You just surmarised a large part of my epistle in less than 10 paragraphs.

Arbitrage, is what I was referring to as percentage premium in the analysis. Remember say I no go makaranta for Economics. I will miss out some key jargons of the trade. grin

Thanks for the clarity you just provided. I agree that a certain privileged few are making a killing from the ongoing arbitrage. The economic team has its work cut out for it.

paschu:


Maybe you need to know that Wikipedia is NOT an authoritative source of information. Any dick can edit any content on Wikipedia. And Wikipedia does not maintain an archive or history of edits that I know of. Don't be suprised if the stuff you are citing now is not there again tomorrow.

ahmedjika:
my problem with nairalanders they don't go beyond local news

azikiweironsi:
OP, God Bless you for the writeup. Well educating. Hope other NLs will follow this step rather than using abusive words.
Nigeria will be great again.
God Bless Nigeria.

ahmedjika:
my problem with nairalanders they don't go beyond local news

Emekamex:
->The naira is already devalued in my opinion, the CBN is just living in delusion by thinking their policies are working; pegging the naira at 197 has created a condition where the CBN lose autonomy of the forex regulation, thereby triggering widescale fraud and corruption where few become massively rich by hoarding dollars and creating an artificial scarcity, which also has detrimental effect on the naira.
->What we should do now is to start exporting other mineral resources and improve our agricultural industry, doing this will bring in investors who will give us the required forex, coupled with those that will be gotten from our prospective exports in order to heavily develop our infrastructure and other essential industries that will greatly improve our economy and create massive job opportunities.

cckris:

Microeconomics is difficult for some people, but Econometrics-based Political Economy is difficult for everyone. You can see that some opinions here even desire to flood Nigeria with the Dollars that belong to a World Power.

LRNZH:
Intro
First, I am not a trained economist but I believe that as a widely read and travelled Nigerian, I know enough to generate and add to a discourse that is rather too pertinent to the current clime irrespective of academic training.

Also, I am more of an empiricist than a theorist. This gives me the privilege to discuss issues outside of my discipline of expertise so long as I have some experience in the matter at hand.. We all of different professional, political, religious affiliations live, drink and eat the economy. I would give examples from existing economies to make my points rather than harp on theories taught in Business schools and Economics-101 classes.

[img]http://qzprod.files./2015/12/nigerian-naira.jpg?quality=80&strip=all&w=1600[/img]
Reuters/Joe Penney



So, the million-naira question remains. To devalue the Naira further in 2016 or not to?
A very good example of how to use currency devaluation and indeed undervaluation comes from China. China is regarded to have the largest and most complex economy in the world for most of the past two thousand years, during which it has seen cycles of prosperity and decline(6). My emphasis would be on the ongoing rise of the Red Dragon since 1978. Based on general consensus, the drivers for this rise are:

1. Starting from 1978, Deng Xiaoping liberalised the economy without changing the political system. China pursued capitalism with a communist political system unlike Russia that wanted to control resource distribution through Perestroika and Glasnost. For example, China had over 100 Billionaires by 2009 compared to about 30 in India in a Communist set-up(7).

2. China's brand of capitalism is heavily state supported. State owned enterprises were and are still encouraged carry out business locally and internationally. A run-through of 2014 Forbes or Fortune-500 list of 10 largest companies in China will produce mostly state-owned enterprises like Sinopec (Oil), China National Petroleum (Oil), State Grid Corporation of China (Power), Industrial and Commercial Bank of China Ltd (Banking), China Shenhua Energy Company Limited (Mining) amongst others(8 ).

3. China invested massively in physical infrastructure. A good illustration is in railways. With only 55,000 km of railways in 1985, China had a smaller rail network than India (62,000 km). By 2006, with 75,000 km of railways, China had overtaken India which had 64,000 km. In 2006, as a proportion of GDP, Chinese annual investment of 14.4 per cent in infrastructure such as power, transport, drinking water, irrigation and telecom was almost three times that of India(7).

4. Cheap, educated labour. This led to foreign companies to tap rush into China to take advantage of readily trainable human power. After the US, China is the second-largest recipient of Foreign Direct Investment in the world. Much of Chinese exports are by foreign-owned firms. In 2007, only four of China's top 25 exporters were Chinese companies

5. Lest I forget, as China started reaping from its investments in economic growth, it became hard-lined against corruption. As a communist country that doesn't have the ability to vote the corrupt officials out of office it had to devise its own rule of law to tackle corruption. In the1980s, "economic crimes" such as bribery, drug-trafficking, and embezzlement were added to the legal code for capital punishment. In fact, it is popularly stated that after the clampdown on corruption in China in the late 2000s, the sale of luxury watches (a popular gift to officials), dropped in China and Hong-Kong. (10,11)

6. Finally and most important to this discourse, China's exchange rate policy was designed to promote competitiveness. The renminbi (or yuan), which had been rapidly devalued from RMB 1.50 per US dollar in 1980 to RMB 8.62 per US dollar by 1994, was pegged at RMB 8.27 per US dollar from 1997 to 2005. By 2005, the renminbi was allowed to float and it gradually appreciated to RMB 6.82 in May 2009, and remained more or less unchanged thereafter. China has intervened heavily to prevent the renminbi from appreciating, and in the process, accumulated over $2.2 trillion by 2009 (9).

The last point above shows that currency devaluation can be a driver for economic growth unlike the same continued devaluation with SAP in Africa. The difference in economic impact lies in the rest of the 4 points that I have highlighted and I will bring the points home to Nigeria.



- LRNZH



References:
(1). http://www.investopedia.com/articles/03/060403.asp#ixzz40cyLSRcN
(2). http://documents.worldbank.org/curated/en/1994/03/698538/parallel-exchange-rates-developing-countries-lessons-eight-case-studies
(3). https://en.wikipedia.org/wiki/Nigerian_naira
(4). http://blogs.premiumtimesng.com/171189-2/
(5). http://web.mit.edu/africantech/www/articles/PlanningAdjust.htm
(6). http://eric.ed.gov/?id=ED460052
(7). http://business.rediff.com/column/2009/nov/23/guest-reasons-behind-the-rise-of-china.htm
(8 ). https://en.wikipedia.org/wiki/List_of_largest_Chinese_companies
(9). https://en.wikipedia.org/wiki/Renminbi
(10). http://www.tradingeconomics.com/nigeria/balance-of-trade
(11). http://www.bbc.com/news/business-23541923
(12). https://en.wikipedia.org/wiki/Capital_punishment_in_China

Lito18:
Next time make your story short and concise. No one has the luxury of time to read this length of an article.

andy24:
I read ur write up. Thanks for sharing such knowledge...

LRNZH:


Oh really? Any insights you want to share with us? I am interested. By the way, ABU is an alma mater.

praxisnetworks:
If you're not a trained economist then shetop.

I hate being scammed.

swagifted:
I swear, d feeling is mutual fam, am an economist as well...why do people hate to see things from our perspective vis a vis the economic woes...

LRNZH:


What is your perspective if I may ask?

Emekamex:
->The naira is already devalued in my opinion, the CBN is just living in delusion by thinking their policies are working; pegging the naira at 197 has created a condition where the CBN lose autonomy of the forex regulation, thereby triggering widescale fraud and corruption where few become massively rich by hoarding dollars and creating an artificial scarcity, which also has detrimental effect on the naira.
->What we should do now is to start exporting other mineral resources and improve our agricultural industry, doing this will bring in investors who will give us the required forex, coupled with those that will be gotten from our prospective exports in order to heavily develop our infrastructure and other essential industries that will greatly improve our economy and create massive job opportunities.