₦airaland Forum

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Activa:
The naira equivalent is from the banks' (customers) who need the dollars for importation. It's a cycle.

It's pretty much like what happens to the dollars from other export proceeds. The treatment of the one from crude oil is not different. Cbn does not print naira to give to exporters of cocoa or cassava.

In this instance, it's easier when you assume that the states and FG are exporters of crude.

If the naira equivalent collected from importers is less than the export proceeds/crude oil usd, it's favourable for the foreign reserves.

It's inconceivable to assume that the cbn has been printing the naira equivalent of crude oil sales for distribution to the FG and states all these years.

And it's for this reason that Boyo is wrong. Dead wrong.

Well understood. Seems pretty much obvious now. My bad!

AZeD1:
Not dollars but dollar certificates. The dollar is kept by the CBN.
If the governors need Naira, the sell the dollar certificate to a bank.
That way, we can avoid round tripping because no body ever gets the physical dollars.

Can you please enlighten me on how dollar certificates work?

jorel1:
If you dont incoporate a frequent profit withdrawal process in your system and rather keep dream of compounding gains..your broker will gladly help you withdraw.

How do they do that? Pardon my ignorance.

AZeD1:
I believe he once suggested that rather than give the states, Naira from federation sharing, the states should be given Dollar certificates. In that way, the CBN doesn't have to print more money,and then have to mop up excess liquidity.

We should try that route and see where it takes us.

I am with you on the appointment of bankers as CBN governors.

I disagree with giving state governors dollars. Most of the dollars will be looted and wired out with no value to the Nigerian economy. Also, that will leave very little dollars left in the Federation Account, with a lot of negative consequences too many to discuss here.
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However, he's spot on as regards this writeup. First time I have to agree with his analysis.

bellyjean:
You just asked the most sensible question... honestly, this should be what our Govt/CBN in all capacity should do. These commercial banks are very lazy, since our mumu government (most especially previous ones from IBB to GEJ) gave them an easy way of making fat profits. Government sold bonds and T-bills to these lazy Commercial/financial/security/equity institutions. They would rather invest in Govt bonds than service the real economy by giving loans to local manufacturers/producers/Entrepreneur; because of the great interest rates and low risks associated with them.

So invariably, our commercial banks are just banks for the government and the lazy rich who just want their monies to keep increasing with little or no efforts.

If these Commercial banks are made to do the real work they are supposed to do, the real sector will get the boost it needs because apart from providing capitals (loans etc) they will also offer pro-bono services such as risk assessment and management etc. This would increase the chances of business survival. At the end, their loan is repaid, and the business is sustainable and waxes stronger.

Now is the time for real work.
God bless Nigeria.

It's so easy to demonize or criminalize banks, but things are usually more complex than it seems.
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If the banks do not buy up government bonds and bills, then it would be extremely difficult for the FG and state governments to implement their budgets, especially as it concerns Capital projects. So, while they earn "easy" money that way, they also provide a strategic economic service.
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As regards support of banks to the real sector, you need to work in the credit analysis department of a Nigerian bank to have an idea of the quality of proposals and business plans that come in there. From experience, I can tell you that over 90% of those proposals are never bankable. They never get to address the issues a lender wants, starting from proper presentation, accounting records, management experience, risk management, collateral, etc. The banks, therefore, consider these loans as high risk and so decline them. Also, from banking experience, these category have an astronomically high default rate. The fact is that our education needs to be revamped especially as it concerns entrepreneurship. There is also a need for a robust national identity management database to help bank track down defaulters. It's so easy to run and hide in Nigeria. So many issues need to be addressed that will significantly bring down the risk to enable banks give loans at much lower interest rate.
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The productive sector is so small, so that when there is extra liquidity, it ends up chasing few items driving up inflation. This then forces the CBN to raise rates. Countries like Japan, US, etc are looking for inflation yet they cant find it even with record Quantitative Easing.

Activa:
Boyo is wrong on excess liquidity.

CBN does not print money to give to the states and FG for crude oil sales in usd.

