Nigerian Naira Drama: Posterity is Never Prejudiced

Dear Africa interested individuals:
                                                        On June 20, 2016, I published an article titled: "Nigerian Naira: The misfortune of its people is the glee of foreign investors."  This article turned out to have the most one day views of any article ever written since the inception of this blog about fourteen months ago. Two months later, let us concisely review my major short-term expectations as stated in the article against present economic and market reality In Nigeria.   

1. Expectation: The stock market will have a transient positive bump and then tank as the reality of pain sets in.  The naira free float policy commenced on June 20, 2016.  

Reality: The Nigeria All Share Index rose by 1.12% from June 20 to June 30.  The NGSE index declined by 4.42% in July and has declined by 2.25% as at August 25, 2016.  The market had a transient boost during the last nine trading days of June and then has been on a persistent decline since then even after global markets have recovered post-Brexit.  My expectation and reality are in sync. A fund manager in America wrote that the market will bounce bank after a post Brexit nosedive.  The FTSE (the market at the epicenter) recovered and the NGSE continued its downward streak.  The misfortune of the Nigerian people is not yet the glee of foreign investors.  There is an adage that says do not spite your thumb to please your finger.  My expectation and reality are in sync.  Check Mark.  


2. Expectation: The official free-float exchange rate will hover around N320 and into the foreseeable future.  

Reality: Aside from the two week initial period when there was a pseudo devaluation to N280, the naira has hovered more around N320 than any other number after being truly and freely floated.  My expectation and reality are in sync.  Check Mark.  

3. Expectation: Banks with net dollar positive balance sheet positions (like GT Bank which I specifically mentioned and First Bank) will have a huge boost to their balance sheet size and growth in net income without batting an eyelid.  

Reality: GT Bank's H1 result speaks for itself.  Pre-tax income rose by 45% and non-interest income rose by 156% relative to H1 2015 despite present challenging economic realities.  Majority of banks in Nigeria do not make N100B in non-interest income in a fiscal year; GT Bank made this in half of a fiscal year.  My expectation and reality are in sync.  Check Mark.   

4. Expectation: Inflation will spike at a pace and jump not seen in a long time.  The last reported inflation rate was for June 2016.  Curiously, July should have been reported by now.  Wonder what is going on behind the scenes?  

Reality: The inflation rate of 16.5% for June was the highest reported since October 2005 and the 90 basis points jump from May to June was also an anomaly.  Remember the tripartite inflation driven events the government instituted in 2016 coupled with policy somersaults as mentioned in the article? That is what is driving the spike in inflation.  Inflation in Nigeria is presently higher than local currency government bond yields across all tenors.  Bonds in Nigeria have a negative real return.  The Nigerian people are supposed to spend and there is not enough money to spend on consumer staples. The government and corporate bond markets are in a persistent slide as yields continue to rise.    My expectation and reality are in sync.  Check Mark.  

5. Expectation: The Central Bank of Nigeria (CBN) will still have to regularly supply dollars to meet pent up and regular demand.  The expectation of massive dollar inflows post free flotation of the naira will not happen because of the economic challenges (independent of currency movements) that will hinder the ability of businesses to attain their expected rates of return.  Dollar inflows will be in intermittent trickles as anxiety over uncertainty stifles risk taking.  

Reality: The CBN has been the major and many a time the only supplier of foreign currency to meet pent up and current demand.  Many foreign direct and portfolio investors continue to wait on the sidelines for something more positive and permanent than a freely floating currency.  The naira is competing for the world's worst performing currency in 2016 and still cannot attract dollar inflows to reduce depletion of foreign reserves by the CBN defending a currency that is freely floating.  Almost daily supply of dollars is ongoing by the CBN to support the naira as the foreign investors (make Nigeria great again by freely floating the naira club) continue to remain on the sidelines.  This is clearly not sustainable.  I saw this coming and I sang myself hoarse.  Investing in companies that are being severely negatively impacted by a policy that forign investors aggressively support, is not for the faint of heart.   My expectation and reality are in sync.  Check Mark.  

6. Expectation: The government of Nigeria will continually try to use its large population of impoverished people to reflate the economy and feed its budget deficit which will likely exceed 40% for 2016.  The same people that are looking to their government to boost the economy and improve their standard of living, are now being taxed further to feed this government's desire to spend and spend quickly.  

Reality: A 9% communication service tax bill ix currently being considered by the legislature.  Valued Added Tax is also being considered for increase.  Meanwhile, the five thousand naira payment to the most needy in society to provide a boost to their standard of living has not been carried out yet by the present government as promised during its campaign and may not be.    

7. Expectation: I mentioned in my article that the economic woes currently being experienced by the Nigerian people does not feel like a government in power for the people.  While Nigerians are docile in nature when it comes to speaking out about wrong doing in society because of the "quest for self preservation," those that have preserved enough will start speaking out on top of the murmurings from the average person on the street.  

Reality: Sanusi (the former CBN governor) has recently spoken out and asked Buhari to retrace his steps on some policies that are bad for the economy.  He mentioned policy flip flops which have reduced the credibility of the government and I wrote about how lack of credibility nullifies the anti-inflation economic policies of a government as we have now in Nigeria. My expectation and reality are in sync.  Check Mark.  

From a professional standpoint, I am pleased that my major insights turned out right; from a personal standpoint, I am very saddened by the way the country is going and how the average family is left alone to its own whims and caprices to survive.  Nigerians are not nice to their fellow Nigerian and this is exacerbated in times like this.  Something has to give, even if nothing wants to take. 

Money needs to be put in the hands of the citizens by the government to help rejuvenate the economy. If the average Nigerian among 180 million does not have enough basic needs, the economy is doomed.  You can call it supplementary income etc.  Reflate the pockets of the Nigerian consumer with some form of bailout to drive base level expenditure and consumption.  I will leave it at that.

Kenya in the mix next with two stories, hopefully should be ready by Monday, the 29th...

Tell others to tell others about this Africa Research Blog; the economic truth is here.

The TRUTH will set Africa free; I will keep telling it.  

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