As the naira begins a free fall, now trading at 251 to $ , this article written by a Nigerian scholar ( Mr. Azubuike Emodi) who did his undergraduate and graduate degree in Nigeria, worked in the Nigerian banking industry for more than a decade before joining Royal Bank of Canada early this year, makes an interesting reading. I recommend that every lawmaker reads it bofore engaging the CBN governor. It is an interesting reading for every Nigerian. As you know, Canada recently devalued its currency. Mr. EMODI understands both worlds with his experience in Nigerian banking industry and currently the Canadian system.

http://nairametrics.com/opinion-why-the-cbn-should-devalue-the-naira/




"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."

Tanko Z (Azubuike Emodi.MSc, MBA. Royal Bank of Canada)

OK...

Ok, how much dollar and pounds have u kept in ur home OP?

Too long

I'm jx here to sell my kaya

dejavski:
Too long

Bros take time and read, honestly you will enjoy the article. The value of Naira ultimately affects all of us

I see APC calling CBN governor incompetent and shifting d blame on GEJ as their local antics...


Good job..op..


Mean while how much is your salary in Royal Bank of Canada Spirit1 pass d Q.

The writer's economic analysis is very lopsided and full of glaring political bias.

If the writer knows anything about Central Bank Monetary Policies, then he would understand that such policies are usually a Balancing Act - where there is always a tradeoff. For instance, when a Central Bank increases interest rate to curb rising inflation, there will be those who will argue (rightly so) that such a move is bad for business and will result in unemployment. If the Central Bank, reduces interest rate in a bid to spur economic growth, there will be those who will argue (rightly so) that the move will lead to higher inflation, capital ouflows and weaker currency.

My point is that monetary policies are MACRO in nature which do not necessarily take into cognizance all the MICRO fluctuations in the economy, but rather they look at the BIG PICTURE. Another thing about monetary policies is that it takes times for the effect to fully transmit through the Real Economy.

The sad reality is that our Foreign earning is declining and likely to continue declining due to failure of past governments to diversify and industrialize the economy. The CBN is only acting as a backstop and taking responsibility for the failure of Fiscal Authorities (Government). It is not the mandate of CBN to diversify the economy or provide power or create employment. When fiscal authorities fail in their responsibilities, the Central Bank steps in to make sure things dont get worse and spiral out of control.

The CBN is, therefore, in a position where they could (1) Continue supporting all the importers at the expense of ultimately wiping out our Foreign Reserve or (2) Devalue the official exchange rate or (3) Stop some items from accessing official Foreign Exchange. They have chosen option 3 which is clearly not perfect and it has its downside, but this is more like the PRINCIPLE OF DOUBLE EFFECT which says that "When faced with two or more evils, choose the evil of lesser degree".

Nice article per se. I'm still trying to understand this FOREX of a stuff especially this part of the article

Spirit1:

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.

Does it mean the exchange rate of Dollar in Nigeria is cheaper compared to this countries mentioned? If so, how can one tap into it? I know some few smart ones have been tapping into this opportunity & I need a help in the form of explanation from any. Pls help a brother out

lordtech:
Nice article per se. I'm still trying to understand this FOREX of a stuff especially this part of the article

Does it mean the exchange rate of Dollar in Nigeria is cheaper compared to this countries mentioned? If so, how can one tap into it? I know some few smart ones have been tapping into this opportunity & I need a help in the form of explanation from any. Pls help a brother out

Exactly, your question "how can one tap into it", is what the writer is arguing and hence one of the biggest danger of this policy.
The CBN is preventing small to medium businesses (which constitute the majority of businesses in Nigeria and hence highest employers) from depositing US$ into their accounts in Nigerian banks. They have also refused to sell to them. Despite this move, you and I know that Nigerians will always find a way out. Our boarders are porous and our neighbours do not have similar dollar policies
In essence, businessmen will over time learn to ignore CBN and simply go across the boarders to register and set up businesses. Then transfer their Naira from here to Ghana or Benin Republic etc, buy dollar from there and import their goods into those countries, then smuggle into Nigeria and sell at killer prices.
You as a sharp guy can still do the same thing for several small businesses and exchange their Naira to dollar for them.
Remember that these same banks refusing to accept dollar or sell dollar in Nigeria (Zenith, GTB,UBA etc) have branches in these neighbouring contries.
The end result is high cost of goods in Nigeria (hyperinflation and hence less value of Naira ), increased currency trafficking and ultimately high cost of dollar in Nigeria and a weak Naira.
We are not a manufacturing country; this is one main problem. Our boarders are porous and our Naira has no strong value abroad because people know it is over valued.

This is worthy of front page.

The moderator should do the needful.

nice one.

Very good article indeed.
Should be in front page. At this critical time, we should look at all reasonable opinions. This sounds to be as more than a reasonable analysis.
OP apparently worked in Naija bank and appears to be very well educated.

makzeze:
what! This tr^sh?

Why trash? Why don't you critique the article and help enlighten us? Dismissing well written articles as trash is not helpful.
OP makes very good arguments to me in my opinion. We have seen Naira swing up and down despite the current CBN measures. By the time it swings up to N245/$ again, it may be too late to save it. People may have found a dangerous work around to beat CBN. Remember that the so called bankers refusing to allow $ deposit will be the people that will advise their customers how to beat CBN.

Let's have a reasonable dialogue and find the best solution, instead of being dismissive.

Spirit1:


Exactly, your question "how can one tap into it", is what the writer is arguing and hence one of the biggest danger of this policy.
The CBN is preventing small to medium businesses (which constitute the majority of businesses in Nigeria and hence highest employers) from depositing US$ into their accounts in Nigerian banks. They have also refused to sell to them. Despite this move, you and I know that Nigerians will always find a way out. Our boarders are porous and our neighbours do not have similar dollar policies
In essence, businessmen will over time learn to ignore CBN and simply go across the boarders to register and set up businesses. Then transfer their Naira from here to Ghana or Benin Republic etc, buy dollar from there and import their goods into those countries, then smuggle into Nigeria and sell at killer prices.
You as a sharp guy can still do the same thing for several small businesses and exchange their Naira to dollar for them.
Remember that these same banks refusing to accept dollar or sell dollar in Nigeria (Zenith, GTB,UBA etc) have branches in these neighbouring contries.
The end result is high cost of goods in Nigeria (hyperinflation and hence less value of Naira ), increased currency trafficking and ultimately high cost of dollar in Nigeria and a weak Naira.
We are not a manufacturing country; this is one main problem. Our boarders are porous and our Naira has no strong value abroad because people know it is over valued.

Okay bro, thanks for the explanation.

It time to take this article serious

Reality is now setting in.