May 27 to 29, 2015 as we ushered in the new Government, amidst the thunderous enthusiasm and joy of change that enveloped for the most part Nigerian business men, I was greatly disturbed that the change was coming when our economy was worst hit by disappearing oil sales largesse and at the high point of the internal war with our “home grown-foreign fed” terrorists.
While I have nothing against the APC Government, I had a problem with their campaign promises which were mostly laughable ($1 to N1, elimination of BH in 2 months, NYSC post service allowance, Job creation, amongst others) and more disturbing was the mindset of “anti corruption” under whose wings they tactically hid their ignorance about the current state of our economy and the then Government efforts to battle bigger enemies and still watch its back for the opposition that went the whole nine yards, and eventually succeeded in taking the “belt”.
While I have no problems with anti-corruption (corruption is a big challenge), I had a problem with the non-existent moral high ground on which the messengers of anti-corruption were riding and dancing “shoki” and “kukere and etigidi”. This singular fact drives to prove that the battle was a battle for supremacy and pride and not a battle for the love of Country (except for the” actor”).
Let me specifically comment on the state of the economy as it affects businesses. I had earlier (May 28, 2015) mentioned that the only reason we should not devalue Naira further should be if and only if oil comes up to $100 / bbl. However, as at the date of that hint, Naira was trading at about N199 /USD in the official market and about N215 –N220 /USD in the black market. The CBN was so headstrong and maybe in the bid to score some cheap political point, they even revalued and the naira came to about N194/$1. At a point where we should have capitalized on small gains and replenished our badly beaten reserves, we were seeking acknowledgement and enjoying the false sense of achievement.
The recent gains by the Naira should actually scare us more than it excites us. In one day it was N245/$1 the next day it was N200 / $1 and yet on the third day it went back to N235/$1 just to swing back to what we don’t know on the 4th day. This is a clear indication of a dangerous bubble, whose burst can only see the naira trade at N300/$1.
In the bid to treat cancer with gentian violet and iodine, we have succeeded in shutting small business out, littering over 50% of Nigerian traders and shrinking the little jobs created by the private sector. It is a highly welcome policy to restrict trade and encourage local production however it is sad to note that we are not ready and as such any policy geared towards that will be counter productive.
Imagine if cement was declared non valid for FX before the stabilization of Dangote……..that will be putting the cart before the horse. We have successfully, killed the informal trading sector which for so long supported the economy and provided great wealth and employment to Nigerians. The economy failed to support this sector and as illegal as most of the activities in this sector were, it is a non negligible part of the overall picture. We still see imported furniture in shops, toothpaste, fabric, frozen foods, eggs, fruit juices, soaps, detergents, footwears, ballpoint pens etc. All the items on the prohibited lists are all over the country and these were financed and sponsored via the parallel market. Taking off that part of the economy, when the Government over the years failed to provide credible alternatives is likened to drinking poison and hoping your enemy will die. The Nigerian economy is not ready for this new game of Russian roulette and will take the hit very soon. The CBN in recent times has had difficulty fulfilling genuine needs as Form A transactions now take ages to get sorted, not to talk of Form M’s with frequent failed bids and long delays, frustrating trade and chasing importers into the comforting arms of ever funded speculators.
While I see the good the Government is trying to do to resolve a 60 year old problem, they should know that you don’t burn the house to kill the rat. I also repeat this for records sake (please do not make investments based on this). From my crude calculation, the Naira is valued at N215/$1 in the official market and the parallel market will take its place based on strict policies to monitor and report real trade and not currency speculation. The recent CBN policy via moral suasion to stop banks from accepting USD deposits, the intimidation to stop remitting cash to offshore partners and finally owning up to hail banks for their obedience has been largely successful in burning the house, but guess what……..the rat is still alive.
We have unguarded borders and the recent policy will shift trade and FX transactions to neighbouring countries. Just like we see with our oil imports that cross the border and sell at lucrative rates, if tankers can pass Customs “undetected” and enter these places, how much more a bag of dollars. Note this…… The excess supply in the market will dry up in one to two weeks as a result of the acts of these speculators, the excess cash in bank vaults is not moving out, as Nigerians lost confidence in the Naira and dollarized which explains the huge dollar balances, and the speculators will give CBN just the kind of inflow it asked for (at a cost that those who really need it will pay). Nigerian banks in recent times developed all sorts of products that encouraged USD stock ups and the CBN as at 2013 should have reviewed the operation of USD account in a bid to curb the impact on our dwindling reserves (however with one year budgeting, our Government institutions never look far).
As we battle unemployment, more business will shut down and move to neighbouring countries, register their business and open accounts where no restrictions exist, and our former importers will turn Ghanaian, Gambian, Senegalese, Beninoise importers, exporting to Nigeria. The trade cycle CBN has created now will run like this: buy cheap dollars in Nigeria, travel to our neighbours and credit you dollar cash and do you imports, which will land in Nigeria, sell in Nigeria and buy cheap dollars and return to base. The dollars will soon be scarce again and I don’t want to guess the price yet.
We still lack a formal economic team to take the blame for this gamble….The CBN Governor will take a bow and nurse the blame. The Government will continue to point at GEJ and leave him with an unending sneeze while they carry around binoculars looking for thieves to catch as 4 years fly by. There is still time to make amends. Separate control from killing the economy. The damage is still reparable, devalue and defend. Use the small reserve we have and defend some new policies and not defending naira that is weak due to our import dependence, oil price drop and disappearing reserves. The correction window will soon close and all the good works of GMB in the pipeline will be swallowed under the wings of a failed economy.