The promise of Africa’s biggest economy has turned to peril.
Companies drawn to Nigeria by the prospect of a population bigger than Germany and Turkey’s combined are retreating; those staying have publicly criticized the president, a military strongman in the 1980s who came back to power via an election last year; and foreign investors are pulling their money out.
The corporate tribulations that began with a slide in oil prices and accelerated after the imposition of capital controls are also entangled in a global emerging-market slump. In propping up the naira in a futile bid to contain inflation, officials have jacked up pressure on an economy running out of cash, deepening a black market in currency trading and causing shortages of imported goods from fuel to milk. U.S. officials said they will press their Nigerian counterparts to change tack during talks in Washington this week.


“Our clients, Fortune 500 and other multinationals, are all quite concerned by the state Nigeria finds itself in,” said Alexa Lion, a senior analyst at Washington-based Frontier Strategy Group, which advises companies looking at developing nations. “Sentiment has worsened. There’s a lot of anxiety.”
Frustration too.
After four years trying to gain traction, Truworths International Ltd., a South African clothing retailer, last month gave up. It closed its last two outlets in Nigeria, in the southeastern cities of Enugu and Warri. Willing to tolerate dilapidated infrastructure, complicated red tape and expensive rent, the company said the import and foreign-exchange restrictions caused it to throw in the towel.
‘Impossible’
“We were happy to lose money for a few years while we developed the business and opened new stores,” Chief Executive Officer Michael Mark said in an interview. “The straw that broke the camel’s back was not being able to get stock into Nigeria. You can’t have a clothes shop with no clothes. With all the other things, it just wasn’t worth it. It was impossible to do business.”
Nigeria’s appeal has faded as the price of oil, source of 90 percent of export earnings, has crashed. [Growth slumped to 2.8 percent last year, the slowest since 1999, and will decelerate to 2 percent in 2016, according to Morgan Stanley. In dollar terms, the economy in 2019 will still be 17 percent smaller than its 2014 peak of $542 billion. Only two years ago, McKinsey & Co. said Nigeria had the potential to grow 7.1 percent annually until 2030 and build a $1.6 trillion economy.
As Nigeria lags, other countries in sub-Saharan Africa have gotten more appealing. Last month, Nigeria fell from first to fourth, behind Ivory Coast, Kenya and Tanzania, in a ranking of business prospects by the research unit of Nielsen Holdings Plc.
Portfolio investors including Aberdeen Asset Management Plc and Ashmore Group Plc, which together oversee about $450 billion of assets, have retreated from Nigerian markets. The main stock index is down 10 percent this year, while the MSCI Frontier Markets Index has lost 2.8 percent. Nigeria’s local-currency bonds are the only ones among 31 emerging markets tracked by Bloomberg to have generated aloss this year. Foreign direct investment this year is set to be the lowest since the 2008-09 global financial crisis, according to data from the central bank.
For now, President Muhammadu Buhari and Central Bank Governor Godwin Emefiele say they aren’t budging from their strong-naira policy. While both acknowledge that businesses are struggling to source enough dollars, Buhari says that a devaluation and easing of capital controls would be akin to “murdering” the naira and send prices up. That’s already happening as manufacturers struggle to buy foreign inputs, with inflation accelerating to a three-year high of 11.4 percent in February.
Markets are betting Nigeria will be forced to follow oil exporters from Russia to Kazakhstan and Mexico and let the currency weaken. While the naira has been all but pegged at 197-199 per dollar since March 2015, forward prices suggest it will drop 29 percent to 280 in a year. The black market rate has weakened to 320.

Bruno Witvoet, the Africa President of Unilever, whose Nigerian subsidiary has seen its shares plunge 31 percent since Buhari came to power, said it would be “very insane” for the country to persist with the currency policies. Nestle SA says its local unit, which has fallen 18 percent in that period, has had to widen the number of banks it uses so that it can access enough foreign exchange.
Not all companies are gloomy. In January, Coca-Cola Co. agreed to pay about $240 million for a 40 percent stake in Chi Ltd., which is based in Lagos, and makes fruit juice and dairy products. Boston Consulting Group this month opened its first office in Nigeria.
“It’s an immense market,” said Geoffrey White, CEO for Africa at Kuwait-based Agility Public Warehousing Co K.S.C., which plans to spend hundreds of millions of dollars building four warehouse and logistics parks in Lagos and the capital Abuja by 2020. “You can’t really have an African policy without having Nigeria high up on the list.”
For Frontier Strategy Group’s Lion, Nigeria is too important for foreign companies to exit en masse.
“But a lot will depend on what happens with the currency,” she said. “For now, the opportunity cost of not being there is too high. That could change if the currency situations worsens. It’s definitely a pivotal time.”

Growth slumped to 2.8 percent last year, the slowest since 1999, and will decelerate to 2 percent in 2016, according to Morgan Stanley. In dollar terms, the economy in 2019 will still be 17 percent smaller than its 2014 peak of $542 billion. Only two years ago, McKinsey & Co. said Nigeria had the potential to grow 7.1 percent annually until 2030 and build a $1.6 trillion economy.

