution lies in us. He was of the opinion that everybody should examine themselves as truthfully as possible, and that if truth be told over 80 per cent what most people in that gathering wore were imported, leaving local content at less than 20 per cent.

Clearly, under that scenario, why would the naira not be under pressure. Many believe that the naira is resilient, otherwise it would have collapsed under the huge weight, and that is just one dimension. How about the knack for Nigerian companies to prefer a foreign degree to a Nigerian degree? A situation that has led an average Nigerian to send his ward overseas for education. How about others that fly abroad to treat every headache and fever? How, then, dare some foreign ‘mercenaries’ advise the authorities to devalue the naira in order to continue to support developed economies at the detriment of our local economy.

No wonder, Tule described the situation as one where a ‘doctor’ prescribes a surgery for headache.

An educationist in Lagos, Tonia Okorie, advised President Muhammadu Buhari to ensure that no government official sends his/her ward to school abroad or goes abroad for medical treatment. According to her, this way the leadership will be leading by example, and it will become easier for the followers to follow.

Genuine Nigerians has said that the naira can rise all it wants now, but believes strongly that what goes up must come down unless it acquires an escape velocity which is not possible when Nigeria is not Zimbabwe. Nonetheless, its fall surely has attendant effects that we must learn to live with temporarily. Calculations made by a research-based firm in Lagos, Afrinvest, indicates that the naira fell by 13.8 per cent last week.

Following the Bankers’ Committee meeting that took place last week where it was reported that international school fees payments and health demands constitute the bulk of foreign exchange (FOREX) utilisation demands of deposit money banks (DMBs), speculations concerning the currency have grown considerably. Consequently, sustained unmet demands and reports from the meeting have caused the local currency to depreciate in leaps and bounds, depreciating 13.8 per cent Week-to-Date (WTD) in the parallel market.

After opening the week at N345/$ on Monday, the parallel market rate closed at N400/$ this week. This was following the average depreciation rate of about N25/$, a far cry from the pre-committee meeting weekly depreciation rate of N2.50/$. Thus, the margin between the parallel market and official market rates – CBN at N197/$ and interbank N199.10/$ – have continued to widen sharply.

While the apex bank and the presidency remain resolute, maintaining that it will not have the naira ‘killed’ despite calls for an official devaluation, the pressure on bureaux de change (BDC) and parallel market rates continue to mount as the monetary authority’s inaction worsens concern about the outlook of the naira. Away from calls for naira devaluation, our view is that the uncertainty surrounding the outlook of the naira is more worrying as this amplifies speculative attacks and round tripping by speculators who bet on higher margin between the interbank market rate and the BDC/parallel rate.

Afrinvest believes that the current stance of the monetary authority on the naira and the welfare consideration (further hardship on the poor if the naira is devalued) of the presidency appears counterproductive given the apex bank’s inability to meet demand amid impaired dollar inflow and lower external reserve. The research company added that this is given that despite government’s emphasis on inward looking strategies as a means to managing the level of import dependence, local appetite for imported goods remained largely unchanged. So in a bid to meet demand, importers still have to source for FOREX in the parallel market. However, market speculation, driven by CBN’s inactivity, will continue to worsen parallel rates if uncertainties in the market persists. As a result, the feedback effect of this will be felt on aggregate welfare as domestic prices level rise.

“Our view on the implication of the development in the currency market for capital flows (underscored by 53.8 per cent Year-on-Year (Y-o-Y) decline in capital inflows to $9.6 billion from $20.8 billion in 2014) seems over flogged. However, we note the expanding significance of the parallel market segment of the currency market and the refusal of the apex bank to stem market volatility will unintentionally continue to hurt domestic economic activity (in the absence of an appropriate structural reform to engender domestic productivity) and hence welfare of the poor. Therefore, we stress the need for the monetary authority to step in to stem the rent seeking activities going on in the parallel market.

“Going forward, the challenge of greater import costs on businesses is expected to further impact both the core and food inflation rates as cost push factors weaken operating margins amid demand pressure in the FOREX market. But earlier in the week, the National Bureau of Statistics (NBS) released the January 2016 Consumer Price Index (CPI) report which indicated that the CPI stayed flat at 9.6 per cent Y-o-Y but grew 0.9 per cent Month-on-Month (M-o-M) from 1.0 per cent in December. The food sub-index increased at the same pace of 10.6 per cent Y-o-Y in January while it advanced at a slower pace of 0.3 per cent from December at 0.9 per cent M-o-M. The core sub-index, however, grew to 8.8 per cent Y-o-Y from 8.7 per cent in December but stayed flat at 0.8 per cent M-o-M. Contrary to the above, we believe the implication of the development in the FOREX market points to further pressure on inflation rate in subsequent month as import costs continue to rise. In the interim, this is expected to continue to impair operating performance of companies, thus heightening the recessionary tendency of the economy in the short to medium term.”

President Buhari maintains stand

President Muhammadu Buhari, has given reasons he opposes the devaluation of the naira, emphasising that the country cannot compete favourably with other producing nations. He spoke on Saturday while contributing to a Presidential Panel Roundtable on Investment and Growth Opportunities at the opening session of the ‘Africa 2016: Business for Africa, Egypt, and the World’ at Sharm El-Sheikh, Egypt.

“Nigeria cannot compete with developed countries which produce to compete among themselves and could afford to devalue their local currencies. Developed countries are competing among themselves and when they devalue, they compete better and manufacture and export more. But we are not exporting anything, but importing everything, including toothpicks. So why should we devalue our currency?

“We want to be more productive and self-sufficient in food and other basic things such as clothing. Our government would like to encourage local production and efficiency,” he said.

The president stated that those who had developed a taste for foreign luxury goods should continue to pay for them rather than pressuring government to devalue the naira and expressed optimism that Nigeria would get out of its current economic downturn, pointing out that another major problem militating against economic revival was the huge resources deployed towards tackling insurgency and international terrorism.

Present at the talks were Egyptian President, Abdel-Fattah El-Sisi, presidents of Gabon, Equatorial Guinea, Sudan and the Prime Minister of Ethiopia.

The President of the African Development Bank, Dr. Akinwumi Adesina, also addressed the participants.

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