When the CBN receives dollars from crude oil sales, where do they get the Naira equivalent to fund the Federation Account? Just asking.

I believe fighting corruption in any guise is a good thing. Credit to Fayose.

However, as he has been criticizing every corruption fight of the president as being selective and witch-hunting, will it be fair to him if he is accused of such now?

boldaslion:
Tinubu, or whatever you call your name, God is against you and your cohorts and co-conspirators. You must reap what you have sown. You pulled down GEJ's govt out of insatiable greed and lust for power which blinded you from the truth you pushed out GEJ from power by all means and at all costs even at the risk of fighting a civil war in case your plan failed. when GEJ came to power the food import bill was about N1.7 trillion and as at when he handed over it had come down to just over N600b. Nigeria was nearing self sufficiency in food production. The flooding that happened in 2012 notwithstanding there was no hunger or famine. Now all the efforts seem to be going down the drain, just because a clueless group of people are in power. Take for instance, the naira has been on a free fall for the same reason but was recently halted for the simple reason that a certain Ifeanyi Ubah issued a statement. This shows that the dwindling economy is a result of having people in power who have no idea of what to do to better the life of the citizenry.

This is a very prejudiced comment.
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Dragging God into politics shows you are a hypocrite. It is the job of political parties to use every legitimate means and propaganda to bring down the party in power and get themselves into office. Sometimes they succeed and other times they fail. It is what PDP has been trying to do in Lagos for 16yrs, it is what they will try to do at the Presidency in 2019. So, why call Tinubu out?
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Your deliberate attempt to distort facts in a desperate effort to glorify your "hero" is beyond ridiculous. How much is our import bill for rice alone? In case you don't know, it stood at N500b+ as at the time your hero left office. I won't bother going into other imported food items. So, how did he leave a food import bill of N600b?
http://www.dailytrust.com.ng/daily/index.php/business/56122-nigeria-spends-n517bn-annually-to-import-rice
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Your comments on the exchange rate and ifeanyi Ubah's "magic" shows you have no knowledge of macroeconomics. The CBN has come out to claim that they were responsible for the parabolic movements witnessed recently in the FX parallel market, yet you choose to believe Ubah's version simply because it fits your prejudice. Did he not say he wants appointment before disclosing what he had in mind? Was he given the appointment? For the records, I don't believe that the President, the CBN Governor, Ifeanyi Ubah, or anybody can use rhetorics to strengthen the Naira for a sustained period of time. Except the economic fundamentals and structural issues in the country improves, Naira will stay weak no matter who says or does what.

TheDevilIsALai:
You are a dunce.

By not paying salaries you create a negative rippling effect.

Is it now that you know you must ban imports? Why did you oppose subsidy removal which was affecting private local refineries from being set up?

Use brain Taju or loose it

You may have superior knowledge on the workings of the economy, but you can make your point without using derogatory words on others. Even if you are provoked, you can show maturity.

grandstar:
My point was that Sanusi had least respected market forces.

Now, we have a president who has taken over as CBN governor and whose understanding of economics bothers on the pitiful.

I don't think the naira will hit 300. I suspect 250 at worst for it to hit equilibrium.

If other proactive steps are taken such as fully deregulating the prices of petrol and kerosene and perhaps even taxing it(The tax is a bit of a tall order), will be helpful in the short and long run as it will spur both local and foreign investment in the downstream sector.

Also, if company tax should be slashed to 16-18% and withholding tax on dividends abolished, will spur massive portfolio investments into stocks which will boost stockmarket and forex inflows into the country.

The dollarisation of the monthly allocations as advocated by Henry Boyo (which you disagree with) will boost the value of the naira.

Government should also slash the wage bill and heavily cutting down the size of the civil service. They should make it lean and mean

As Sanusi said, the many regulations and laws that stifle business in Nigeria should be done away with also.

