GenOrumov:
Sorry I didn't bother to read the whole article except the ninth paragraph which listed the effects of pegging a country's currency as against other currencies because I still stand by Buhari's decision not to devalue the Naira.

Pardon my ignorant view. I am not an economist but you don't have to be an economist or be learned to figure out that Nigerians (the middle class and the poor which are in the majority) will be doomed if that happens. The rich will get richer while the poor will get poorer.

For God's sake, we all know that devaluation is the right thing to do in a sane clime where "all things being equal" but you and I know that all things are not equal in Nigeria e.g 2+2 is not 4

The effects you listed above let me take for instance - drives up cost of capital
As an entrepreneur myself, I feel the pinch of having to spend more in my quest to grow my business but from my own point of view, that will be nothing compared to the hits I will receive if the naira is devalued as a result of the spiral effect of that decision. This further goes to buttress my point that the rich will get richer while the poor will get poorer because as a business man trying to stay in business, I will transfer the burden from my business to the consumers. While I get rich, they will get more poor(er)

*i have other sentimental reasons why the naira shouldn't be devalued but tired to be compelled to go beyond this point at the moment.

Parting shot - Before the naira is subjected to a debate whether to be devalued or not, the government should have put other things in motion e.g the diversification of our source of income from crude oil alone to other things.

laudate:


God bless you!! Some theoretical analysts that have never run a business before, and are unable to gauge the impact of devaluation, will sit in one corner to postulate crap about the naira.

The recent devaluation done a few months back made nonsense of our company projections, and drove up the cost of our imported raw materials by more than 85%. We tried to increase prices of our finished goods to cover the increase, and guess what? We had the worst case of unsold stock in history! People simply could not afford to buy the products, at the new rates. The few that bought, placed orders for much smaller quantities than they normally did.

Nigeria is more or less a mono-product economy dependent on oil. The price of oil is fixed internationally, and not by the individual countries producing the product. So why on earth are we devaluing??! It just doesn't make sense!

GenOrumov:
Sorry I didn't bother to read the whole article except the ninth paragraph which listed the effects of pegging a country's currency as against other currencies because I still stand by Buhari's decision not to devalue the Naira.

Pardon my ignorant view. I am not an economist but you don't have to be an economist or be learned to figure out that Nigerians (the middle class and the poor which are in the majority) will be doomed if that happens. The rich will get richer while the poor will get poorer.

For God's sake, we all know that devaluation is the right thing to do in a sane clime where "all things being equal" but you and I know that all things are not equal in Nigeria e.g 2+2 is not 4

The effects you listed above let me take for instance - drives up cost of capital
As an entrepreneur myself, I feel the pinch of having to spend more in my quest to grow my business but from my own point of view, that will be nothing compared to the hits I will receive if the naira is devalued as a result of the spiral effect of that decision. This further goes to buttress my point that the rich will get richer while the poor will get poorer because as a business man trying to stay in business, I will transfer the burden from my business to the consumers. While I get rich, they will get more poor(er)

*i have other sentimental reasons why the naira shouldn't be devalued but tired to be compelled to go beyond this point at the moment.

Parting shot - Before the naira is subjected to a debate whether to be devalued or not, the government should have put other things in motion e.g the diversification of our source of income from crude oil alone to other things.

yanabasee:
OP, are you Buhari's special aid on currency depreciation?

Bevista:
There are dire consequences in allowing an Import-dependent country to continue devaluing its currency. The vast majority of Nigerians are either unemployed or underemployed. This means that the purchasing power of these category of people are limited. If the naira is allowed to depreciate further, this will make imports more expensive, thereby making final consumer goods also more expensive. Since nigeria imports almost all its fuel demand and nearly all our goods are transported by road, this will lead to an increase in prices of virtually everything in the market (a case of imported inflation). An already impoverished population will find it difficult to purchase more expensive goods, leading to a problem of unsold inventory for businesses.

You may also wish to note that our Foreign Exchange demand by importers as at June was about $8billion monthly, higher than our total Foreign Exchange earnings of around $7b. If the CBN continued to meet all these forex demand in the face of dwindling oil price, then this would have resulted in a steady decline of reserves. If oil prices do not rebound, then we would eventually run out of reserves. The CBN had to exclude certain items from forex to preserve the reserves.

The exclusion of the items from forex is also intended to encourage local manufacturers to seize the opportunity to meet the supply gap. This should create local jobs and save Foreign Exchange. My only worry is that the government has not articulated its Fiscal Policies to compliment CBN Monetary Policies.

warrior01:
But @Op, who amongst the analogue advisers is going to explain all these to the chief dullard in Aso Rock? God help us all

Realdeals:
The OP is definitely thinking like a businessman whose business has been affected by some of the policy in the Forex market. People like you constitute less than 10% of the population and will benefit if the currency is devalued. But come to think of it, what happen to the over 80% Nigerians that will groan if the currency is devalued. Am sure President Buhari is aware of some of your concern but will not agree to devaluation at the detriment of majority.
To administered Nigeria as it is now, you don't have to think like someone that lives in the USA.

