Naira Devaluation: What is all the FUSS about? (Updated)

Dear Africa interested individuals,

                                                         Business people around the world are shouting themselves hoarse for Nigeria to further devalue its currency.  Yes, it was devalued formally in February 2015 to 200 naira from 160 naira to the dollar four - five months prior.  This is a 25% devaluation.  

The IMF and foreign investors want more.  The logic is that this will boost revenue oil receipts in local currency terms and help the country to generate more revenue from lower oil prices.  

This will also enable foreign investors to bring in $1 million and get 300 million naira instead of 199 million naira presently.  Naira supply will flood the system, further spike inflation and send the naira on a further downward spiral post devaluation.  The naira lost a further 10% after the CBN Governor at the time (Soludo) devalued the currency in one fell swoop in December 2008 by 25% from N120 to the $.  

The failure of the government's policy to peg the naira at approximately 200 (two hundred) is due to the failure of checks and balances by various structures within the system necessary to support this policy.  

The banks in Nigeria exchange dollars received at the official pegged rate and pay out dollars (debit the naira account of their customers) at the unofficial rate of 320 naira!  

Businesses: Samsumg has priced its S7 Edge at the unofficial black market rate in naira.  Nobody is saying anything.  Airlines are doing the same thing.  These same businesses will now remember there is an official rate when they decide to repatriate their proceeds.    

Moneygram and Western Union do not use the official rate when someone in Nigeria wants to remit naira out and receive $ in New York.  Their rate is at least 30% higher than the official rate.  This rate is nowhere to be found when you walk into to receive naira based on $ sent from the USA.  The official rate suddenly exist once again.  

All these entities and a lot more have contributed in no small measure to sabotage the government's efforts to stabilize the naira at 200 after a 25% devaluation.  When policies or laws are implemented, they can only succeed if those closest to the people support it through obedience.  

People are not allowed to buy alcohol in stores if they are less than 21 years old in the USA.  This is government policy.  It is the liquor stores and supermarkets through their check out counters that enforce this.  If these stores all come together and decide to not check identification, the law will be null and void without being voided.  

Yes, the effect of the naira trading unofficially at 320 instead of 200 is being felt because of the failure to adhere to the above.  There is pretty much a gang up to devalue the currency unofficially so that the official devaluation can now take place with ease as its ill effects have already been factored into the economy.  This is simply put a manipulation of the currency system to force through an official devaluation by those entrusted to enforce it on behalf of the government.

Norway's largest export is CRUDE OIL and over the past two years, the Norwegian Krone has depreciated by 35% approximately to the $.  Norway's foreign exchange reserves are approximately double that of Nigeria at about $57 billion.  Nigeria's currency has depreciated by 25% and people with vested interests are gunning for another 50% - 60%.

Why does the world shake when China wants to devalue the yuan even by 1%?  Because, China is a major global exporter of soft commodities etcetera and this typically leads to a balance of trade imbalance for other trading partners.  Nigeria is not a major exporter of any soft commodity and is therefore going to negatively impact its own economy if the naira is further devalued.      

The question I ask all of you: Sincerely, who does the naira's further devaluation really benefit? The Nigerian people or those not from Nigeria but, who like to do business with and make money from Nigeria while flying in and flying out?  Trust me, the naira's further devaluation favors businesses in the short-run a lot more than the benefit to the Nigerian economy in the long-run.    

The Central Bank of Nigeria has failed the people of Nigeria by allowing those entrusted with the responsibility of executing transactions at the official rate to not do so and get away with it.  In terms of boosting non-oil exports, the Central Bank needs to exchange non-oil exports' proceeds at the unofficial rate so as to boost the incentive for farmers to expand their operations.  Booming business leads to new entrants anywhere in the world.  The "pure water" story in Nigeria is one worthy of a case study.     

When agricultural production and exports pick up, then, Nigeria can devalue further and let the farmers reap more from increased exports.  Unless Nigeria wants to continue going through this cycle every 5 - 10 years of devaluing its currency and becoming more financially dependent on foreign powers, the knee-jerk reaction of devaluation during commodity price slumps has to stop.  

Kenya and Ivory Coats are classified as a bright spot in Africa now; its major exports are soft commodities.  Senegal and Morocco have also been mentioned and neither are largely dependent on hard commodities as their number one foreign exchange earner.

The short-term fixes for long-term problems must stop immediately.  No better time than now.  For the foreign investors and their ilk, this is about naira devaluation.  For the Nigerian government and its people this should be about agricultural revitalization. Sometimes there has to be pain before joy.  Mothers can relate to what I am saying.    

If a dog continues running towards the person whistling at it without knowing who, it becomes the town dog instead of your dog.  The cycle of offering IMF aid and demanding devaluation when oil prices decline  (especially to African countries) has to stop.

A Research guy in London for an investment bank spoke about Buhari doing this (taking on this hardline stance against devaluation) in 1984 and then being removed in a coup  in August 1985.  I guess he is implying that Buhari has not learnt his lesson...  He forgot to mention the 1989 SAP riots that came about from the harsh sufferings inflicted on Nigerians and the naira devaluation that took place under Babangida in quick succession under the guidance of the IMF.  Somebody did what you want now and what happened?  Nigeria lost its glory then and has not fully recovered ever since.   

Nigeria, there is POWER in NUMBERS.  You cannot be ignored for long.  Nigeria is a nation of 180 million people and counting.  Businesses that ignore Nigeria lose more than they gain by staying away in the long-run.  The devaluation supporters expect Buhari to give in soon; it may very well be them giving in and making the best of the reality of existence and not expectation.  

Nigeria should invest in agriculture heavily and after it has improved its production and has a burgeoning export market, it can then devalue the Naira.  This will positively benefit the Nigerian economy in the short and long-run for its people.   The commercial interests driven by ulterior motives, that have little or nothing to do with the common man on the streets of Lagos, Onitsha or Kano trying to improve his standard of living should not be allowed to rule a country from the outside for their benefit.  Remember, freedom without being free is an illusion.     

N.B. I will tackle the bond market decline, fuel scarcity and the equity market decline separately at another time.  These events are also being used by those shouting themselves hoarse for the naira to be devalued further to drive their largely self-benefiting agenda.  

Opportunities can be given to or taken away from someone; talent can never be taken away from someone.  Remain steadfast to the truth and be truly free...  

                                              

                                                  DIALECTIC AFRICA ANALYST