All these measures will help cushion the effect of any devaluation and put the economy on the path to rapid growth in little or no time

Slashing CIT by more than half will have two consequences. First it will reduce government revenue in an era of already declining revenue. Secondly, it will make companies have more funds to spend which will not only fuel inflation but also drive up exchange rate since most of those funds might be used for some sort of imports. Macroeconomics is a really delicate balancing act where you need to consider all the variables and moving pieces carefully.

grandstar:
History always repeats itself.

In 2009, the price of oil collapsed from $35 per barrel from $148 in 2008.

Because of the massive reduction in dollar inflows from crude oil exports, there was msssive pressure for the naira to depreciate from around 120 where it was at the official market. There was only about 2naira difference from the black market.

Rather than depreciate, the then CBN governor, Charles Soludo started introducing foreign exchange restriction like the type Buhari demanded.

The black market rate started to diverge from the official rate and it fell to 190

Immediately Sanusi took over he devalued the official rate to 150 and almost overnight, the black market rate converged with the official rate.

Correct, but what you wrote does not paint the full picture. You did not take into account that oil price soon rallied above $100 and stayed there for more than 3 years. You also did not take into account that we had sufficient Reserves to continue to meet import demand.
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I can assure you that if oil price had stayed below $40 for a sustained period and if at that time our Reserves was below $30b, then the rate would have depreciated steadily from N120/$ to above N200/$. Even during GEJ, the CBN had to devalue twice from N150 - N168 - N197 (even with oil price at over $60 & Reserves at over $32b)
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As it stands, if CBN devalues to - say - N300/$, government revenue will increase fuelling inflation added to the already imported inflation. CBN will be forced to increase interest rate to curb inflation. In the meantime, note that even after devaluation, FX inflow to the Reserves may not increase by much, so the CBN might not re-enlist those de-listed items. As long as these items still chase dollars at the parallel market, the parallel rate might still diverge from the official rate, except the devaluation forces importers to cut down on their import demands.

stagger:
Sheraton Abuja. But the rate was fluctuating so much that in different cities it was at 295, 235, 240, 270, 265, etc. No single uniform rate or rate band and this is all a sign of choppiness. It is only by next week that we will have a steady band across the whole country.

But in my view, the pressure on the Naira will continue and the CBN will be forced to make a decision about the exchange rate very soon. The question is, for how long will the CBN continue to use the foreign reserves to defend the Naira? Switzerland could not do it with their Euro/Swiss Franc peg, Japan's interventions to stop the Yen from strengthening could not do it, and I don't see Nigeria being able to do it when there is virtually only one source of USD for the central bank which has dropped by 65%.

A renewed speculative attack on the Naira will occur and the CBN will be forced to devalue by the time the foreign reserves drop to $18bn. I don't see a way out here unless Nigeria decides to stop the importation of petroleum products which presently accounts for about 70% of Nigeria's foreign exchange usage as a very radical measure.

Frankly put, Bubu is in trouble and he knows it. That is why he is running all over the world looking for money.

@ the text in bold. Curiously, the nature of intervention you referred to is somewhat different from that of the CBN. Those countries wanted to weaken their currencies, so all they needed to do was to print more of their currencies to mop up Euros/Dollars. Even at that, the intervention has largely been unsuccessful.
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The case of CBN intervention is DOA. They are trying to strengthen the Naira, yet they cant print dollars or have dollar Reserves to intervene.
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Bottom line: CBN rhetoric cannot move the market on a sustained basis. It can cause some parabolic movements, but sooner or later, the market will return to where it came from. The underlying economic fundamentals (oil price) and structural issues (import-dependency) has not changed. If the Naira strengthens, importers and online buyers will simply resume purchases (demand) pushing the exchange rate up once again.

***Modified***
I have noticed after reading down the line that most of the issues have been discussed. The bashing you received was done in bad taste. Folks need to learn how to get their points across in a decorous manner, without denigrating others.

omonnakoda:
There is no such thing as official world legal tender. So I do not know what you are talking about and doubt if you do. Yes commodities are denominated in dollars but that does not mean payments must be made in dollars.That is a misconception. I think you need to study balance of payments

But even if we needed to make payments in RMB instead of dollars, do we have enough RMB to sell to importers? Will there still not be an imbalance in supply/demand sending the RMB/NGN exchange rate higher?