Hakagure:
Please understand me. I am saying devaluation cannot be easily controlled. Finite forex reserves are needed to keep the naira at this level right now. We do not have unlimited forex so the naira must devalue ... its only a matter of time. This is not about personal benefit.

Hakagure:
God bless you bros, not offended I understand I touched a nerve but I need to defend myself. No vex at my response.

Theoretical analysts? I run a successful business, work for a succesful business that performs active currency hedging in order to protect against currency fluctuations and was raised as an economist, I lived through SAP and saw large fortunes reduced to paper because people could not see the inevitable, my whole family runs businesses. Your projections were made nonesense of because your company was too blind to see the writing on the wall, and continues to be blind to the inevitable. You will be a casualty if this continues, plus your product is undoubtedly fragile top price and currency moves. You should probably go hire an MBA to help get your affairs in order. Seriously, jobs depend on your ability to face reality and not just engage in wishful thinking.

Balance of payments is real! You cannot just say do not devalue, you have to intervene with dollars in order to keep the naira at the same level, if you run out of dollars you cannot pay your debts, before that happens the CBN will stop defending the naira and will have to make it float.

This is inevitable, prepare for it.

laudate:


Guy, you know nothing about my business so please do not even attempt to theorise. Each time the naira is devalued, what happens to inflation in local terms? What happens to production costs? Everything gets affected. And your statement about my company being blind to see the writing on the wall, is simply put quite condescending and myopic on your part, as you are rushing to pass judgement on a company you know nothing about!!

So what is this hype about having an MBA to get affairs in order? I already have one, so kindly do not presume that the management does not know what it is talking about. An MBA is not an end in itself, it is what you do with it that matters.

Continue with your devaluation mantra. I just hope the powers that be, will defend the rest of us from currency speculators like you!

GenOrumov:
@ laudate

Its great to learn that you too are intelligent and well informed against portfolio investors, bankers, currency speculators, some manufacturers and greedy capitalists who have had their source of earning MORE MONEY blocked for the time being.

Imagine the government agreeing to devalue the naira and thus set a date for the commencement of that policy, you will see that these bunch of capitalists mentioned above will go ahead to buy all the dollars in the market in anticipation of the windfall that they will benefit from. The anticipation of the devaluation exercise was part of the reasons why dollar was so high to the naira some months ago.

@ Realdeals

"but government is not just about business but protection of the interest of its citizen especially the larger populace"

You couldn't have said it any better. Thumbs up.

@ Hakagure

My point is before we devalue our currency, we should diversify our economy so as to ensure what happened during Babaginda's regime doesn't happen to Nigerians again. So until we can't postpone the evil day no more (we won't even get to that evil day if we start that diversification today), I support that we continue to use our dollar reserve (dollar that won't even enter my own hands but will end up being looted by politicians and their croonies) to protect the naira.

laudate:


Guy, you know nothing about my business so please do not even attempt to theorise. Each time the naira is devalued, what happens to inflation in local terms? What happens to production costs? Everything gets affected. And your statement about my company being blind to see the writing on the wall, is simply put quite condescending and myopic on your part, as you are rushing to pass judgement on a company you know nothing about!!

So what is this hype about having an MBA to get affairs in order? I already have one, so kindly do not presume that the management does not know what it is talking about. An MBA is not an end in itself, it is what you do with it that matters.

Continue with your devaluation mantra. I just hope the powers that be, will defend the rest of us from currency speculators like you!

Hakagure:
The nature of an import dependent country is that the price of imported goods go up due to inflation and also that the value of the currency depreciates due to the skewed balance of payments. The source of the issue is there in your post, we dont have the reserves. Thanks for the information on the monthly dollar inflow vs outflow.

"These controls and pegging have the following effect on an economy.

Drives up cost of capital"

courage89:


I think you're deluding yourself if you actually think this logic holds in real life. In theory, may be. During high oil prices, when Nigeria was running positive balance of payments, why is it that Naira never appreciates?

jpphilips:



The guy actually thought that those successful Anambra traders had any MBa, lol, how Nigerians honor pieces of paper, the Richest men in Africa in the 40's and early 50's, the Ojukwu's and the Dantata's had MBa? You see why I hardly hire all those English speaking certificate carrying time wasters. Most businesses world over including mine run on common sense.
Dangote get MBa? but he made money first to be able to afford someone who has one abi?

Hakagure:
@jpphilips

http://mobile.reuters.com/article/idUSL8N12N32I20151023

I will respond to your challenges at my leisure in the next few days. The summary is this, its not a question of "allowing" devaluation.

It has already happened, the currency controls are just a levee holding the flood waters back. I hope I have made it a bit plainer, the intervention can only last for a finite time before the reality becomes clear.