LordVarys:
Cc lalasticlala, obinoscopy, mynd_44

For now, President Muhammadu Buhari and Central Bank Governor Godwin Emefiele say they aren’t budging from their strong-naira policy. While both acknowledge that businesses are struggling to source enough dollars, Buhari says that a devaluation and easing of capital controls would be akin to “murdering” the naira and send prices up. That’s already happening as manufacturers struggle to buy foreign inputs, with inflation accelerating to a three-year high of 11.4 percent in February.

Markets are betting Nigeria will be forced to follow oil exporters from Russia to Kazakhstan and Mexico and let the currency weaken. While the naira has been all but pegged at 197-199 per dollar since March 2015, forward prices suggest it will drop 29 percent to 280 in a year. The black market rate has weakened to 320.

Quakertellicus1:
In other words....the companies want us to loosen forex restrictions.

The problem is...we cannot do that...unless we have enough forex coming in. And with our economy pegged to oil ,we cannot do that. Oilprcies are low.

If we did as the companies are suggesting...it would make things worse faster.

disloman:
Do you mind them.What I believe is book economics won't solve Nigeria economy woes.We need practical approaches.We gat to go back to the basics before trying all these world bank ideas.Our economy is different from those of developed country.

Quakertellicus1:


Please....move it to front page...please.not the article on actersses fighting over x...

Back to the article



Yes...it is happening. The problem is....do you let it happen at a very fast rate....or at a slow rate?

If we devalued....not only would forex be depleted, but prices would go up, and inflation would rise...because most locally produced goods rely on imported raw materials....and because you would need more naira to buy them so to speak.




Russia, Kazhakstan and Mexico have alternative sources of forex. We don't.

IF African countries used 2013 as the base year for measuring the size of their economies, then Egypt would overtake Nigeria as the largest economy on the continent.


[b]But even without that, with Africa’s oil producers battered by low crude prices and enfeebled currencies, it would seem Egypt President Abdel Fattah el-Sisi’s government has a leg up as it is making the tough policy calls that his Nigerian counterpart Muhammadu Buhari is reluctant to do to fix its economic malaise.

Faced with the same currency predicament, the Central Bank of Egypt allowed the biggest one-time depreciation of the pound since 2003 on March 14, and promised to adopt a more flexible exchange rate.

The moves were designed to revive investor interest in Egypt to ease a dollar crunch, much like Nigeria’s, that has hampered economic growth and fueled a black market for the currency.

For its part Nigeria - Africa’s biggest economy and oil producer – doubled down on the capital controls and restrictions on some imports in a bid to prop up the naira, which has been effectively pegged at 197-199 against the dollar since March 2015.

Those measures have deterred foreign investment and led to a scarcity of dollars, with the black-market exchange rate falling to around 325 naira per dollar.

 Buhari has backed the central bank’s stance and ruled out a devaluation on the grounds it would cause prices to rise. That’s already happening, with inflation surging to a three-year high of 11.4%  in February from 9.6% the previous month.

Contrasting fortunes[/b]
The contrasting results of Egypt’s actions already clear in this short period. Foreign investors bought $500 million in Egyptian debt and stocks in the weeks since the central bank devalued the currency, according to central bank Governor Tarek Amer, who said more measures will be taken to attract funds.

Amer, in a televised interview late on Saturday, said he expects at least $5 billion in portfolio investments—purchases of stocks and bonds—within the coming four months.

Foreign direct investment from China alone could reach $30 billion in the next two years, he said.

Hard currency deposits in local banks, increased after the central bank started “to fix the status of the currency,” Amer said.

‘Greed and speculation’
The pound weakened in the black market after the devaluation because of “greed and speculation,” and the central bank will take more measures to organise the market over the coming three months, he said, without giving more details. Egypt doesn’t suffer from a currency crisis but a “crisis in regulating the exchange market.”

Amer said the central bank also plans to sell stakes in three banks it owns or partially controls by the end of 2016. It will sell The United Bank to a strategic investor and raise Banque du Caire’s capital by selling a 20% stake on the stock market. 

The central bank and Kuwait investors also plan to sell 20% each of their stakes in the Arab African International Bank, Amer said.

For Nigeria,meanwhile, barely a week ago Unilever’s Africa President Bruno Witvoet joined the growing number of business leaders pushing for a different direction, saying  it would be misguided for the West African giant to persist with currency policies that have led to a record difference between the naira’s official and black-market rates

Speaking at a conference in Abidjan, Ivory Coast’s commercial capital, Witvoet said; “It would be very insane to continue like this for months and months.” Clarity on what the “right rate” would help businesses “make more sensible decisions,” he said.



Both Sisi and Buhari are former generals and military rulers of their countries. Buhari has reinvented more successfully as a democrat, having won the presidency in March last year in Nigeria’s first election in which an opposition leader defeated the incumbent.

