As the Nigerian forex market continues to fluctuate, with the naira, the nation’s currency, falling deeply against the dollar, the Economic Intelligence Unit (EIU) has predicted that the government will return to its previous system – where the central bank had control pegs around the naira to curb its performance.

In its latest report about the naira, the EIU said the Central Bank of Nigeria (CBN) lacks the experience to handle a flexible exchange rate system, indicating that without control, the naira will continue on its free fall in the exchange market.

The EIU said it expects the naira to slide beyond N800/$1 in July, given the country’s rapid rate of inflation.

“The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time.

“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July,” the research and analytical firm said.

The deregulation of the FX market came as part of President Bola Tinubu’s reforms, which has also seen the removal of fuel subsidies.

Before the deregulation, the CBN operated a system of controlled FX market, with the naira rate against the dollar officially pegged at around N464/$1 at Investor and Exporter (I&E) window. Although the controlled FX market system came with multiple exchange rates, the official rate of the naira was determined by the central bank.

However, the naira’s woeful performance in the FX market has been attributed to insufficient liquidity of foreign currencies – owing largely to the drop in oil revenue and FX generation from non-oil exports.

Even after the floating of the FX market, exchange rates are yet to reach convergence. The naira traded around N768.60/$1 at the I&E window and N870/$1 at the parallel market as of Friday.

The CBN acting governor, Fola Shonubi, admitted in a post-MPC meeting on Tuesday, “the reality that there is pent-up demand which current supply may not be sufficient for.”

The EIU said the shortage of foreign currency in the country is affecting the fulfillment of demands for foreign exchange through Form A and M. This scarcity, along with opportunistic behavior by speculators, could lead the CBN to increase its market interventions. Notably, approximately 98 percent of their foreign reserves are in cash, further highlighting the need for proactive measures to address the situation.

But the firm noted that Nigeria’s foreign reserves are still relatively liquid, which means they can pay for imports for at least another six to eight months. This has been doubted by many, given the country’s inability to fulfill its reparatory financial obligations.

Nigeria’s foreign reserves stood at $33.946 billion as of July, according to the CBN. But Africa’s largest economy has failed to repatriate more than $500 million in trapped funds belonging to members of the International Air Transport Association (IATA), raising suspicion that the foreign reserves may not be as much as the central bank claims.

Investors are concerned that Nigeria is struggling to pay off debts that it should be able to pay easily given the said volume of its foreign reserves.

According to the EIU’s projections, the naira is anticipated to experience a slower devaluation than initially predicted in the medium to long term due to the instability of the exchange rate and its impact on people’s lives. They estimate that the average exchange rate will be around “N815 to US$1 in 2024” and will further decline to “N1,018 to US$1 by the end of 2027”.

The setting was a primary school – kids were running an athletics relay race. One child runs, and passes the baton to the next person. One team was clearly winning, until the baton was handed over to the last kid in the team. Then the lesson began.

Instead of the kid continuing to run to the finish line [by maintaining the direction of the race], he ran the other way. In other words, he practically erased the progress made by the earlier runners. As you watch the video, you will see the coach shouting at the kid to turn around, and run in the appropriate direction.

My Question to us:  Do you think the coach communicated the purpose of that race to the last kid? Possibly, he assumed that he knew – and that he would follow the direction of the race.

Bad things happen in firms because the business objectives are not well communicated to team members, making some to come and erase progress made by others. As a business leader, take time to communicate the objective and what WINNING in markets really means – and do not assume that everyone understands. And the more you communicate, you may not even need to coach during the “business relay race”

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Comment 1: You cannot make progress in the wrong direction, it does not matter how much effort you put therein. The last kid embodies that saying.

It’s the same way many people here assume that the politicians and those we have in corporate spaces know what to do but simply don’t want to do them, until you you ask them if they have actually sat with these people, had conversations and assess their knowhow and awareness. One thing we do a lot here is to overrate people, assigning them enviable qualities that had never crossed their minds to begin with.

Never assume that the people you are dealing with know enough, they don’t! You will constantly get surprised when you get to work with many of those you rate highly, then all your doubts will be cleared.

Communicate constantly, and always ask if you have been understood, if they say yes, ask them to repeat what you just said or perform the very task, and the truth will surface.

Three things are required in business, as we translate ideas into products and services, to fix market frictions: people, tools and processes. If you have the people and the tools (the funnel, the water, etc) and you do not have the process right, your mission will be lost.

And that explains why explaining a business objective, and how to get to it is very important. When you do that, you train the people on how to use the tools within the standard processes, and when done effectively, the mission of “filling that bottle” becomes easier!

The Lesson: never think that because you have the people and the tools, that you have a working system. Without a process (the right way to do things), missions fade!

Three things are required in business, as we translate ideas into products and services, to fix market frictions: people, tools and processes. If you have the people and the tools (the funnel, the water, etc) and you do not have the process right, your mission will be lost.

And… pic.twitter.com/Lmtgl1Chq9

— Ndubuisi Ekekwe (@ndekekwe) July 28, 2023

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Comment1: Ndubuisi Ekekwe thanks, for highlighting the three (3) major components of business organization (The People, Processes and Technology) in this write up and stressing more on the importance of process in particular. Adding Strategy and Structure makes it Five (5) components.

From this video clip,

1. Employees must be given the right tools for the right job.

2. Giving the right tools for the right job, doesn’t always translate to increase in productivity.

3. Employees training on how to effectively use the tools is equally important to achieve productivity.

4. Training the trainer being him/her a Supervisor, Lead or a Manager is of paramount importance else more inefficiency (Waste) will be the end result even with the best of tools or technologies.

? The above mentioned components are every key to achieving business excellence hence, Organizational leadership must ensure their availability, for them to actualize their business objectives (Survival, Growth or Profitability).

My Response: Yes indeed – the 4th is key as the “supervisor” was also confused.

Comment 2: Watch out with “standard processes”.

They only work if you have thoroughly thought them through and tested them. Always leave room at the bottom, so the people can take ownership and take decisions in situations not foreseen by your “standard processes”.

Any engineer having to deal with the standard processes of their HR department knows what I am talking about.

Standard processes can be powerful, but they can also kill your company.

I’d rather use: Business, Team, Technology as the three pillars.

My Response: If you want to innovate in a firm, the “Standard processes ” are working guides. They do not necessarily say you must do things absolutely as they are written, but they provide guides and youc an improve on them. But if you have none, not giving the worker a basis to begin, you score an own-goal as they say in African football.

Comment 2R:  In theory yes, in practise no. But I totally agree with your view.

In large companies, unfortunately, standard processes are the only hammer. Every problem must be moulded into nail form to fit the standard processes.

Have you ever tried filling in timesheets or expense claims when your company uses SAP?

My Response: I agree that in every large business that standard processes are there and could look non-malleable. But understand that in every large business, they offer a way to  improve standard processes. If you check any SOP (standard operating procedures), there is a section for revision.

So unlike startups which can move fast to change things because they can (they’re small with lesser risk to brand equity), large firms are more nuanced. But agile large firms still have ways to improve SOPs seasonally.

Certainly, I understand your point. It does frustrate but the alternative may be destabilizing.

Comment 3: At first I thought the lady knew the problem…it became even worse

My Response: Things happen and she ends up taking the man backward since the man’s process was even better , even though it was terrible.

Expanded from here