Hakagure:
To be clear, I am not proffering a solution.I am sayings lets not rip the band aid off bit by bit while hoping for the best. I am being clear and offering a contrary voice to the chorus of hopeful ones out there, hopefull voices saying devaluation should not happen like there is some magic solution that would clear it up, hopeful voices that will act like devaluation can be controlled by Governement, history is clear, issues of demand and supply cannot be price controlled without significant reversals down the line. Just a few months ago the swiss franc decided to stop pegging their currency against the euro, the pegging was preferable but the swiss ran out of cash. Thats what I am saying, over and over again this problem comes up, governments fight it then give up.

This is a problem that history states as fundamental, there is no easy fix. I am looking at the complexity of the problem and saying that there is no current solution. Forex taxes etc are all currency controls. The idea of us becoming less dependent on imports is an old one and our internal economy is not singularly oil based, our government revenue however is based on oil . Hence most forex s.

I am proposing getting over the problem as quickly as possible, I am beyond trying to stop the devaluation from occurring, barring a significant rise in oil prices within 2 years. I do not see a way of stopping devaluation. I am being as forthright as I can be.

If its not inevitable I would be happy to see it forestalled, I am skeptical at the idea of any Government, anywhere in the world... managing their currency without having significant room and resources to do so.

disclosure: I hold no trades on the naira/dollar exchange at this time.

jpphilips:


You are not offering a solution so what is the whole thread about, stating the obvious?

Allowing a devalued Naira with a non existent manufacturing base is suicidal, why people like you prefer we just commit the suicide and get it over with, people like us believe the situation can be managed till the Naira is able to hold on.

How long do we have to manage the situation? As long as we can, I wonder why you are not blaming the Havard trained, igele wearing finance minister that reigned tor almost 4years without a solution and her CBN cohort.

The financial sector runs more on perception the moment we degenerate to the level of Zimbabwe, it will erode our least chance of recovery even when the parameters add up.

Hakagure:
@jpphilips

Thanks You sir, now we can get to the real issues.

I am not blaming anybody, the Igele wearing finance minister did not forecast the price of Oil very well. The issue with a manufacturing base are multiple (Electrical Power, corruption, regulations and bureaucracy, protected internal markets)some innovative folks are doing what they can but lets not even get into labor relations. There are solutions, they just need to address the right problem, the forex situation is a symptom of an underlying malaise which can be resolved much easier than manipulating the currency via subsidy, manipulating the currency via controls and fiat actually discourages the resolution of the other issues, how can we say we want a manufacturing base and have capital controls? Where is the financing going to come from? bureaucrats running day to day financial operations instead of demand and supply, a recipe for disaster.

Stating the obvious? More like facing reality, a long slow decline vs a quick one, thank you very much I would take the latter. Our problems are not Zimbabwes problems, we are not a heavilly sanctioned, isolated pariah nation run by a despot who cares more about prolonging his grip on power more than he cares about what his people are going through, and who by the way believes in the power of government controls, price regulations and redistribution of wealth, he really does hate capitalists.

We do not have a forex problem, we have a Balance of trade problem, that is an easier problem to resolve... Lets face the real issues and stop chasing solutions that will not show themselves.

jpphilips:



Bloomberg forecast for 2014 oil price crash was in 2011 how could you say that a Harvard trained finance minister over shot her parameters?Nigeria's biggest problem lies with individuals like you who cut these politicians unnecessary slacks.
The same way professor onyebuchi chukwu did not have an infra red thermometer in Nigeria's biggest airport in 2014 when we received our index Ebola case, yet WHO bulletin for Ebola alert was in far back 2012, give me a break!!
These guys fail us over and over but we don't learn that is why we always think it is never people's fault, never mind that same people suffer the consequences for their actions.

Let us use subsidy as a more realistic case in point, the CBN governor turned Emir with the Igele masquerade finance minister told us in 2012 that our economy will crash if we continue doling out subsidy receipts, but look at what Buhari has done the few months he is in power, all the middle men who cause the price hike have all been cut off, the price is steady, supply is Ok (except for few union issues) and our subsidy receipt continue going down.
When you have a problem, find a solution to it not a way around it, that is what you are proposing.

Lastly, on the challenges bedeviling the manufacturing sector, have we solved them? what big ideas have we thrown in to revamp the manufacturing sector, knowing that our FOREX depends on them? the last administration was only banning and doling out funds with no results, those are quick fixes, Nigeria is broken, it needs to be fixed, we cant achieve that by doing the obvious.

Imagine what will become of our economy if the Obasanjo's team did not pay off our Paris club debt neither did they recapitalize our banks, just think about it for a sec. The Jonathan's administration had no single "big idea" and you are surprised we are in this mess?
The issues plaguing manufacturing in Nigeria can be fixed if there is sincerity of purpose on the part of the administrators, let us start from there.