Sisi, was elected in a vote boycotted by the Opposition in 2014, having earlier masterminded the military ouster of the Muslim Brotherhood government led by president Mohamed Morsi.

He has since overseen what critics say is the most extensive and extreme crackdown on Islamist opponents and secular opposition.

On the economy though, he has shown greater ambition and guts than Buhari. The coming months will indicate if he will also have the last laugh.

Quakertellicus1:


Eventually we would have to become strong in manufacturing.....which would mean more forex, and crucially,producing goods whose prices we can control.

We can no longer rely on oil, or even agric.

Quakertellicus1:
In other words....the companies want us to loosen forex restrictions.

The problem is...we cannot do that...unless we have enough forex coming in. And with our economy pegged to oil ,we cannot do that. Oilprcies are low.

If we did as the companies are suggesting...it would make things worse faster.

SLIDEwaxie:
They kept going against Nigeria, and many are not seeing that this is all premeditated!!


Must we devalue our naira for you guys? Must we create an avenue where you invest and syphon back into your country? Because that is all you wanted!

To invest cheap and reap bountifully only for your to develop your land. You send returns and profits back to your parent company in your various countries and pay stipends as taxes here.

You disregard out citizens and strip is of our natural resources.

You take advantage of the greediness of the youths caused by laziness and use them against their own and yet with nothing to show to the host community.

Why do we have to devalue the naira with no source of supporting the economy with industrialization that may help to replenish the depleting reserve thru exportation?

You want us to use more money indirectly to buy products that you produce while you pay less to produce it!

It's that simple!

SLIDEwaxie:
They kept going against Nigeria, and many are not seeing that this is all premeditated!!


Must we devalue our naira for you guys? Must we create an avenue where you invest and syphon back into your country? Because that is all you wanted!

To invest cheap and reap bountifully only for your to develop your land. You send returns and profits back to your parent company in your various countries and pay stipends as taxes here.

You disregard out citizens and strip is of our natural resources.

You take advantage of the greediness of the youths caused by laziness and use them against their own and yet with nothing to show to the host community.

Why do we have to devalue the naira with no source of supporting the economy with industrialization that may help to replenish the depleting reserve thru exportation?

You want us to use more money indirectly to buy products that you produce while you pay less to produce it!

It's that simple!

ibedun:


They like us wretched, poor and suffering endless political upheaval. It makes them stronger and us vulnerable. They are not our friend. Buhari and Emiefele well done!

LordVarys:

Let's compare with the Egyptians who recently devalued theirs.



http://m.mgafrica.com/article/2016-03-27-nigeria-vs-egypt-on-the-economy-who-is-smarter-seems-sisi-is-besting-buhari

Progressive01:
This is simply the truth and the whole truth.

There are some Nigerians, especially some folks on the forum, that desire to see the worst of economic situation in the country. For them, all restrictions should simply be lifted so when the economy crashes completely, they could stand on every rooftop and scream "we told you so!!"

We had years of uninterrupted surplus under Jonathan as oil sold for record prices, not a single buffer was put in place but he and his cronies rather embarked upon an abominable festival of plunder. The last thing they had on their mind was to diversify the economy.

What we are witnessing today is a result of years of scandalous misrule and corruption. They laid the foundation for failure to ensure whenever they are given the boots, they'd have sufficient grounds upon while to blackmail their successor and attempt a comeback. Nonetheless, I believe by this time next year, things would be a lot better.

If I could endure sixteen years under PDP, especially the last six, I have no excuse whatsoever not to endure four under Buhari.

yaki84:




these foreign investors r scared because of the cbn n buhari monetary policies.
I wan ask u question, do nigerian abroad acess dolls n send it back home?
no nigerian will be in a foreign country, invest n at the end of the day he cant repatriate some funds back home.
ask urself if u were these guys I mean d foreign investors, will u still put more monies into the country when u know u wont be able to repatriate it back home?
dont forget most of these investors collaborate with people back home n banks to get funds. so if u cant send funds atleast to repay the loans u took from banks back home, how will u put in more funds to that market.

Almajiri1:

Those mofos don't understand a thing about doing business in a globalised world. Using 1983 out phased model in this time and age. The result is very visible now as our economy is in coma.

Almajiri1:

Those mofos don't understand a thing about doing business in a globalised world. Using 1983 out phased model in this time and age. The result is very visible now as our economy is in coma.

Quakertellicus1:


Actually, they do.

The problem is if you devalue, you would spend more in naira for imported goods. Even for goods produced locally , you would spend more in naira because most of them depend on imported raw materials.This leads to price increases and inflation.

And it won't imporve our forex earnings....it would deplete them. Even if you bring in more foreign investors....they would set up manufacturing plants that rely on imported raw materials.....and that means more forex loss.

Eventually....you would have to take loans to keep things working...and we would be back to being a debt slave.

Yes...devaluation is going on....but the CBN is applying the brakes...while hoping the government gets alternative sources of forex.

You did not have this issue in the last govt because oil prices were high...meaning forex flowed into the country.Meaning...we had enough forex to import and do business. Not anymore.