President ignores pleas for devaluation amid slowing growth
Investors giving up on policy change soon, forecasts show
History is repeating itself in Nigeria, where the more President Muhammadu Buhari is urged to devalue Nigeria’s naira, the more he is digging in his heels. Investors are beginning to surmise that politics — rather than economics — will determine the currency’s immediate future.

Even as growth slows, inflation rises and foreign investors flee, analysts in a Bloomberg survey are backing away from estimates a devaluation will take place before the third quarter. Buhari, 73, has made it clear that he, not the central bank, has the final say on currency policy — and that he is against taking that step, just as he was during his first stint in power in the 1980s. He is is loath to be seen by voters as capitulating to foreign investors and the International Monetary Fund, both vocal critics of his stance, according to New York-based Teneo Intelligence.


“Changing his position would make him seem like a spineless leader,” said Manji Cheto, an analyst at Teneo, a global advisory firm, who predicts there won’t be a change of currency policy until at least the second half of this year. “Buhari is seen as the man who will stand up to foreigners. He ran a campaign as a strongman, someone who would put Nigerian interests ahead of foreign ones.”

Central bank Governor Godwin Emefiele has pegged the naira’s official rate at 197-199 against the dollar since March 2015. Buhari has backed that policy since he became president in May, confounding analysts who thought he would have caved in by now and let the naira fall, as other oil exporters from Russia to Kazakhstan and Colombia have done with their currencies. Foreign-exchange trading restrictions and import curbs have led to shortages of goods from gasoline to milk and sent the naira plunging to 320 on the black market.

Buhari and Emefiele, who meet at least weekly, say that the naira is fairly valued on the official market and that letting it drop would only harm poor Nigerians by pushing up prices. That’s already happening, with inflation accelerating to an almost four-year high of 12.8 percent in March as manufacturers struggled to pay for imports. Growth slumped to 2.8 percent last year, the slowest pace in 17 years. It will slow further to 2.3 percent in 2016, according to the IMF, which called for a “speedy unwinding” of the currency controls to help revive growth.


It’s not the first time Buhari has resisted the IMF. When he last ruled Nigeria from 1983 to 1985, a time when, like today, oil prices had just crashed, he ignored advice to depreciate the naira and refused financial assistance from the Washington-based lender.

After Buhari was ousted in a coup amid a worsening financial crisis, his successor Ibrahim Babangida started an IMF-led structural adjustment program, which included a devaluation. It was the first of many that saw the currency’s value drop from roughly parity with the dollar to today’s rate of near 200. Politicians still say the IMF program failed the country.

“I’ve lived through several rounds of naira devaluation and I have seen very little benefit to the Nigerian economy and people,” Nasir el-Rufai, the 56-year-old governor of Kaduna, a northern state of about 7 million people and a senior figure in Buhari’s All Progressives Congress party, said in an interview in Lagos. “I supported each of them as a solution to the challenges we faced at the time. I regret that support because I have seen very clearly it brought nothing to Nigeria.”

‘Already Devalued’

For investors, such thinking makes little economic sense. Most businesses are already trading at the black-market rate since the central bank’s policies are choking off dollars in the official market, according to Exotix Partners LLP, a London-based investment bank focusing on frontier markets. PZ Cussons Plc, the Manchester, U.K.-based soap maker, said last week its Nigerian unit is forced to pay a 50-70 percent premium on the official rate to source foreign-exchange.

With foreign investors avoiding the country until there’s a devaluation, Nigeria’s local bonds are the only ones to have made losses this year among 31 emerging markets tracked by Bloomberg. Nigerian average yields have risen 161 basis points to 12.31 percent since the end of 2015, whereas Russia’s have fallen 26 basis points to 9.29 percent and Colombia’s 28 basis points to 7.77 percent.

Buhari “just doesn’t get it,” Kato Mukuru, the London-based head of equity research at Exotix Partners LLP, said in an interview. “When he was last in power in the ’80s he was also told to devalue the currency. He refused until he was sent out in a coup. Clearly he didn’t do the same economics as I did. There comes a point where you need to understand that the whole country has already devalued.”

