Connect with us

BUSINESS

USAfrica: Devaluation of Nigeria’s Naira begins, informally; projected $1 to N600

Published

on

President-Buhari-of-Nigeria-contemplative-pix

By Ulf Laessing and Chijioke Ohuocha

Abuja, Feb 20, 2017; Reuters: Nigeria effectively devalued the naira for private individuals on Monday, paving the way for a possible broader move despite stiff resistance from President Muhammadu Buhari.

With Buhari abroad for medical treatment and the country’s currency exchange system in chaos, the central bank said Nigerians wanting dollars for travel or to pay foreign school fees could buy dollars at nearly 20 percent above the official rate.

Some Nigerians saw the announcement as a step towards implementing a more flexible currency regime and narrowing a yawning gap between the official and black market rates. However, that did not necessarily mean the authorities were yet ready to allow a free-float for the naira currency as Nigeria struggles with its first recession in a generation.

Monday’s announcement covers about 20 percent of total foreign exchange demand and allows those wealthy families who send their children to schools and universities abroad to buy foreign currency at a rate of around 366 naira to the dollar.

This is less favourable than the official rate of 305 which commercial importers typically use, but vastly more advantageous than on the black market where most individual Nigerians have to buy dollars due to hard currency shortages in the banking system.

Dealers said the naira hit a record low of 520 on the black market after the central bank’s announcement.

Nigeria has tried to make the exchange rate more flexible before, leading to a 30 percent devaluation last year, only to reimpose a quasi currency peg.

Analysts say the central bank, which has been under pressure from Buhari to maintain a strong exchange rate even at the cost of economic growth and investment, was testing the waters for a possible broader devaluation in the near future.

Buhari, a 74-year-old military ruler, has been in London for the last month, leaving Vice President Yemi Osinbajo – a business-friendly lawyer who does not share his boss’s enthusiasm for a strong naira – in charge.

“I think this is the beginning of a process to a more flexible forex system,” said Bismarck Rewane, a leading economist and CEO of Lagos consultancy Financial Derivatives. “There is panic. The system has collapsed. Dollars have disappeared at exchange bureaus at airports,” he said.

Opponents of a more flexible naira say a heavy devaluation would push up the price of imported goods on which Nigerians depend, and endanger fuel subsidies.

With Nigeria hit by low prices of its oil exports, the government wants to finalise a reform plan this month. This is needed to get a loan from the World Bank that would help to fund a record budget aimed at stimulating its economy.

Such a loan would come at a price. “The World Bank is going to insist on a more flexible forex policy,” said Charles Robertson, global chief economist at Renaissance Capital.

The African Development Bank is also applying pressure and has criticised hard currency curbs imposed by the central bank. The lender has held back a second tranche of a loan worth $400 million to demand a reform plan.

Robertson said a devaluation would make sense after Nigeria’s sale of $1 billion in Eurobonds – this would boost naira revenues and lower the need to issue domestic bonds to fund the budget.

The central bank could not be reached for comment.

POLITICS

Western diplomats says Osinbajo and technocrats have been quietly pushing for a currency float but hit resistance from Buhari and aides with similar military backgrounds.

The vice president used another Buhari absence last year to unveil the idea of a more flexible rate which led to the 30 percent devaluation weeks later.

Buhari had agreed to the move but questioned its logic just a week later, after which the central bank gave up the original idea of a free float by introducing a new quasi-peg.

In a sign that things might be moving again, Osinbajo, a lawyer from the commercial capital Lagos, chaired last week a meeting of the National Economic Council, the top state advisory body, demanding an urgent forex review.

Central bank governor Godwin Emefiele, who has toed Buhari’s line, was present at the meeting, saying that patience was needed and everything was under “under control”, an attending deputy governor has said.

Some investors warned against reading too much yet into the central bank announcement. Kevin Daly, Portfolio Manager Emerging Market Debt at Aberdeen Asset Management, noted Nigeria now has several exchange rates.

