Nigeria has long suffered from the persistent dehydration of the Naira, initially triggered by the multiple layers of exchange markets and frequent round tripping invented by ‘lazy’ Nigerian bankers, ‘an uncontrollable situation, if you ask any government official or even the Central Bank (CBN) people.
Call it a currency crisis now and you are totally correct about your assumptions. The crisis has been all along self-perpetuating and you bet business confidence on the currency has drifted to its lowest ebb over the past 18 months, lacking any confidence that the Naira violent gyration will calm down the next day for a meaningful transaction to take place.
The CBN will tell you they have tried their best-(its not their fault) to restrain the currency by frequent interventions vis, managed float and muffled devaluation but this has not worked.They have already done almost everything they can to combat the Naira’s collapse. They imposed a crushing ban on import of items like rice, eggs, toothpick and a host of other items that include raw materials-some of the types used by manufacturers in the country. They have restricted banks to wire transfers and completely stopped receipt of dollar into their domiciliary accounts to control the run-away behavior of the Naira-(the CBN says it is to stop illicit financial flows in Nigerian banking system). Everything, that is, except to impose a full-scale capital controls measure.
All of that has not fazed the Naira and its behavior. It is still very drunk and suffering serious hangover. The gigantic 18 percent loss since January 2015 is really quite extraordinary-some will argue it’s not unusual.And when you look at the pace of deterioration in the past couple of weeks it would certainly seem some kind of disaster is looming.
What is happening elsewhere is not even helping matters. Every body is devaluing their currency triggered by China. China said its 2 percent devaluation (against the dollar) was a step toward a more flexible currency but, the rest of the world say China is rather thinking of their dwindling export sector. America is closely watching and if they respond in similar fashion then the Naira is in for more dangerous ride.
The European concussion in Greece refuses to go away. Russia is still smarting from the wicked Ruble swoon. The emerging market currencies are stumbling and fumbling, some already down more than 20 percent in value to the dollar.All of their trouble is triggered by a weak dollar and out of favour commodity prices.
As you would expect, the Naira is taking the beating of its life in every local market bouncing around 3 to 5 percent off mark at $211 at the Bureau de Change, $210 at the ‘black market’ and holding a bit steady at $197.23 in the interbank market. It is not looking to get better anytime soon. In fact, in some quarters, there are murmurs of further devaluation and a more formal capital control. The CBN for now is putting up a hardball position on devaluation. But it will have no choice.
You know why it will have no choice? Unless the price of oil starts to rebound or at least stay steady for a while, the CBN will be forced to go for it. The oil price is still a big player in deciding the fate of the currency. As at last Friday energy demand is still on downward journey and that is pounding the price down. Brent Crude lost another $1.42 or 3.1 percent to $45.20 a barrel, trading at about 8 percent lower on the week. US oil futures sank even further down to $40 for the first time since the big recession.
The fact that alternatives still exist for the CBN is cause for relief.But by pretending it is working so hard on the naira and trying to hold back action on the real value of the currency rather than prescribing the better ‘devaluation pill’ now-the CBN betrays its own value.
But I think devaluing now will be the right thing that will only increase support for its much maligned import ban policies.
Charles Ike-Okoh
