Nigeria will either pause the full floating of its currency or return back to fuel subsidy within 6 months. Nigeria’s weakest currency stability point remains that it has to continue importing petrol since it does not have any working refinery. That creates a vicious circle since those importing fuel will mark up prices, to cushion for the next round of import, working to stay ahead of currency deterioration, in a system with no official benchmark.
In other words, if you bring it in at N760/$, you will likely expect that when you finish selling, you may need N770/$ to get back to parity, and if that unpredictability remains, stabilizing Naira becomes challenging.
So, to solve that problem: the government will have to freeze the floating of the currency, at least partially, or will have to bring back fuel subsidies, or do both. Expect your pick within the next 6 months.
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Investors, plan accordingly because we’re going to have more shifts for a new equilibrium point. The stable state is not close because the demand for US dollars remains well higher than the supply in the nation. That lack of parity will drive new policy changes in the nation since we’re import dependent on many things.
I do not like when the government shares money to citizens in Nigeria because it is all an illusion. Why? My village in Ovim, Abia State, has NEVER received any of these funds. And we’re happy that NEMA does not have us in its database.
In short, during Covid palliative sharing, it is on record that Ovim rejected what the state government shared, noting that its sons and daughters from around the world provided well enough.
If we have that mindset, Nigeria can just focus on using the “sharing” money to fix and boost our refining capacity.
The Refining Capacity
Note that on full production capacity of Dangote Refinery which has 650,000 barrels per day capacity and NNPC which has a total refining capacity of 445,000 barrels in four refineries, Nigeria should be fine. Post subsidy removal, Nigeria consumes about 45 million liters per day, from more than 60 million liters; that is about 281,000 barrels per day. Indeed, all the core pieces Nigeria needs to strengthen its currency are there if only the national refineries are working. Of course, we expect the Dangote Refinery to begin production soon.
Technically, if those refineries work and Dangote Refinery begins, Nigeria’s balance of payment could improve – and Nigerian Naira will strengthen.
Importantly, if I may add, we must have decency and honour to stop the madness of commissioning projects which are not ready, from bridges to plants, to hospitals, at local, state and federal levels. When we do those things, we distort any sense of reasoning. That deception must end and our press men and women must do their jobs, pointing out those things.
That's the point. Great that it s recognised that there is no "Market Forces" in play. There's just no way there won't be an intervention. Exchange rate risk is one of investors greatest nightmare. You lose money even before the possibility of making money.
— Nobleman Okey (@okeyezealah) July 28, 2023
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We are very high on hope but too low on strategy and tact. I don’t know the sort of thinking that drives the idea that Nigeria can float currency and at same time remove subsidy, and still dream of stability. This anticipated stability will be anchored on what exactly? You are not just contending with unstable exchange rate, you are relying on the same unstable exchange rate to import a daily consumable like petrol.
This sort of moving target can easily join the realm of Escape Velocity, with no chance of returning back, if you don’t tame it on time.
What is our plan for abundance in local refining, Dangote? And what is our plan for generating excess dollar: manufacturing, tourism, exporting skills, entertainment, or all? And what is the time-line?
We seem to think that things do themselves, and once we make announcements and they are carried by the media, they translate to results. No, the delusion is officially getting out of hand, because nothing shows that anything was thought through before those pronouncements. It is when you ask people to show working that you discover who really has something upstairs.
Once the ground is done running, expect the sky to embark on acrobatics, until we ask the right questions.