“But I don’t think it signals an imminent change to a free float. I think that is something that they are – certainly under the existing leadership – going to want to avoid,” he said.

The central bank has boosted its foreign reserves in the past few weeks to a 19-month high of $29 billion, hoping it will attract investment. This also prepares the bank to defend a new exchange rate.

But oil revenues are below plan due to the closure of an export pipeline after a militant attack, reducing the flow of dollars to manufacturers via the banking system. Importing firms have been therefore forced to buy more from the black market, which has worsened the naira’s battering.

A Lagos-based senior banker said the new rate for school fees was a test balloon to see where the market could be heading. “I think they want to start with some of the smaller elements of demand, devalue that part of the market and then see what happens in the market,” he said, asking not to be named.

TABOO

With Buhari practically banning use of the word “devaluation” the central bank could launch more rates for certain imports or travel allowances.

This would add more flexibility but also confusion. The West African nation already has at least five exchange rates including the official one, a rate for Muslim pilgrims going to Saudi Arabia, the one for school fees and a retail rate set by licensed exchange bureaus at 399.

Finally the is the rate offered by the black market changers operating under trees or in parking lots with nervous customers hurrying to count their money before any police raids.

The biggest concern for the government is that a devaluation would hit the poor suffering already from recession. The subsidised fuel sale price of 145 naira a litre would also be difficult to keep.

“At this stage, it is all speculation,” said Shahzad Hasan, portfolio manager emerging markets fixed income at Allianz Global Investors. “It is possible that they could be moving to some sort of managed float, or they could do some FX policy adjustment or some kind of a peg.” (Additional reporting by Camillus Eboh, Karin Strohecker and Sujata Rao; Writing by Ulf Laessing; Editing by Ed Cropley by David Stamp)

Continue Reading
Advertisement
2 Comments

2 Comments

  1. Usenika Usoro

    February 28, 2017 at 5:22 pm

    The Naira is down fro N520 to N400 to $1 in the last one week…..did someone tag HE GMB?

  2. Sonde Ilo

    February 21, 2017 at 7:59 am

    1984 in 2017. The price of foolishness is a Buhari economy.

iCOMMENT

AFRICA

World SOCCER SHOWDOWN: South Africa backs Morocco; U.S under pressure

Published

on

Special to USAfrica [Houston]  • USAfricaonline.com  •  @Chido247  @USAfricalive

“It is an old myth that Africa doesn’t have the capacity, and naysayers should stop using the political argument. Africa hosted the best Fifa World Cup ever and with good support, Morocco can emulate South Africa,” said the SAFA president Jordaan.

Johannesburg – South Africa Football Association (SAFA) president Danny Jordaan has promised Morocco that South Africa will give its unqualified support to secure another World Cup on the African continent in 2026.

Morocco is vying to stage the world’s biggest football prize against a joint bid by Canada, Mexico and the U.S.

The Moroccan delegation comprises ex-Senegal and Liverpool striker El Hadji Diouf and former Cameroonian goalkeeper Joseph-Antoine Bell.

Jordaan said it would be great for Africa to have a second bite of the World Cup cherry, adding Morocco’s bid was Africa’s bid.

Jordaan assured Morocco that he would personally lobby for the Council for Southern Africa Football Associations (Cosafa) and the rest of the continent to rally behind the Moroccans.

In his remarks, Antoine Bell said Morocco had all the ingredients to host another spectacular World Cup.

“South Africa showed the way and I am confident Morocco will follow suit. The country has international standards, from the stadiums to top infrastructure. Morocco can compete with the best in the world,” he said.

By giving Morocco its support, South Africa’s voice would make all the difference on the continent, Bell said.

