₦airaland Forum

Across every stakeholder spectrum in the Nigerian economy (i.e. investors, consumers, policymakers or economic observers), one persistent recurring topic is the incessant Naira depreciation against major currencies.

Specifically, against the major currencies, (USD, GBP, JPY, EUR), the long-run relationship between the Naira and these currencies is a linear depreciating relationship.
Most economists agree that there are broadly eight ( factors that influence a country’s exchange rate.

Quantitative factors include inflation rate, interest rate, current account deficit, size of public/government debt and GDP growth rate.
Qualitative factors include confidence levels in government economic policies, degree of currency speculation and political stability.

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Arguably, these factors are interdependent whereby a change in one or a combination of these factors will typically influence the movement of a currency’s exchange rate.

As an example, the Turkish Lira recently experienced a dramatic fall in value. This was partly due to the country’s desire to maintain low interest rates levels despite spiking inflation in Turkey.

Turkey’s strategy of rate cuts compares to other EM countries, upticking interest rates and driving higher yields to fend off inflation and avoid dramatic currency weakening.

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For this article, the Inflation rate factor is notable especially given that Nigeria’s multi-year inflation average appears to be shifting upwards to 15% from the prior ten-year ranges of 12%.

Specifically, our average inflation rate between 1999 to 2009 was 12.08%, whilst average inflation rate for 2010 to 2020 was 12.06%
However, the recent trailing 5-year average inflation (2016 to 2020) is now spiking to 14.6%. More alarming is that the 2021 inflation rate trend will likely push this 5-year trailing average even higher.
Why does this matter?
Naira and domestic inflation

As noted above, the rate of inflation in an economy is one of the quantitative factors which impacts a currency’s exchange rates.

Specifically, if the rate of inflation in your economy is low then you should expect to attract more foreign capital to your economy compared to other countries where inflation is higher.

Conversely, if an economy is experiencing high rate of inflation, the effect on the currency is a double whammy whereby

Domestic savers/investors experience loss in value of money, leading to a potential loss of confidence in the currency as a store of value.
This is in addition to foreign investors being discouraged by the risk of negative real returns on investment
For context,

Given Nigeria’s prior multi-year average inflation rate of 12% this means that if you had N1 million in 2000, that same money is worth less than N78,000 after twenty years (i.e.by 2020)

Now imagine Nigeria’s new normal of 15% multi-year inflation average. This would mean that your N1million would be worthless than N100,000 in only 15 years

In other words, the higher the inflation, the faster your money loses value. Thus, high-inflation rates discourage both foreign and domestic investors and potentially leads to domestic savers actively seeking to move capital offshore to more stable currencies

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Inflation rate differential

From a global trade perspective, what is more notable is that as your currency loses value at home due to high inflation, it will also lose value when compared to international currency pairs used for global trade.

The key term here is inflation rate differential. This is simply the difference between inflation rate in Nigeria versus inflation rate in other countries.
Inflation rate differential is a key component of exchange rate analysis such that economists track this indicator using various metrics including PPP (purchasing power parity).

For the Naira, the inflation rate differential is almost double digits against major currencies such as the United States (USD), UK (GBP) and EUR).

Specifically, Nigeria’s average inflation rate for 1999 – 2020 period was approximately 12.1%, whilst US, UK and Europe all have an average inflation rate of sub 2.5% for the same period. This suggests an inflation differential of between 9% to 10%.

This near double-digit inflation differential is alarming because it simply means that over time from a Naira perspective, you will always need more money to buy the same foreign goods (at things being equal).

For context, using the Naira’s inflation differential of approximately 9.5%.

This suggests that if you needed N100 to buy USD$1.00 worth of goods in 2000, over a 20-year time you’ll need about N614 by 2021 end.
That is 100 compounded at 9.5% over 20 years.

If this sounds familiar, that is because Naira’s nominal exchange rate actually moved from the low N100s/$1 in December 2020 to current state of circa N560/USD$1 as of November 2021. I’m sure some skeptics will say the exchange rate is “turning on its own”.

Nonetheless, the key point here is that the worse your inflation differential becomes, the higher the risk of your currency depreciating faster.

