Editor’s note: The devaluation of Naira and
the floating of the currency was predicted by
financial expert to bring a major turnaround
for the country’s finance.
In this opinion by Henry Boyo, he points out
that the prediction by the so-called expert who
clamoured for devaluation is proving wrong
which seems to align with President
Muhammadu Buhari’s fears that the country
may not benefit from the devaluation.
The ‘419’ scam is well known in Nigeria for
boasting empty promises of stupendous
returns which induce victims to willingly part
with their valued possessions. The
perpetrators of this fraud, ply their trade
nationwide with targets which cut across the
social spectrum and include otherwise,
successful businessmen and highly educated
professionals, who are usually gullible and
driven by the unreasonable expectation of
clearly unrealistic returns on their
‘investments’. Ultimately, the bubble would
burst and much pain and sorrow would
follow.
Similarly, the IMF and other respectable
international financial agencies and local
economic experts, have commended the
recent devaluation and floating Naira
exchange rate as ‘investments’ that would
ultimately yield great dividends.
READ ALSO: Naira crashes to N342/$1 at
parallel market
We are encouraged to believe that the new
forex regime will recharge our economy and
sustain inclusive growth with increasing job
opportunities, and also reduce our almost
total dependence on export revenue from
crude oil, by facilitating the realization of a
diversified economy.
It is also suggested that a floating rate
would create a level playing ground, and
encourage marketers to reduce NNPC’s
present unwieldy monopoly of fuel imports
and also attract investors to build more
refineries locally. Nonetheless, the promise
that the new forex policy would attract
much needed foreign investment inflow, is
probably the most notable claim by
supporters of the new regime.
Consequently, CBN trusts that the reported
$10-$15bn hurriedly evacuated from Nigeria
when oil prices slumped, would be
channeled back by foreign investors; sadly,
however, the present level of uncertainty
and insecurity sustained by our internal
socio-economic tensions may not encourage
a quick return of investors as yet.
Incidentally, the desperation of foreign
portfolio investors to evacuate their funds
from Nigeria contributed in no small measure
to the present battered Naira exchange rate.
As usual, portfolio investors primarily target
the unusually high returns on CBN and
Federal government’s loans; thus, such
investors may borrow at low rates below 5%
from offshore banks and reap a harvest of
10% and much more in Nigeria.
Expectedly, however, portfolio investors
would naturally still want assurances that
ultimately, their original profit projections
would not be wiped out by another
devaluation. Furthermore, the elevated level
of insecurity and Naira rate instability may
also deter potential “foreign direct
investors”, whose operations would
positively add value to our industries and
infrastructure and also create additional job
opportunities locally.
President Muhammadu Buhari
Thus, the sum of the above narrative is that,
the present devaluation and floating Naira
exchange rate, may not immediately propel
the expected return of over $10bn outflow
from Nigeria; in this event, it would be
misleading to suggest that the Naira rate will
soon become stabilized by a bountiful inflow
of dollars, as presently speculated.
Conversely, barely 8 hours after the
commencement of the new forex regime,
the cost of “yet to be realized speculated
benefits”, had already made significant dents
on our economy. For a start, Nigeria’s
erstwhile celebrated $510bn Gross Domestic
product, immediately crashed below $350bn,
while per capita income crashed from over
$1000 to well below $600 as a clear
testimony of deepening poverty.
In addition, the dollar value of all equity
listed on the Nigeria stock exchange also
plunged from almost $48bn on Friday 17th
June to below $25bn at the close of
business on Monday 20th June, when the
new forex regime commenced. Invariably, all
cash income and savings held in Naira, also
immediately fell below 60% of their dollar
purchasing value on commencement of the
new forex policy.
Similarly, the equally celebrated over $25bn
accumulated national pension fund, also lost
over $10bn, just like that, to imperil the
future welfare of our senior citizens; in truth,
we were all literally reduced to size within
24 hours and any offshore expenditure we
make, thereafter will henceforth require
almost 50% more Naira to fund.
In addition, all outstanding dollar
denominated loans, (personal, corporate or
government) will immediately also require
much more Naira to service and repay;
consequently, widespread default on foreign
loans and outstanding import bills will
prevail.
CBN governor, Godwin Emiefiele
Thus, foreign credit lines, which hitherto
supportively reduced raw materials import
cost to local industries, may also be cut to
further compound already spiraling
operational costs and instead challenge the
export competitiveness of Nigeria’s real
sector. The Naira value of Public sector
external debt obligations would also increase
and raise the ratio between annual debt
service charges and actual income well
beyond the present 35kobo on every one
Naira revenue.
Although the NNPC management had
remained unexpectedly reticent on the
impact of the new forex policy on fuel
prices, however, the pump price of petrol
cannot remain at N145/litre, if the Naira
exchanges for N280=$1 or more. Indeed,
unless NNPC accommodates a new round of
subsidies, petrol will inevitably sell well
above N200/litre shortly.
Invariably, Marketers would also defer their
fuel imports until the price issue is resolved;
if however, in the interim, NNPC’s congested
import schedule faulters, severe supply
shortages will resurface, and extended
queues and frustrating delays at fuel
stations will return.
Nevertheless, since budget 2016 made no
provision for subsidy, a deregulated price
regime will spike petrol price and ultimately
propel inflation rate well above 20% and
create serious consequences for consumer
demand and investment, with collateral
adverse impact also on employment. In
addition, the recently established electricity
tariff structure, which was predicated on
Naira exchange of N197=$1, will become
unsustainable, and a further hike in
electricity tariff will be inevitable, much
against consumers’ expectations.
Sadly, the earlier commended 30% budget
for capital expenditure, will also suffer,
because the import components for
infrastructural enhancement may now
require almost N300bn more to fully
implement; in other words, public
expectation for urgent infrastructural
remediation will still have to remain on hold.
Furthermore, our desire to diversify output
and revenue sources away from crude oil,
will also become severely challenged by
unstoppable rising production cost, which
will invariably drive higher inflation rates and,
in turn, compel higher CBN monetary policy
rates, to push cost of borrowing well above
30%. Ultimately, the operations of the real
sector will become crippled and any hope of
economic diversification will also become
dimmed.
On the security front, the fiscal allocations
voted to increase the capacity of the Armed
Forces, will invariably also become
inadequate and would require additional
appropriation to implement. Sadly however,
our presently distressed financial state will
obviously make such supplementary
allocation a challenge, unless we further
deepen our already oppressive debt profile.
