There is good news in the land: Naira is trending downwards. The update is that it is hitting about N1,400/$, from the high of N1,700/$. Good People, that is a promising trajectory, and we desperately desire that it returns to N650/$ which was the median black market rate before the float.
Yet, we need to look deeper beyond the FX rate. When the rate was N1,700/$, some merchants raised prices. As I write, those prices have not changed. And that is where the government and the consumer protection agency must do all things necessary to ensure people are not doing illegal things. (In Tekedia Institute, our FX rate is still below N600/$ because our local cost is not influenced by USD dollars).
I commend all the team members working to stabilize the FX rate. As I have written here, the risk in Nigeria is NOT that the official and black FX rates are not the same, but that we have a huge FX fluctuation with broad price instability.
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Largely, Nigeria has enormous resources to fight and win a short-term battle with special loans, collateralized commodities for cash, etc. Five months ago, I wrote: “Sure, Nigeria has tools which can bring Naira back to sub-N800/$ provided there is TRUST in the system. 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 Naira stable over a long-term view via endogenous policies which support Naira from inside to outside?” Simply, what we need is how to WIN the war on FX, not just the battles.
Since the Naira was introduced in 1973, there have been many battles, with some wins and many losses, but if you look deeper, we have continued to lose the war. So, over 50 years, we have moved from at worst N1/$ to now above N1,300/$. So, I challenge the team to get Nigeria on the path of winning the war of FX, and that can only come if we have clarity on how things could be made in Nigeria. Financial engineering, loans, assets sales, etc will only win the battle, but we need to win this war once and done.
Good luck, Nigeria.
Comments on Feed
Comment 1: Sir it will take like 4 months or more for prices of commodity in the market to stabilise and fall especially the imported goods.
Because most traders bought these items at the rate of 1800 per dollar.
And you won’t expect then to sell less price.
My Response: They imported garri, pepper and yam. My understanding is that those things are largely sourced locally. The challenge in Nigeria is the illusion that because the price of the iPhone is up, I have to increase the price of pepper. People daily ask me why we have not changed our program’s FX payment rate. My response: those are in Naira and the FX has limited impact.
Comment 2: The Naira has been unstable and that is the main issue. Wherever it ought to settle, it should. Businesses and people will adjust.
As of today, no sensible distributor wants to give credit because the nearest future is unpredictable. Yet without such good credits trade is disintermediated and enterprises cannot grow.
I do not expect prices to adjust correspondingly (in the short term) because people have traded and imported based on a higher value of the dollar. Otherwise govMENT should also pay more subsidy and drop per litre price of petrol as the dollar drops.
It’s not straightforward.
But beyond the little progress the naira is making, we must really examine if the mechanism used to achieve the firming of the naira is sustainable.
My Response: “I do not expect prices to adjust correspondingly (in the short term) because people have traded and imported based on a higher value of the dollar. ” – not sure about that since pepper, garri, etc are not imported. I have seen how the price of cement has gone up even though more than 95% of the inputs are sourced locally. I do not buy the argument that FX is affecting the price of pure water to go up, and will take months to go down, when those guys were changing prices UP daily. If USD begins to go up, they will adjust prices daily. But when it goes down, they need months.
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What is causing the downward trend, is it that those who use naira to buy off every dollar dropped have run out of naira or there’s substantial increase in dollar supply? If we don’t know what is leading to what, we won’t still be able to explain when it starts rising again. Those who blame it on our penchant for imported products, have we suddenly found local substitutes or we are no longer importing?
We want a naira that is stable and commands decent value too, how we will achieve it is still up in the air. In the meantime, let the downward trend continue, it’s good for the body.