What is the Bottom-line?
The issue for the Naira is that, regardless of how much effort is exerted by the CBN and monetary policymakers to manage consumer demand, Naira’s continuous devaluation trend will persist against the major currencies, especially as our high inflation rates simply leave the monetary authorities with little choice than to eventually devalue Naira over the medium to long term.

Therefore, the debate can continue to rage as to the merits and demerits of CBN spearheading development finance initiatives such as Agriculture, Power, Healthcare, SMEs etc.

Additionally, discussions can continue regarding how best to pressure policymakers towards taking more aggressive actions to attract more foreign investments and promote exports.

However, more urgent attention needs to be paid to the fundamental issue of reducing Nigeria’s double-digit inflation rates differentials vs the major currencies of the developed world.

Fighting inflation cannot be the sole responsibility of monetary policy authorities to address this trend.

Nigeria’s Fiscal policy authorities need to sit up to urgently lead the drive to a single-digit inflation economy for the Naira’s sake.

In the interim, savvy investors who previously aimed to surpass the 12% hurdle rate on investments will do well to adjust to asset classes that can surpass the newly emerging 15% hurdle rate.

A housewife identified as Sule Nana has been arrested by the Ekiti State Police Command for allegedly faking her own kidnap and demanding a ransom from her husband.

ASP Sunday Abutu, spokesperson of the command, who paraded her alongside other suspects, said she was arrested by men of the Rapid Respond Squad after thorough and intensive investigation.

According to the PPRO, the incident happened on Saturday.

He said the the RRS operatives got a distress call from Nana that she was kidnapped by unknown gunmen along Ifaki-Oye-Ekiti road.

He said, “On 20/11/2021 at about 1030hrs, a distress call was received from one Sule Nana ‘f’ that she was kidnapped by unknown gunmen along Ifaki/Oye-Ekiti road alongside other passengers.

“She called her husband that the kidnappers were demanding for a sum of fifty thousand naira (#50,000:00) ransom before she could be released. The RRS Operatives, upon the receipt of the complaint, swung into action by combing the bush along Ifaki/Oye-Ekiti before it was later discovered that Sule Nana kidnapped herself to get money from her relatives. She has confessed to the commission of the crime.”

According to the suspect, she decided to plan her own abduction in order to get money from her husband and relatives before she got arrested.

She said, “I needed some money but I could not see any help and I decided to plan my abduction where I will collect ransom. I called my husband to demand N50,000 ransom and in the process, I was arrested.”

Arsenal boss Mikel Arteta says he wants to bring former Gunners manager Arsene Wenger back to the club in some capacity and has already spoken to him about a possible return.

Wenger, 72, guided Arsenal to three Premier League titles and won the FA Cup on seven occasions in his 22 years in charge of the north London side.

Arteta spent five years playing under Wenger at the Gunners.

"We would be delighted to have him much closer," Arteta said.

"I think he would have a great time just seeing the environment that he can create around him when he's around this place because of the respect, admiration and the love that everybody at the club has for what he's done, as well as for what he represents as a person."

Arteta replaced Unai Emery as Gunners boss in December 2019, 19 months after Wenger's 1,235-game reign as Arsenal manager came to an end at the conclusion of the 2017-18 season.

As manager, Arteta guided the club to FA Cup success in 2019-20 but after a second successive eighth-place finish in the Premier League last term the Gunners failed to qualify for European competition for the first time in 25 years.

Arsenal are fifth in table after 12 games this season and next face bottom side Newcastle on Saturday.

Arteta said "there has been communication" with Wenger when he was asked if a formal offer had been made to bring the Frenchman back to Emirates Stadium.

The Spaniard said they had spoken at the premiere of the documentary about his ex-boss, who now works for Fifa as chief of football development.

"I talked to him when we went to see the film and it was incredibly pleasant to see him and chat to him, and hopefully we can bring him close," he said.

Arteta, however, added that he "cannot tell" what role Wenger would take up at the club.

"What I can say is that I would like him to be much closer, personally, to me because I think it would be a great help, I think it would be a great help for the club," he said.

"Things take time and I think he has to dictate those timings. What I can say is from my side and I can say, I think, on behalf of everybody, is that we would be delighted to have him much closer."

Sonyboom765:
This is all you have to say upon how Ikpeazu looted your father into wretchedness but if it about Buhari Or Tinubu your muscle ho depump.