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

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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)

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BUSINESS

USAfrica: On November 9, Ethiopia will start visa-on-arrival policy for all Africans.

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Abiy had earlier this year disclosed that following Rwanda’s lead, Ethiopia was going to allow a visa-free regime for all Africans. At the time, he was speaking at a state banquet held for his visiting Rwandan counterpart, Paul Kagame.

Abiy said: “The President (Kagame) invited all Africans to travel to Rwanda without visas, we will follow you very soon.” On June 1 the issuance of visas online for all tourists kick started.

Ethiopia boasts the continent’s best national carrier, Ethiopian Airlines, which has made the Bole International Airport in Addis Ababa, not just a regional but global aviation hub.

The most recent time the issue was came up was when ex-president Mulatu Teshome at the opening of parliament said the visa-on-arrival regime was to be implemented in this year. USAfricaonline.com wt wire reports

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AFRICA

FIRESTORM: Trump’s false tweet on “South Africa land and farm seizures and expropriations and the large scale killing of farmers”

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JOHANNESBURG: South Africa accused US President Donald Trump of fuelling racial tensions on Thursday (Aug 23) after he said farmers were being forced off their land and many of them killed.

Trump’s tweet touched on the overwhelmingly white ownership of farmland in South Africa – one of the most sensitive issues in the country’s post-apartheid history.

The foreign ministry said in a statement it would meet officials at the US embassy to challenge the “unfortunate comments”, which were “based on false information”.

Foreign Minister Lindiwe Sisulu would also speak directly with her American opposite number, Secretary of State Mike Pompeo, it added.

Trump wrote overnight: “I have asked Secretary of State … Pompeo to closely study the South Africa land and farm seizures and expropriations and the large scale killing of farmers.”

His tweet apparently followed a segment on conservative Fox News about [an alleged] plan to change the constitution to speed up expropriation of land without compensation to redress racial imbalances in land ownership.

“‘South African Government is now seizing land from white farmers’,” said Trump’s post, which tagged the show’s host, Tucker Carlson, as well as the channel.

In the clip, Carlson painted an apocalyptic picture of the situation accompanied by on-screen graphics warning of the “threat of violence and economic collapse”.

President Cyril Ramaphosa, who faces elections in 2019, has claimed expropriating farms without ramaphosa-ANCcompensating their owners would “undo a grave historical injustice” against the black majority during colonialism and the apartheid era.

Even though apartheid ended in 1994, the white community that makes up eight per cent of the population “possess 72 per cent of farms” compared to “only four per cent” in the hands of black people who make up four-fifths of the population, Ramaphosa said.

The stark inequality stems from purchases and seizures during the colonial era that were then enshrined in law during apartheid.

But plans to change the constitution have yet to be approved by parliament, and there is a vigorous debate in South Africa about how land redistribution would work – and whether seizures could be economically damaging as they were in post-independence Zimbabwe.

Mmusi Maimane, the leader of the main opposition Democratic Alliance party which opposes forced expropriation but backs land reform, said “fear mongering by international leaders adds no value”.

“The injustices of land dispossession in South Africa can be addressed by our constitution in its current form. We must ensure ownership of land for all South Africans,” he tweeted.

Later on Thursday, US State Department spokeswoman Heather Nauert called for “a peaceful and transparent public debate”.

However she added that on “the expropriation of land without compensation, our position is that that would risk sending South Africa down the wrong path”.

Earlier this year, Australian Immigration Minister Peter Dutton sparked a diplomatic row after he said that Canberra should give “special attention” to white South African farmers seeking asylum.

The level of violence against farmers and farm workers is hotly contested but the police’s latest figures show there were 74 farm murders in 2016-17, according to the Africa Check fact-checking site.

South Africa’s leading farming lobby group AgriSA on Thursday praised the government’s “commitment to agriculture”.

“As a country it’s important that we find solutions together – we did this pre-1994 and we can do it again,” AgriSA chief executive Omri van Zyl told the SABC broadcaster.

Van Zyl was speaking at a conference on the land issue also attended by Deputy President David Mabuza who warned against “spreading falsehoods”.

“We would like to discourage those who are using this sensitive and emotive issue of land to divide us,” he said.

But Kallie Kriel, chief executive of AfriForum – a group that advocates for its largely white membership – welcomed Trump’s intervention and attacked Ramaphosa for pressing ahead with the policy.

“We need to get international support to put pressure on the South African government to hopefully make them re-visit their stance,” he told AFP.

Kriel added that Trump could suspend South Africa from the African Growth and Opportunity Act trade programme if property rights were not respected.

“The US has a lot of power,” he said.

South Africa’s rand currency dropped as much as 1.9 per cent against the US dollar following Trump’s tweet, according to the Bloomberg news agency, ending four days of gains against the greenback.

Julius Malema, the leader of the radical opposition Economic Freedom Fighters party, called Trump a “pathological liar” and told him to “stay out of South Africa’s domestic affairs”. ref AFP

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BUSINESS

USAfrica: Danger ahead as Nigeria face population explosion without plan

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By the Council on Foreign Relations

Special to USAfrica [Houston] • USAfricaonline.com

 

At a population conference in New York, Chairman of the National Population Commission (NPC) Eze Duruiheoma estimated that the current population of Nigeria is 198 million, and that the population living in urban areas has been growing 6.5 percent annually over the past fifty years. He cites that World Population Prospects prediction that by 2050, Nigeria will displace the United States as the third most populous country in the world after China and India. He also noted the 2014 World Urbanization Prospects prediction that by 2050, 77 percent of Nigeria’s population will be urban. The NPC chairman also looked at the number of internally displaced Nigerians. With respect to the Boko Haram insurrection in the northeast, Duruiheoma estimated that the number of internally displaced is 1.76 million, which is lower than other estimates, some of which can be as high as 2.5 million.

Nigerians know they are by far the most populous country in Africa, and they are proud of it. Estimates of the size of the country’s population range from the World Bank’s 186 million to 205 million by UN agencies. An accurate census is difficult in Nigeria in part because of infrastructure shortcomings. In the past, too, census results have also fueled ethnic and religious conflicts exploited by political figures. Nevertheless, in 2017 the director general of the NPC raised the possibility of a census in 2018. Given the practical and political difficulties and with the prospect of national elections in 2019, that timeframe seems overly optimistic. In the meantime, it is necessary to fall back on careful estimates.

Duruiheoma pointed out in New York that Nigeria’s urban population growth has not been accompanied by a “commensurate increase in social amenities and infrastructure.” More generally, economic growth has not kept up with population growth. Hence, the enormous slums outside city centers.

In effect, Nigeria has no population policy that would limit births, and Nigerians have traditionally valued large families. Yet the country’s rapid population growth, especially in urban areas, poses difficult economic, social, and public health challenges. A huge, rapidly growing population is not necessarily a source of national strength.

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