Just a little analogy
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A man earns N100k/mth as salary. His basic needs can be settled with N80k/mth. He has been planning to start a new business and invest some of the money so he can have multiple streams of income - and just in case he loses his job.
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However, he keeps indulging in frivolities and postponing starting the business/investment until suddenly his employer tells him that business is bad and he cannot continue paying N100k. His salary is slashed to N30k/mth.
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Frankly speaking, the man has found himself in a position where he cannot even take care of his basic needs without borrowing. It has also become extremely difficult for him to invest or start the new business, since the sacrifice needed will be too much for him to bear.
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Its not as easy as it seems to diversify the economy right now with the current level of revenue. We lost the opportunity to do so. The scale of sacrifice needed to do so will be excruciating on Nigerians. Most of the President’s promises were probably based on $50+ oil price.

Sure he banned imports, but until we see the good motives behind harsh decisions, we would not understand what good those decisions would bear for our future as a nation.

As per the text in bold, I just want to correct that PMB did not ban imports. What the CBN did was to stop those 41 items from accessing dollars from the FG Reserves for their imports. However, they are still very free to source dollars from other sources to continue their imports.

jerryunit48:
So how much will the official rate be , i doupt that though

Very doubtful, indeed. Will they re-enlist the 41 de-listed items? If no, is there enough dollars in the parallel market to meet demand?
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Narrowing the rates at both markets to N3 max is impracticable, except oil price improves significantly or they devalue the official rate.

vigasimple:
The political elites are the biggest fraudsters and the most corrupt in this country. It is clear Buhari has no idea and certainly not an upgrade on GEJ.

If you spend the first 2 quarters out of 16 to look for minister or team members and writes the most corrupt of all budget. Then you are not worth a leader flying all over the place with more than enough problem to deal with at home.

If you 'elect' someone with doubtful education using NEPA Bill as his certificates, then you have lost your rights to complain.

I try not to make every political or economic debate a comparison between PMB and GEJ. But just so you know, 9 times out of 10, I'll vote for PMB over GEJ.
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For your information, the budget padding we witnessed was no different from what used to happen under GEJ. The fact that the Ministers rejected parts of the budget and the President even had to sack people for it convinces me that I'm dealing with a man of probity. If it was under GEJ, there would have been a conspiracy of silence and all parties (NASS & Executive) would have colluded to defraud the country.
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PMB has his shortcomings, but he is a lifetime ahead of GEJ when it comes to leadership. When next there is a national issue, focus on discussing the issue rather than looking for every opportunity to ventilate your prejudice against PMB. I have criticized him severally, but he is my preferred choice right now.

Vivly:
There should be no reason to compare both of them. There is no basis for that. They are both in different fields with different means and ends.

I think what the writer is trying to point out is how much attention and success that has followed both of them and how much of an inspiration they will be to the society.
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The reason why a lot of folks get inspired by Olajumoke's story is simply the fame and success that has come with it. Now, imagine that the 5.0 guy had a similar shower of attention and success, do you know how many young students will be inspired to take their academics seriously?
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Really, it is up to society to decide what to promote, but the result will wait for us in future, surely!

Devaluation is a really tricky subject, especially when there are no real complementary policies & strategies. Nigeria has been devaluing the Naira from less than N1/$ to the current rate of N198/$ and yet there has been no real economic benefit to the country.
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The biggest beneficiary of devaluation will be government, since they control 95% of what we export (oil). Ordinary Nigerians will be the worst victims since almost every item in the country has some import component. The fact that the president has rejected devaluation, even though it would have been a very easy avenue for him to generate money to fund his budget shows he really thinks about the masses.
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I think an economic summit where there is a robust discussion on the best economic strategy for the country would be most ideal.

Kx:
OIL Oil,oil oil oil!!!!
The countries that dont have oil but still maintain and sustain their currency valuation over time, how come the value of their local currencies against the dollar is not experiencing what naira is going through?

