The CBN Governor Godwin Emefiele visited the on going Dangote Refinery Project currently under construction and as Premium Times reported, he not only visited but promised to “assist the Dangote Group to access foreign exchange to facilitate its $14 billion refinery project.” Here is Emefiele on quote
“Your ongoing 14 billion dollar refinery investment will enjoy our support, no doubt. We are doing this to fast-track the importation of equipment you need for a speedy completion of that project and to encourage other Nigerians to follow your lead,”
I have read this quote severally trying to figure out what it actually means? I came up with the following;
CBN Is Playing god- This probably confirms some of the biggest fears skeptics have. The CBN has claimed its demand side management is targeted at making sure only critical sectors of the economy gets dollars. By this, statement Emefiele may just have confirmed that the CBN is hoarding dollars and only selling to people they feel “need” dollars the most. Whilst the intent here may seem logical, it doesn’t go down well with the tenets of free markets. The CBN is basically playing God and deciding which projects to support and what not to support.
Against devaluation – Aliko Dangote has vehemently opposed the devaluation of the naira telling anyone who cares to know that he supports CBN policies. Emefiele’s latest statement now helps put those comments into better perspective. Devaluing the naira will cost Africa’s richest man hundreds of billions of naira in exchange rate differentials and could render the business model not viable or increase the payback period of the business. Refineries operate very low margins and requires eliminating cost inefficiencies, having a steady demand to break-even. Adding tens of billions of dollars in exchange rate cost will probably render this business unprofitable even before it comes on stream.
Actually, I think there may be some flaws in this analysis. For starters, what proportion of the investment for the refinery project is actually being funded with Naira? Dangote has borrowed significantly from Nigerian and foreign banks and from international DFIs in US Dollars for the refinery project. All of these dollars financing will not be adversely affected by the refinery project. Beyond this, a lot of the balance funding for the project will be from Dangote’s other businesses. Alot of this investment is held through offshore entities and so is already entitled to access official markets for its dollars financing. Is it really the CBN or existing rules that guarantee Dangote the access to US Dollars required for his project? Perhaps the statements of the CBN governor should be taken for what they actually are, plain rethoric?
The CBN Gov clearly stated that he will be supporting Dangote in the area of forex purchases. That suggest he will also need to access the forex window for naira related funding. 90% of his earnings are in naira so he obviously needs the exchange rate to be be stable and not devalued or allowed to float.
Devaluation or floating of a currency is indeed a bitter pill to swallow. I believe that fiscal rather than monetary policies are better placed to help people like Dangote I appreciate Dangote because is an big employer of labour So let the naira float but let fiscal policies be in place to assist Dangote
Ugo you campaigned for change! Well this is it. All animals are equal but some are more equal than others. smh