Poor Nigeria – now you want to go after NLNG dividends: “To boost foreign currency liquidity in the economy and fortify the foreign exchange situation, the federal government has devised a plan to securitize approximately $7 billion of the country’s dividends from the Nigerian Liquefied Natural Gas (NLNG).”

On Oct 24 2023, I wrote “Forex players, there is a warning shot in the land…Sure, Nigeria has tools which can bring Naira back to sub-N800/$.”. I continued… “And the government can actually get Naira back to whatever number it wants with the US dollars. The real challenge is a long-term playbook. Yes, how do you keep the Naira stable over a long-term view…?”

The NLNG playbook is not the long-term solution as someone must still replace this fund as NLNG’s dividend has remained vital for the Nigerian purse. Besides these ad-hoc piecemeal on-the-run solutions, someone needs to present a comprehensive blueprint on how all the pieces will come together.  Secularizing crude oil, dividends, etc are stale policies looking at what the last government did. Essentially, you shift responsibilities to the next government, leaving the root cause of the issues unsolved.

The root cause is that Nigeria is experiencing massive de-industrialization and that bleeding must STOP for Naira to have any chance to thrive. If we leave Naira alone and use this money to provide decent electricity in Nigeria, we may do better for the Naira over the long-term.

Great advice however what will the govt use to tackle the outstanding forward contracts that are due for settlement?
I think that is d fastest way to bring confidence back into the system and allow trade instruments such guarantees, LCs & others acceptable in int banking system

— Enitan (@EnitanOyekanm) October 28, 2023

My Response: Nigeria has not shown any evidence that it has scarcity, from our scaling of bureaucracy to importing hundreds of Toyota cars. Do not think you can use Naira engineering to transform Nigeria without doing the real work. That real work includes the lawmakers driving local SUVs over Toyota, as that will send a clear message to the FOREX market that Nigeria is ready to fight for Naira. We need to change our mindset; that has not happened. Borrowing here and here will not solve this problem until we change our mindset.

Comment 1: Thank you for your post, Prof.

What I think is that, With a $7bn from securitization of dividends and a $3bn from Afreximbank loan, A total of $10bn liquidity injection would now be available to the government to meet its outstanding obligations which might give the needed support to stop this rapid depreciation of the Naira, Although this is not sustainable over the long run. But as Keynes would say, “in the long run we’re all dead”

Additionally Macroeconomic issues do not have a quick and direct fix.
It’s complex and the intricacies cannot be fully modeled or the issues be immediately fixed by just tweaking one or few variables.

Although electricity/power is an important input for production. Just focusing on power might not offer the expected benefits as it’s regards long-term equilibrium value of exchange rate.

My Response: I agree that we need a quick solution. Yet, Nigeria has not shown any evidence that it has scarcity, from our scaling of bureaucracy to importing hundreds of Toyota cars. Do not think you can use Naira engineering to transform Nigeria without doing the real work. That real work includes the lawmakers driving local SUVs over Toyota, as that will send a clear message to the FOREX market that Nigeria is ready to fight for Naira. We need to change our mindset; that has not happened. Borrowing here and here will not solve this problem until we change our mindset.

I call for a comprehensive blueprint where we work to reduce the need for US dollars. That has not happened. All the lawmakers want their Toyotas and have defended why Toyota is better on Nigerian roads than local brands. With that mindset, the quick fixes are not going to be useful because it is a vicious cycle. You fix today, and tomorrow, you have to fix, etc. That has been ongoing for years.

But imagine if lawmakers say, send us local SUVs and let us allow Naira to breathe.  There is nothing new about secularizing dividends and crude oil; we have been doing similar things since 2017 including using pension funds. But what was supposed to be short term becomes permanent because the mindset which has to change remains unchanged. That is my point.

Comment 2: No longterm visionary playbook has be deployed to ensure stability in the economy and by extension the polity over the past two decades, and it is looking more glaring that the current illegitimate government is kicking the can down the road again.

Until the economy starts to produce for local consumption and exports, they will continue dancing around the issues and ignoring the challenges therein

Comment 3: How do you fix the backlogs?

The Nigerian Naira experienced a remarkable appreciation against the US Dollar on Friday, closing at N789.94 per $1 at the official market. This surge was attributed to several government efforts aimed at bolstering foreign exchange (FX) inflow.

