Quote from Ndubuisi Ekekwe on July 30, 2023, 8:13 AM

Now that investment houses and private equity firms are quoting this, we can agree that the message is picking up. And let me add the completeness of that quote from the article where Asset Equity Group picked it: "The strength of Nigerian Naira comes from warehouses and factories, and not from the Central Bank of Nigeria (CBN) headquarters. Those warehouses and factories include the old (the traditional firms like Innoson Motors, Dangote Cement) and the modern  ones (like Paystack, Tomato Jos). Until the CBN can use its monetary tools to elevate them, it cannot win the fight for Naira".

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Comment: Strongly disagree.

My Response: I have tried MANY times when replying to Hilary to present his points with his usual "disagreement" but he never does. That makes it hard to enter a debate with him. Economics is a social science which means we cannot agree absolutely because it is not a natural philosophy like physics and maths. That he does not agree is expected and correct, but that is not relevant and useful, because in social science, everyone cannot agree on everything. What is useful is why he did not agree so that the debate can continue and help everyone. So, when he does not explain his points - he does not make us better.

Comment IR:Exports and industrialization are not likely to strengthen the Naira.
I have explained several times about the power of government policies and expenditure.
This is basic economics.
Factors such as export infrastructure, trade and investment promotion, diversification of export industries will improve economic growth and other aggregates such as employment and GDP.
However, the exchange rate has to be managed and the main levers of control are based on government not industry mechanisms.
Let me use a local analogy:
You can study for JAMB to get a good score.
But, if your test centre is cancelled your performance is almost irrelevant.
These industry measures are not going to improve the exchange rate the way government policies would affect it.
I have explained this several times and this is basic economics.

My RESPONSE:

“However, the exchange rate has to be managed and the main levers of control are based on government not industry mechanisms.” - interestingly, I do not agree with you. Demand and supply play major roles in FX: if oil rises to $200 pb, Nigeria’s export will improve and that will strengthen Naira (assuming Nigeria has a working refinery to avoid importing petrol etc). Also, if Nigeria has Apple which generates $billions monthly, its FX will improve because it has USD. Irrespective of whatever CBN does, if there is no USD for people to exchange since Nigeria cannot print USD but earn it, Naira will weaken.

For Nigeria, it is the industry mechanisms that would determine the strength of Naira . Mr A needs $1m to import raw materials. If there is none he can buy in Nigeria because no one has it, CBN cannot do magic. But if there is another Nigerian company with $1 billion in NY and needs Naira in Lagos, things become easier. That demand and supply is how industries via balance of trade and payment shape FX.

Another case study: the government of Ghana pegged 1C to $1 one day. Within months, Cedi has lost value due to lack of supply and demand parity. Simply, the government realized that it has no power to determine that FX position without the industries.

Comment 2: The value of a currency, such as the Nigerian Naira, is influenced by various factors including economic conditions, govt policies, and market forces. While individuals cannot directly control or manipulate currency values, there are some general factors that can contribute to a stronger currency:

1. Stable economic policies: Implementing sound economic policies, such as maintaining low inflation, reducing fiscal deficits, and promoting economic stability, can help improve investor confidence and strengthen the currency.

2. Attracting foreign investment: Encouraging foreign direct investment (FDI) can increase demand for the currency, as investors need to convert their funds into the local currency.

3. Export promotion: Boosting exports can increase foreign currency inflows, which can positively impact the value of the currency.

4. Diversifying the economy: Reducing dependence on a single sector, such as oil, can make the economy more resilient and less susceptible to external shocks.

5. Maintaining political stability

It's important to note that currency values are complex and influenced by numerous factors beyond individual control. These suggestions are general and may not guarantee immediate currency appreciation.

Comment 2R: ..."all you wrote here are summed up in having factories and warehouses...traditional and modern."

My Response: read the Finson's piece and said, he simply expanded the summary. Stable economic policies, Attracting foreign investment,  Export promotion, Diversifying the economy, Maintaining political stability are chapters under the title.

Comment 2A: Lack of fiscal conservatism in governance and maintaining political stability to my knowledge is not about having warehouses.

My Response: You are reading literally and trying to make a short quote to become a paper. That paper was long. But the PE just picked a portion. Everything you wrote was included and more. To make people build those factories and warehouses, you need security, functioning governments, etc. I cited how Michelin left Nigeria but quickly focused on exporting tires into Nigeria. That puts pressure on Naira which would not have happened if they kept their factories. But why did it happen? Political governance which affected electricity, etc. So, this is just a quote, and you cannot void it for lack of literal  completeness. But if you extrapolate deeper, it covers everything. Because factories go to places with improved fiscal governance and political stability.