“When South Africa talks on the continent, the rest of the continent listens hence it is vital for South Africa to support Morocco. South Africa has the experience and Morocco will use this experience to win the 2016 bid,” added Bell. African News Agency

Continue Reading

BUSINESS

USAfrica: Nigeria’s embattled President Buhari returns to London

Published

on

Nigeria’s embattled President Buhari returns to London

Special to USAfrica [Houston] • USAfricaonline.com  • @Chido247

In a few hours, Nigeria’s President Muhammadu Buhari will travel to Britain from Abuja on Monday April 9, 2017. According to a news release Sunday evening by presidential spokesperson, Garba Shehu, Buhari who has been facing severe criticism on his performance since May 2015 will “hold discussions on Nigeria – British relations with Prime Minister Theresa May, prior to the Commonwealth Heads of Government Meetings scheduled for April 18 to 20.”

Since Buhari became civilian President, his first trip to Britain for medical treatment, according to USAfrica News Index, took place from January to March, 2017. Soon, following the clear evidence of the challenges he had regarding his health, he made his longest and most talked about trip when he left Nigeria back to London on May 7, 2017 and returned to an apprehensive nation on August 19, 2017. He is 77 years old
The likely issue of his meeting with his doctors concerning his yet, officially, undisclosed health challenges was not mentioned by his spokesperson.

On another business matter, the former army General will meet the Chief Executive Officer of Royal Dutch Plc, Mr. Ben van Beurden regarding “Shell and other partners’ plan to invest $15 billion in Nigeria’s oil industry. These investment ventures will lay the foundation for the next 20 years production and domestic gas supply, bringing with it all the attendant benefits both to the economy and the wider society.”

Continue Reading

BUSINESS

BrkNEWS: U.S government, technically, shuts down as 4 Republican Senators vote against Trump

Published

on

Donald-Trump-getty-USAfrica

Washington DC (AP) — The U.S federal government shut down at the stroke of midnight Friday, halting all but the most essential operations and marring the one-year anniversary of President Donald Trump’s inauguration in a striking display of Washington dysfunction.

Last-minute negotiations crumbled as Senate Democrats blocked a four-week stopgap extension in a late-night vote, causing the fourth government shutdown in a quarter century. Behind the scenes, however, leading Republicans and Democrats were already moving toward a next step, trying to work out a compromise to avert a lengthy shutdown.

Since the shutdown began at the start of a weekend, many of the immediate effects will be muted for most Americans. But any damage could build quickly if the closure is prolonged. And it comes with no shortage of embarrassment for the president and political risk for both parties, as they wager that voters will punish the other at the ballot box in November.

Social Security and most other safety net programs are unaffected by the lapse in federal spending authority. Critical government functions will continue, with uniformed service members, health inspectors and law enforcement officers set to work without pay. But if no deal is brokered before Monday, hundreds of thousands of federal employees will be furloughed.

White House budget director Mick Mulvaney wasn’t optimistic Friday evening about the chances of Democrats and Republicans reaching a deal on a spending bill before midnight. Still, he said there’s a “good chance” they find a solution by Monday.

After hours of closed-door meetings and phone calls, the Senate scheduled its late-night vote on a House-passed plan. It gained 50 votes to proceed to 49 against, but 60 were needed to break a Democratic filibuster. A handful of red-state Democrats crossed the aisle to support the measure, rather than take a politically risky vote. Four Republicans voted in opposition.

In an unusual move, Senate Majority Leader Mitch McConnell allowed the roll call to exceed 90 minutes — instead of the usual 20 or so — and run past midnight, seemingly accommodating the numerous discussions among leaders and other lawmakers. Still as midnight passed and the calendar turned, there was no obvious off-ramp to the political stalemate.

Even before the vote, Trump was pessimistic, tweeting that Democrats actually wanted the shutdown “to help diminish the success” of the tax bill he and fellow Republicans pushed through last month. White House press secretary Sarah Sanders later termed the Democrats “obstructionist losers.”

Continue Reading

Trending

error: Content is protected !!
%d bloggers like this: