Speculators Get Their Fingers Burnt, Naira Strengthens to N310/$

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• BDCs to introduce forex band, reforms for parallel market

Obinna Chima and Eromosele Abiodun
Foreign currency speculators, who launched an unprecedented attack against the naira in the last two weeks, got their fingers burnt on Tuesday when the nation’s currency staged a major recovery, rising to N310 to a dollar at the close of business, compared to N375 at which it sold on Monday.

The naira fell to an all-time low of about N400 to a dollar on the parallel market last week fuelling concerns that it would plummet further to N450-N500/$ this week.

But findings from THISDAY showed that the naira defied expectations, climbing to as high as N305 to the dollar at some parallel market points in Lagos on Tuesday afternoon, before settling at N310.

Forex dealers and currency analysts attributed the significant gain on the parallel market to excess supply of the greenback in the market, even as it looked like a lot of speculators lost the shirts on their back.

THISDAY gathered from a reliable source that speculators who thought that by attacking the currency last week, coupled with misplaced concerns that the Central Bank of Nigeria (CBN) was going to stop the allocation of forex for school fees and medical bills abroad, this would compel the central bank and President Muhammadu Buhari to alter their stance against the devaluation of the currency.

But they were disappointed when Buhari, in Egypt at the weekend, adamantly ruled out the devaluation of the naira on the grounds that Nigeria does not have the competitive advantage to benefit from an official currency adjustment.

Reacting to the president’s stance, speculators who had been betting that the naira would depreciate further, started dumping the dollars with reckless abandon, effectively creating excess supply of the greenback in the parallel market.

Commenting on the situation in the secondary forex market, the chairman, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said: “The market is moving from perception to reality.”

Similarly, an analyst at Ecobank Nigeria, Mr. Kunle Ezun, predicted that the naira would edge higher in the coming days.
“We expect that the naira would appreciate further. We have always said that what happened last week was purely a speculative attack.

Some people felt that if they pushed the naira down to that level, they could force the CBN to devalue, so that when the naira is devalued and the gap widens further, they would now bring out the dollar cash to make a kill,” Ezun said.
He however urged the fiscal authorities to introduce policies that would help stimulate economic activities, saying that the fundamentals of the economy were still weak.

ABCON also aligned with the federal government’s decision not to further devalue the naira.
Gwadabe said this at a media briefing, pointing out that devaluing the naira would create more problems than it would solve.
He said that as a way of enhancing transparency in the BDC sub-sector, his association had decided to introduce a forex rate band weekly.

This rate band is expected to serve as a guide for all BDCs and the public on the prevailing exchange rate across the country, he added.
In addition, it will be operated in line with the regulated forex rate in the economy.

“This is to forestall exploitation of forex end users, and also to ensure that end users are informed to avoid falling victims of exploitation.
“The band will be announced via weekly press releases that will be circulated to the media for publication.

“ABCON will introduce a series of measures aimed at transforming the operations of BDCs in Nigeria to align with global best practices. These include: review and updating of BDC operational manual; introduction of live trading platforms; automation of all transactions and documentation requirements; and increased partnership with the CBN and other relevant agencies.

“Further, as part of its responsibility as a self regulatory organisation (SRO), and also in continuation of its aim to transform its members to compete within the global regulatory currency market, ABCON will seek the approval of relevant monetary and fiscal authorities as well as partnership for effective use of the nation’s external reserves to enhance domestic trade and foreign exchange management.
“To this end, our website and internet platforms will be developed to position BDCs to serve as agents of Western Union and currency auctioneers.

“We would also develop platforms that will allow our members to access sources of autonomous foreign exchange like govt agencies, embassies, IOCs and export proceeds, etc,” he explained.
He also urged the federal government to introduce policies that would diversify the economy to increase non-oil export earnings, and reduce imports.

This, according to him, would lead to increased foreign exchange inflow and a reduction in demand for foreign exchange.
In addition to policies that would diversify the economy, ABCON suggested that the CBN should review the policy of dollar importation into the economy for the purpose of defending the naira.

According to the association, the central bank should introduce a policy whereby the naira is used to intervene in the real sectors of the economy to boost productivity.

Furthermore, Gwadabe said as a way of reducing demand for dollars, the CBN should explore the option of promoting the use and acceptability of naira for transactions within the West African sub-region.

He added: “We observe that this is already happening at the level of informal trading activities within the sub-region, and it is our belief that this can be replicated at the level of formal economic activities.”

Meanwhile, the Chairman of Stanbic IBTC Holdings Plc, Mr. Atedo Peterside, has expressed concern over the uncertainty arising from the federal government’s foreign exchange policy, warning that it is threatening macroeconomic stability in the country and is unsustainable.

He stated this yesterday at the 2016 Standard Bank West Africa Investors’ Conference tagged, “Unlocking Nigeria’s Potential…Growth through Diversification”.

He said the federal government’s foreign exchange policy is the biggest uncertainty facing the country today following the lack of economic policy direction and the likely composition of Buhari’s economic team for much of the third and fourth quarters of last year.
According to him, “The argument at stake is not whether to devalue or not because there has already been an effective devaluation.

“The naira prices of various capital goods are now being ‘correctly’ priced purely on the basis of realistic expected replacement costs and so the economy is sliding towards an unpalatable scenario where the consumer suffers the ‘pains’ of devaluation (rising prices) without witnessing any of the expected ‘gains’ such as enhanced fiscal viability (in local currency terms at least) of the three tiers of government and increased competitiveness of Nigerian businesses.”

Peterside stressed that the much-craved economic diversification could only take place meaningfully if new capital investment activity takes place to take maximum advantage of increased domestic competitiveness.

“Sadly, most investors here – local and foreign – are currently caught up in a frenzied pursuit of the cheapest available dollars and the difference between losing this game and winning it can be as high as a mind-boggling 50 per cent on new transactions.

“The pursuit of scarce forex for today’s needs has understandably become the main game in town and this has exacerbated the pressures on Nigeria’s foreign exchange reserves and the naira via the one-way bet that is currently on against the naira, that is, everybody wants to take foreign exchange out and nobody really wants to bring it in,” he added.

He further stated that the excitement caused by the important development in Nigeria’s political landscape last year, where a change in government occurred at the federal level after a keenly contested election, has given way to some apprehension surrounding whether a populist government can take the necessary tough economic policy actions that are necessary to restore confidence and stimulate badly needed new investment activity.

  • Prof. Sebastian O. Uremadu

    President Buhari’s decision in Egypt this weekend to rule out devaluation of the naira on the grounds of that Nigeria does not have the competitive advantage to benefit from an official currency adjustment nor allowing market forces to fix exchange rate is proper.

    This is because Nigeria is a mono product economy(crude oil) if it devalues . it would not benefit from it as it would benefit it as as it does not have numerous products to sell in int’l markets.

    This is in line with the findings of my most recent research entitled: THE EFFECTS OF EXCHANGE RATE VARIABILITY AND TRADE FLOWS IN NIGERIA:A CO-INTEGRATION ANALYSIS published by Quarterly Journal of Econometrics Research of Singapore. The publishers can be contacted for a copy.

    The policy is right in a situation the central bank should introduce a policy whereby the name is used to intervene in the real sectors of the economy to boost productivity. PMB is a realist and I would like to work with him without pay if contacted,

    Therefore I always recommend that a developing country like Nigeria should not allow market forces to deterine its exchange rate with other key currencies of the world.

    • William Norris

      You’re completely wrong.

      Since you read economic journals you should be able to understand why.

      Anyway, if you care…..

      http://www.thisdaylive.com/index.php/2017/11/27/moodys-and-2018-budget-of-wishful-thinking/

      • Prof. Sebastian O. Uremadu

        NO, rather you are the person that is very wrong in that I based my comments on findings of my research while you never based your remarks on nothing scientific. We have to operate our economy based on country peculiarity and not on whatever IMF tells us whether true or false. I am a global scholar and I do not just write but write based on theoretical concepts and findings of past research work.

        • William Norris

          I read the paper you authored with other researchers…the conclusions were that SAP policy and devaluation of currency contributed to GDP growth in Nigeria. So how and why are you here with posts that have a tenor sugfesting the OPPOSITE of what your research elicited?

          I guess I should ask you my standard question – DID YOU SUPPORT or OPPOSE the withdrawal of fuel subsidies in Jan 2012? That’s the litmus test for any Nigerian pontificating on their political economy. I’d sure appreciate an answer.

          You’re a global SCHOLAR, I’m a global INVESTOR and trader. You study HOW people like me react to ecplnomic conditions. So I’m in a better position to tell you. How much money do you put into TESTING for research results and theories?

          So many PhDs like you yet Nigeria is a shithole that imports toothpicks and can’t refine petrol.

          I’ve been scolded on this forum for belittling and insulting Africans. People like you make it almost impossible to restrain myself. Go take that ego somewhere else, you can’t even make sense of YOUR OWN RESEARCH paper.

          • Prof. Sebastian O. Uremadu

            SAP era was for liberilization of interest rates and or deregulation of the exchange rate or the economy. U do not allow market forces to fix your exchange rate in a situation whereby you have a mono product -crude oil to sell to in a global market. Devaluation will not help here because u do not have diversified goods/services appealing to global market to take advantage of the devaluation. U as a greedy investor do not put interest of the country at heart but you are just mindful of what profit you can make to the detriment of the entire country. U are just selfish. It will not work in the present scenario.

            Removal or retention of fuel subsidy is never related to the issue in context here. For my most recent paper on the subject in hand, you can send me your email address to forward it to you. For your guidance on what investment position to take now, you need to pay consultancy fees on that for the service.

          • William Norris

            I read your paper.

            YOUR OWN RESEARCH paper concluded that SAP policy and devaluation had a positive effect on the Nigerian GDP. Which is something I know to be true.

            I ask again.

            Did you support the withdrawal of fuel subsidies in Jan 2012?

          • Prof. Sebastian O. Uremadu

            U have not read my paper on the issue in question that is under publication. It is not yet fully published, but I CAN SEND U THE MANUSCRIPT IF U CARE. We make over 90% of our forex from sale of crude oil hence that is the sole product we market at int’l market. Other produce u have mentioned are yet to be produced in marketable quantity at global level until then we shan’t be talking of devaluation of our local currency rather, we opt for fixed exchange rate to guide our national productive and economic policy instead of allowing economic rogues/inordinate selfish investors like u to mislead us. For giving you investment principles to follow in the times in Nigeria to maximize profit u must pay for the services, it can never be free bcos there is no free launch the world over! My professorial prowess or qualifications are not in doubt globally also, hence your hate speech disposition do not border me, shikinah!

          • William Norris

            You didn’t read the paper that you provided a link to? OK !!!

            Nigeria has the resources needed to become a major producer and exporter of rice and other agricultural products.

            The main reason such production has not happened is the over valued naira.

            I’m very sure you got your PhD with bribes and nepotism, that’s the usual way in Nigerian universities.

            Now buzz off.

          • Prof. Sebastian O. Uremadu

            U are harping on a topic u are completely ignorant of. U don’t value research and informed knowledge and at best a band wagon speculator on exchange rate that does not mind what effect a wrong exchange rate policy will have on the economy of your country. That is being unpatriotic. It is your likes that have contributed to destruction of Nigerian economy. They also traffic in human beings and slave trade on Nigerians at any amount just to greedily enrich themselves! For the genuineness of my doctorate and other works of mine just google in search on Uremadu’s publications and read through and let your conscience judge you. I can never join an issue with an ignorant person on your type. Thank you.

  • Wooly Mammoth

    this story is nothing but Hogwash in which the writer graphically describes what he’d like to happen rather than the reality on ground. “The CBN is providng dollars for school fees?” In his dreams…
    Compare how much dollar is being provided to outstanding demand and tell me that again

  • William Norris

    The speculators lost the battle but they’re winning the war LOL….

    • William Norris

      And I was very correct. Today the dollar is trading at over 360, even the CBN buckled and opened a new investment window to match the black market rate.

      The market always wins.

  • Ed112

    After 1 year the president of the most Populous black nation has not been able to understand how is utterances affects the economy. Education and Intelligence seem to be very difficult qualities for African Leaders

    • Prof. Sebastian O. Uremadu

      Yes, this is because we have to operate at our level of development and peculiarity of our environment, do you understand?