At 4pm WAT, I will deliver a two-hour presentation during the Tekedia investment course today. Among others, I will discuss positioning due to exchange rate volatility in Nigeria. My postulation (read here), despite what most investment banking institutions wrote, claiming shortly after the float, that the Naira would stabilize at N680 per USD, remains that the Naira will continue to struggle until we can attain parity with demand and supply of US dollars.
And that means, we need to float companies (digital, physical, services, etc) with capacities to “create” US dollars in Nigeria, before we can attain any optimal equilibrium to stabilize the exchange rate. If we fail to do that, no financial engineering by the Central Bank of Nigeria (CBN) can help because the strength of Naira does not come from bank branches or CBN headquarters, but from warehouses and factories (the modern and the old).
We recorded N829 per USD this week, according to the News Agency of Nigeria: “A spot exchange rate of N829 to the dollar was the highest rate recorded within the day’s trading before it settled at N803.90.”
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Good People, in Lagos, the bank I worked for paid for a correspondence doctoral program on international currency. Simply, there is no market where demand and supply work more than in currency business. If 20 people want each $100 and only 2 people have each $100, there is a big problem. Unless you can improve that supply, those two people will move the pricing equilibrium point. That is the issue in Nigeria even at the investors and exporters window.
From all indications, I expect the government to put a pedal, with a little “lever” on this unbounded float. In other words, a quasi official rate will be reborn within 3-6 months, otherwise, balance sheets in Nigeria will deteriorate and many will lose their jobs.
(Expect bank shares to drop if there is no FX stabilization since modeling assets risks will become harder. The original exuberance will fade as yield optimism freezes for capital inadequacy and illiquidity concern)
Nigeria needs to help the Naira and the immediate business in the National Assembly (the N70b for working conditions of senators and reps, bulletproof cars, N500b palliatives, etc) will do nothing to help those factories and warehouses. If they fail therein, we could be in a big mess. Yes, I have expected a clear industrialization policy passage with fierce urgency and catalytic production-induced stimulus for things to be made in Nigeria.
—From NAN
The Naira on Friday depreciated against the United States dollar, exchanging at N803.90 at the investors and exporters window.
The Naira slipped by 7.72 per cent when compared with N746.28 which it exchanged for the dollar on Thursday.
The open indicative rate closed at N763.36 to one dollar on Friday.
A spot exchange rate of N829 to the dollar was the highest rate recorded within the day’s trading before it settled at N803.90.
Data gathered from the official window shows that the Naira sold for as low as N689.34 to the dollar within the day’s trading.
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We know these things, but people who chose to twist reality would want us to believe otherwise. There’s nothing like floating of currency in an economy that is not producing, the naira will continue to take a beating, until we come to terms with reality.
We are doling out over N800 billion to be squandered, with no productive component, and we somewhat find ways to justify such an aberration, to the point of self immolation. We are not normal, yet we think we are.
As long as demand is greater than supply, the stability of naira will remain a moving target.