. Clearly he didn’t do
the same economics as I did. There
comes a point where you need to
understand that the whole country has
already devalued.”

AZeD1:
Those people who say we should devalue the Naira have never said what the country stands to gain from devaluation.

AZeD1:
Those people who say we should devalue the Naira have never said what the country stands to gain from devaluation.

TonyeBarcanista:

The benefit are enormous though not immediate, it outweighs the suffering we are subjected to at present

TonyeBarcanista:

The benefit are enormous though not immediate, it outweighs the suffering we are subjected to at present

AZeD1:

Like the benefits of SAP?
Also can you list the benefits, short term and long term.

TonyeBarcanista:

SAP flopped because IBB mismanaged the whole thing for his selfish interest.

Already, businesses are operating on a value of the naira that is over 100% more than the official value. in fact, the naira is technically devaluated due to scarcity of the dollar. What we are saying is for the government to allow the naira to be officially devalued so that businesses can freely operated. This will even boost our export as our goods would be cheaper in the international market, and that would help local economy.


however, it will make import more expensive but we can't depend on import forever

obailala:
Still on external forces mounting pressure on Nigeria to devalue its currency. Since the 80's this has always been the advice to African countries.



Since the mid 80's till date, Nigeria has devalued and devalued and devalued from N1 = $1 to the present N200 = $1. How has all these devaluations in the last 30 years ever helped Nigeria?

TonyeBarcanista:

The benefit are enormous though not immediate, it outweighs the suffering we are subjected to at present

TonyeBarcanista:

SAP flopped because IBB mismanaged the whole thing for his selfish interest.
Already, businesses are operating on a value of the naira that is over 100% more than the official value. in fact, the naira is technically devaluated due to scarcity of the dollar. What we are saying is for the government to allow the naira to be officially devalued so that businesses can freely operated. This will even boost our export as our goods would be cheaper in the international market, and that would help local economy.
however, it will make import more expensive but we can't depend on import forever

AZeD1:

1) The scarcity of the dollar is not caused by the rate so devaluing doesn't solve the scarcity, rather it would push the black market rate up further.
2) We really don't export anything so the idea of our goods being cheaper is economic theory.
3) You need to understand that foreigners that are calling for devaluation are doing it in there own interest not because they like us?

Pidggin:
Gutter economics is what is being practiced

Truth234:


1) Devaluing would not pushed black market rate up but normalize it. It means instead of majority of us buying it at speculators' price we will be buying at official rate or something closer.

2) By fixing naira at 197 -199, we are losing money because the major means from which we generate foreign reserves is not fixed and has fell more than 70% so far, but we refused to make realistic adjustment to contain such changes. Saudi Arabia is enjoying the Riyal fixed because her foreign reserves is huge, $744,440,558,276 and can cover over $200 billion deficit created by the current oil glut.

3) Not for their own interest but a more conducive working environment.

AZeD1:

1) The scarcity of the dollar is not caused by the rate so devaluing doesn't solve the scarcity, rather it would push the black market rate up further.
2) We really don't export anything so the idea of our goods being cheaper is economic theory.
3) You need to understand that foreigners that are calling for devaluation are doing it in there own interest not because they like us?

Truth234:


1) Devaluing would not pushed black market rate up but normalize it. It means instead of majority of us buying it at speculators' price we will be buying at official rate or something closer.

TANTUMERGO007:
Buhari is a failed man leading us to a failed land(failed state)

AZeD1:
Those people who say we should devalue the Naira have never said what the country stands to gain from devaluation.

TonyeBarcanista:

1. A devalued naira makes it attracts hoarders of the dollar to bring out the currency since they know that they would make more.

2. We have the capacity to export products like cement and few other items, especially some agricultural items. However, it doesnt stop our government from empowering local manufacturers and producers so as to enable us meet local demand, thereby reduced reliance on import.

3. it isn't every time that one should be political in decision making.

BrainnewsNg:


You mUst be a failed man?