A colleague said to me, “it’s uncanny how your Central Bank’s policy on Foreign Exchange is similar to that of Zimbabwe of 2008”.
I had to go check what Zimbabwe did and where it led them to. Zimbabwe. after a bout of hyperinflation, abandoned its currency. Nigeria’s current arrangement may get us there.
It is a good time to own a BDC. BDC licenses can cost as much as N15m now. The same license cost about N3m some years ago. Why has it gone up? A BDC can generate a weekly return of N1.3-1.4m just on a $50k bid. Most people can live on that. With a spread of N65 on a dollar: official at 410 and parallel at 475, why do you have to sweat?
So what is the impact of this? A long run destruction of the economy, a higher subsidy than calculated on petrol and a significant market distortion. A distortion that profits less than 1% of the population and sending a higher number into poverty.
With, until recently, accretion to reserves impaired by low crude prices and low volumes, there is a rapid depletion of the country’s reserves. Why does a government borrowing heavily choose to subsidize the dollar?
The answer is corruption. Corruption played out supported by perceptions of what could happen to the middle class if the Naira were allowed to float. Nigerians tend to politicize the exchange rates. It’s for them a sign of economic management. Governments in power have that awareness. It’s part of the play in sustaining corruption.
The future is bleak. The external reserves shed over a $1billion in the last few weeks. Nigeria is consuming the present and the future. There is really nothing to show for the years of interventions. With the ongoing challenges in security and rising poverty, the destination is going to be a crash.
It is time for market unification. It is time for Nigeria to move to find the true value of the Naira. It must stop the corruption in the markets.
Written by Demola Adigun