Excessive importation, greed and speculative activities is the bane of our naira, not fall in intl price of crude.

Its a shame that we blame God's gift in the form of oil as the beginning and end of our problem instead of blaming poor leadership and management of the proceeds of the natural resources.

Because they have other sources of exports and their currencies are already trading at the equilibrium of import/export balance. Their exports may not be commodities (with volatile prices), as such they can maintain a fairly stable exchange rate.

There is a limit to how CBN can use rhetorics to shore up the value of the Naira. It is usually successful when speculators are buying strengthening your currency but you prefer it devalued. In that case, you can simply print Naira and buy as much dollars as possible to weaken the Naira. But a case where you want to strengthen the Naira, where do you get plenty dollars to sell. You can't print dollars, so you are constrained.
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I suspect that the CBN may soon bow to pressure and allow the Naira to be devalued by a few basis points - say N220/$.

This is long overdue. The administration is dilly dallying on the economy as if they are overwhelmed. The delay in appointing ministers was a blunder and assembling an Economic Team is a typical example. One of the end results of such sluggishness is the 2016 Budget of Shame.
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It is sad that the Economy has not been placed on a State of Emergency by the president. He, either, does not understand the scale of the problem or he is undermining it.
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Meanwhile, an invitation should be extended to Ifeanyi Ubah to join thee economic summit to suggest his ideas in advancing the economy. I hope he doesn't insist to be appointed Chief Consultant on Financial Stability.

TheSunSon:
My dear sir,I do understand how your knowledge of economics is in play here,but first realise this,The price of petrol isn't the the reason the Naira depreciated or saudi arabia,russia and every oil dependent nation will be in our similar mess. This is purely a poilicy ish, and the depreciation is ARTIFICIAL,aren't u getting it Isn't our exchange rate still at 199 to a dollar officially? See beyond the books my man.

Saudi Arabia and Russia had Foreign Reserves in excess of $750b and $450b respectively before the crises. They have spent over $150b each defending their currencies preventing it from crashing. Nigeria does not have such luxury of high Reserves to use to support demand.
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I understand that part of the Naira depreciation is speculative/artificial. But N200/$ is unrealistic right now, else CBN would provide enough $$ to meet demand at that price.

TheSunSon:
I hailed him cos he's got nothing to do with this government,yet again ONE MAN without backup form the government has affected the Nation that has a president and "holy ministers",and have shown once more how incompetent and clueless this gov is, and all those on paper economists on NL who wrote a long litany of how his claims where ridiculous and unachievable. Now ya'all have come calling him out like he owes you or even Nigeria sh*t, Una no get shame?

Macroeconomics is not Business Management!
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You think that without a clear improvement in the economic fundamentals and structural defects in the economy that Naira can appreciate on a sustained basis? As long as oil price stays low (low supply of $$) and we continue to import every thing (high demand of $$), the exchange rate will remain high. You will get such parabolic movements every now and then, but never a sustained appreciation.
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Ubah cannot perform any magic that will last more than 1 Week. I dare him! Does he have unlimited Reserves to supply the market?
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Prepare for an exchange rate below N250/$ for a sustained period of time. Even your CBN can't do much right now, except our FX earnings improve or our import substitution programs start to work.

Krismart:
Where are all those economic professors telling us that its due to drop in oil price. Some people will be here quoting their economic textbooks while others are making millions. If u must succeed in life u must drop ur note and textbooks and do some things u were not taught in d class else u will remain a poor man looking for people to blaim

I am one of them. Quote me anywhere, whatever parabolic movements you are seeing in the exchange rate will fizzle out within days or weeks. The economic fundamentals and structural issues have not changed. Do the so called Cabal have enough dollars to supply the market on a ssustaine basis? NO!
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We will go back below N300/$ after the initial euphoria & hysteria wears out. Ubah's N200/$ is impossible (on a sustained basis), except certain fundamental & structural issues change ifo the Naira - you can take that to the bank.

InvertedHammer:
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Kudos to Ifeanyi Uba.

