Bets are off for Naira devaluation

All bets appear to be off for the devaluation of the Naira anytime soon, after strident opposition to the move by senior level government officials, including President Muhammadu Buhari and his deputy.

Portfolio managers, as well as analysts and even some trade groups had been pinning their hopes on a likely devaluation next month but following the recent statement by Vice President Yemi Osinbajo, the door now seems to have been shut to the controversial idea.

“I don’t agree on devaluation and it is not that I am doctrinaire about it. In the first place, it is not a solution – we are not exporting significantly. And the way things are, devaluation will not help the local economy,” the vice president said.

Until the statement by Osinbajo, some analysts had been forecasting a devaluation by year-end but all bets are now off there will be devaluation anytime soon.

BusinessDay analysts who have been speaking to government and monetary authorities in Abuja, now believe the resolve against devaluation is strong, pointing to an unusual case of the president and the vice president being the main backers to the CBN for holding the line.

According to them, “it is not a usual occurrence for both the president and the vice president to be promoting a monetary policy, as we are seeing today, and their very strong views are also shared by Africa’s richest man, Aliko Dangote. On account of this, our view is that the bets for a devaluation are now off.”

Analysts at Standard Chartered Plc and Bank of America, now believe the Central Bank of Nigeria (CBN) will avoid devaluation well into 2016.

“They could probably hold out for at least six months, maybe even a year,” says Ayodele Salami, chief investment officer for London-based Duet Asset Management Ltd., which manages about $200 million of African equities. “The Central Bank has chosen currency stability and the price they’re paying for that is growth. They could hold the line for a lot longer than the markets expect.”

Former general, Buhari, who took office as president in May, acted to stabilise the naira when he ruled Nigeria in the 1980s, and since coming to power this time, has said a devaluation wouldn’t be “healthy.”

Strategists who had earlier this year cut their naira forecasts on expectations CBN governor, Godwin Emefiele, would capitulate, are pushing them back up.

The median year-end estimate in a Bloomberg survey fell to as low as 230 per dollar in May and has since been increased to 200.

The authorities’ position is bolstered by foreign reserves that equate to almost six months of imports, double the IMF’s recommendation.

The exclusion of the country’s bonds from JPMorgan Chase & Co.’s local-currency emerging-market indexes last month has also given Emefiele less incentive to keep portfolio investors on side.

“There’s enough room to maintain the current regime for now,” said Samir Gadio, head of African strategy at Standard Chartered in London, which in September changed its end-of-year forecast for the naira to 200 from 222.

He now predicts a devaluation by the end of March. “Eventually an adjustment will take place if oil prices remain at these levels. It’s unlikely to be imminent.”

For the government in Nigeria, the devaluation debate is a complex one. Senior officials believe that a mere devaluation without foreign exchange depletion is worthless, just as a mere devaluation is not by itself enough to spur exports.

One senior official speaking to BusinessDay, said, “people are calling for devaluation but no one has told us where the foreign currency backing for an easier access to the dollar will come from.”

He added, “let those waiting for devaluation be waiting, but I can tell you this, there will be no devaluation.”

By Our Reporter