The Naira’s performance represented a substantial 6.26% increase from the previous day’s rate of N837.49 per $1. In the parallel market, the Naira also made a strong comeback, rising to N1,113 per $1 from its previous rate of N1,230 per $1.

During the day’s trading, the Naira reached an intraday high of N900 per $1, while the intraday low was at N696.06 per $1, indicating a wide spread of N203.94 per $1.

Data from the official Nigerian Autonomous Foreign Exchange Market (NAFEM) window revealed that the forex turnover for the day reached $259.84 million, marking a significant 129.50% increase compared to the previous day’s figures.

Additionally, Nigeria’s external reserves experienced a slight uptick, reaching $33.326 billion. This marks the ninth consecutive day of gains and keeps the reserves above the $33 billion mark, a trend that has persisted since July 2023.

To boost foreign currency liquidity in the economy and fortify the foreign exchange situation, the federal government has devised a plan to securitize approximately $7 billion of the country’s dividends from the Nigerian Liquefied Natural Gas (NLNG).

An official from Bola Tinubu’s administration told THISDAY that the government anticipates receiving $7 billion from a consortium led by Standard Chartered Bank in the coming week.

This is in addition to the $3 billion emergency loan secured by the Nigerian National Petroleum Company Limited (NNPCL) from the African Export-Import Bank (Afreximbank), bringing the total expected inflows in the short term to $10 billion.

Finance Minister Wale Edun, speaking at the Nigerian Economic Summit in Abuja, earlier this week, confirmed that the government is well-prepared for an upcoming surge of funds. He stressed that this injection of liquidity is expected to take place in the near future, likely within weeks, rather than being spread out over an extended period.

This initiative is being orchestrated by the Federal Ministry of Finance Incorporated, which is the shareholder of the NLNG.

President Bola Tinubu, speaking at the 29th Nigerian Economic Summit in Abuja, reassured Nigerians and investors of ongoing plans to enhance the country’s foreign exchange liquidity. He acknowledged the challenges faced by the business community in the financial markets and pledged additional FX liquidity to restore market confidence.

The source explained, “NLNG has been performing and used to pay dividends of about $6 billion, but because our oil production and gas production have fallen, dividends also fell to about $2 billion. But what this government has decided to do is to securitize these dividends over a period of time and use it to borrow money to curb the depreciation of the Naira against the Dollar.”

The goal is to increase dollar liquidity by injecting the market with a supply of dollars and pushing the Naira/Dollar exchange rate to approximately N800 per $1. This move is expected to help settle some old FX forward obligations, reduce pressure on the Naira, improve liquidity, and allow the currency to appreciate.

Market analysts believe that these measures may help the Naira appreciate to around N1,000 per $1 and potentially lead to currency speculators incurring losses. They also emphasize that achieving this goal would depend on improved oil production and significant reductions in crude oil theft.

These developments indicate a positive turn of events for the troubled Nigerian currency, which has faced intense pressure in recent weeks. The Nigerian government has recently employed a strategy that entails obtaining an immediate cash loan based on the anticipated revenues from a specified portion of future crude oil production. This approach was utilized by the Nigerian National Petroleum Corporation (NNPC) to secure a $3 billion emergency loan from the African Export-Import Bank (Afreximbank).

When you send that proposal and cannot get a response, understand that certain things are not based on pure product quality or do-no-harm competition. That Google Search spends about $26 billion yearly to secure the best seats in phones and browsers is a concern: “In a federal antitrust trial, a slide made public revealed that Google paid a total of $26.3 billion in 2021 to secure its position as the default search engine on mobile phones and web browsers.” Apple possibly received $19 billion of that for the default placement on Apple devices.

Like I wrote in Harvard Business Review on Intel Inside campaign, and how the marketing genius who invented it might have done just as much as the engineers who wired Intel processors, the partnership lead in Google who closes these deals (locking the Apple world for Google) has provided  core “innovation” in the success of Google just as the engineers who creates the search technology.

What is the message: do not neglect your commercial guys as one partnership can transform a business. Period, innovation happens in marketing and sales, not just in technology.

As the trial continues, we’re learning that Google is a great partnership innovator, just as it is a good engineering one. Sure, the government does not like that. But the court will decide. But the lesson is clear: Google has not won purely on its technical strength; it has got a really great help from those “locks”, made possible by $26 billion yearly payments.