By Charles Ike-Okoh
WED, SEPTEMBER 7, 2016-Nigeria has long suffered from the persistent dehydration of the Naira, initially triggered by the multiple layers of exchange markets and frequent round tripping invented by ‘lazy’ Nigerian bankers, ‘an uncontrollable situation, if you ask any government official or even the Central Bank (CBN) people.
Call it a currency crisis now and you are totally correct about your assumptions. The crisis has been all along self perpetuating and you bet business confidence on the currency has drifted to its lowest ebb over the past 18 months, lacking any confidence that the Naira violent gyration will calm down the next day for a meaningful transaction to take place.
The CBN will tell you they have tried their best-(its not their fault) to restrain the currency by frequent interventions vis, managed float and muffled devaluation, but this has not worked. They have already done almost everything they can to combat the Naira’s collapse. They imposed a crushing ban on import of items like rice, eggs, toothpick and a host of other items that include raw materials-some of the types used by manufacturers in the country. They have restricted banks wire transfers and completely stopped receipt of dollar into their domiciliary accounts to control the run-away behavior of the Naira-(the CBN says it is to stop illicit financial flows in Nigerian banking system). Everything, that includes the imposition of a full-scale capital control measure.
All of that has not fazed the Naira and its behavior. It is still very sick and suffering serious hangover. The gigantic 50 percent loss since January 2015 is really quite extraordinary-some will argue it’s not unusual. And when you look at the pace of deterioration in the past couple of weeks it would certainly seem some kind of disaster is looming.
As you would expect, the Naira is taking the beating of its life in every local market bouncing around 3 to 5 percent off mark at N422 at the Bureau de Change, N425 at the ‘black market’ and holding a bit steady at N314.20 to the USD in the interbank market-(today rates). It is not looking to get better anytime soon. In fact, in some quarters, there are murmurs of even more damaging results because the CBN has still not done the ‘right thing’ for the currency by holding on to that exclusive foreign exchange list and it is still holding on that ‘my friend and the rest of you Naira/dollar price formula’. But it will have no choice soon.
Do you know why the CBN will have no choice? Everybody knows that foreign direct investment, FDI, is still looking ugly. Dollar is not coming in. The entire dollar that is coming into the country today is not coming in through the Nigerian banking system. The Diasporas are holding back because they still don’t have the confidence.
The bottom line is that until we have an economic mechanism that people can plan on it will continue to be difficult.
The oil price looks like it is rebounding or at least staying steady for a while now and prospect of an OPEC production freeze could spring it up to $60 but that won’t be enough. You still need that mechanism to build confidence.
The fact that alternatives still exist for the CBN is cause for relief. But by pretending it is working so hard on the naira and trying to hold back action on the real value of the currency rather than prescribing the better ‘healing pill’ now-the CBN betrays its own value.