When the parabolic slide started, I beckoned on the CBN governor to borrow a leaf from the Japanese and Swiss--both countries are notorious for verbal interventions. In verbal intervention, the only thing he has to do is to make a serious statement that will shake the confidence of speculators and they will liquidate their holdings. Uba made that call on national tv backed with N500b asset. No sane speculator will stand in the way of such bold move. And naira appreciated. Some people may never understand the implications of the statement by Uba.

The question is: Where do we go from here? When the dust settles, naira is heading back down towards N300/$ before the end of the year when economic fundamentals will thrive over emotions.

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The problem with using rhetorics to drive rate is that the market must believe that you have the WILL and RESOURCES to act if needed. Soludo tried it in 2009 and the market ignored him. He, however, dipped into the Reserves to punish the speculators.
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And yes, the parabolic movement is very artificial. Price will soon go back to where it came from - doesn't matter whether it is Emefiele, Adeosun or Ubah that threatened. The economic fundamentals and structural issues have not changed. Those who suspended imports and online purchases because of the high exchange rate will resume their activities pushing back the rate below N300/$

bettercreature:
True exchange rate should be 203,it's not normal when you are making more than 3 naira profit on a dollar

The exchange rate in the parallel market cannot be close to the official rate after CBN de-listed those 41 items. Those items account for 100s of millions of dollars every month and they are going to scramble for the few dollars in the parallel market pushing the price lower.

Amberon:
nothing is impossible.

Bro, the economic fundamentals and structural issues have not changed, so it is Impossible (on a sustained basis). Soon, all those who suspended imports and foreign purchases because of the weak Naira will resume their activities again, adding to the demand pressure and pushing back the value of the Naira.
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In any case, information reaching me is that the Naira has gone back above N320/$ this morning. Do those that injected liquidity (dollars) into the market have enough to sustain the demand week after week?

drss:
hahahaha correct talk.no mind d dem APC fanatics.
Cc: Bevista

I have been writing directly to you on the subject and I expect you to dispute my opinion, but you refuse and keep mentioning me when someone writes something that validates your bias.
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How much was injected into the market and how long can such supply be sustained? What happens when the effect of the initial dollar glut wears out? Does Ubah and his fellow cabal members have enough dollars to sustain supply in the market or does Ubah have enough local substitutes to reduce demand for dollars (for imports)? What happens when all those who suspended imports and online purchases resume their activities due to the strong Naira?
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@kodded, @Holyman3, @dunkem21, @emi14

***Modified***
There is now talk all over the place that Naira has depreciated again below N320/$

drss:
u mean Bevista Ifeanyi uba did in two days wat buari dullard could not do in 9 months

I can see that you keep making reference to my earlier comment. But as I said in that my comment (go and read again), I do not expect the Naira to appreciate beyond N250/$ given the prevailing economic fundamentals. Any sudden injection of dollars into the market is not sustainable and will fizzle out. The 41 items de-listed by CBN will still scramble for dollars in the parallel market.
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If ubah's rhetoric had anything to do with the sudden movement, then I'll say that will only affect the Speculative component of demand. I repeat, N200/$ is IMPOSSIBLE on a sustained basis except the economic fundamentals change in favour of the Naira. And why was he looking for appointment as Chief Consultant?

obailala:
The lesson from these events is that, sometimes you can get something done without necessarily doing anything.

True. Most Central Bank Governors use rhetorics a lot to drive market sentiments in line with what they want. But the trick is that the market must believe that you have the Will to act if needed.
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I don't know if Ubah's audacious statement is responsible for the sudden appreciation of the Naira, but I do know that it can only affect the Speculative Demand component of the market. The economic fundamentals have not suddenly changed overnight, the 41 de-listed items by CBN still have to source for dollars from the parallel market. If what is driving the rate is a sudden injection of dollars into the market, the question is whether such supply is sustainable week after week to meet demand.
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When speculative demand is discounted, the true exchange rate should be around N250 - N300. Ubah's N200/$ is impossible on a sustained basis.