It’s only fitting that I write about efforts to “raise” the Naira on a Sunday. It gives credence to the Christian belief that there are some things that only Jesus can do.
The Naira has been through a lot in the past year. The government decided to stop spending billions on defending a fake rate of N460 to the dollar (and to think we were complaining about it back then), in a bid to unify the parallel and official rate. However, this didn’t work. In fact, the disparity continued to the point that while a dollar was sold for around N750 on official channels, it sank as low as N1200 in the parallel market. This persisted even when the CBN delisted 43 items that had been banned from FX availability on the official window.
This wasn’t such a hard thing to see coming if we’re being honest. The government was attempting to solve the problem from the demand side. Sure, allowing everyone to access Fx on the official window can reduce the demand for Fx via unofficial channels, and removing the fixed peg is also meant to both prices comparatively the same, therefore removing the need to rush for the cheaper one and sell to the expensive side (arbitrage). But all of this means nothing if there aren’t enough dollars in the system to sell at any rate. And that’s what the real problem is.
“We owe to solve our Naira woes”
I remember talking to a mentor about how I’d been racking my brain to solve this problem, especially in the short term. But, as the novice that I am, I couldn’t come up with anything. Then last week, newspapers were carrying soundbites from the Coordinating Minister of the Economy, Mr. Wale Edun stating that Nigeria is expecting around $10bn in a few weeks. I remember thinking that this was one of those ‘stories that touch’ situations. Make one big promise then hope that people forget and move on with their lives. To my surprise- nay, astonishment- it wasn't!
So how are we getting $10bn? Through a very creative move. You see, money loves to move. It loves to change hands, wallets, bank accounts, etc. Great economies are those that have money moving at a steady pace. But then ours is not so great at the moment. Money is scared of moving into our economy because it’s not sure that it will make it out, talkless of making it out with more. And we need money, especially from foreign sources at the moment. How do we go about it? In the words of Don Corleone, you make them an offer that they cannot refuse.
Two very similar deals happened recently: First, NNPC Ltd. made a deal with Afrexim Bank, where the bank will provide a $3bn loan to the NNPC, and the NNPC will pay back with crude oil in the future. The future price of the crude oil has been agreed upon, and therefore the volume. This is called a “Forwards contract” I’m going to use poultry to explain it better (because you people love eggs too much): Imagine that you need to buy some bags of chicken feed, but you spent the money paying your children’s school fees (or partying, whichever you prefer). Then you reach out to the person you sell your chicken eggs to and tell them “Give me N100k, and I’ll keep 100 crates of eggs for you next week”. That’s a forwards contract (and more or less what NNPC Ltd did with Afrexim Bank, even though that deal is a little more complicated.
Secondly, another announcement was made that a consortium led by Standard Chartered Bank was lending Nigeria $7bn, a facility that was obtained via the securitization of the Ministry of Finance’s NLNG dividends. This one is just like the time you told your friend to borrow you N10k and assured them that your mum would be sending you N30k in two weeks so you’ll pay them back with an extra N5k.
If you add 7 to 3, I’m sure your total will be 10. Voila! And what makes this move brilliant is that the repayment terms and funds are foolproof. Making it hard for any investor to say “No”. It however shows how desperate we are, and raises the stakes!
“The pressure is getting werser”
For this to be a completely good move when we look back at it, two main conditions have to be met.
The global and local economy has to be better (in the least so that oil and gas prices on which these deals were made, are good enough to clear our debts early)
We need to develop solid revenue channels in the near future so we can have other streams to offset the revenue lost to our loan repayments.
These are also very important if we’re looking at not being in this situation again. I said earlier that I couldn’t find the short-term panacea for our Fx troubles, but the long-term solution is clear as day: export more, import less. Export more goods and services.
This sounds so easy, but is very difficult because you have to find a way to increase the production of these goods (food, crude oil, minerals, etc), add value to them here, and then export them for money. The same for our services and human capital (keep the population alive, educate the population, and build it up with exportable skills). It includes taking care of security, health, infrastructure, nation-building, processes, and everything in between, to create a well-oiled system.
Is it difficult? yes! Very much so. Is it impossible? Ever since I saw how we got that $10bn, nothing seems impossible for us anymore. Today, I will assume the role of a supportive girlfriend and tell my country “You can do this babe, I believe in you!”
What have I been up to?
I woke up to the news that Matthew Perry died. As a Friends fan, I loved Chandler the most (well sometimes I loved Joey more), and I always wished I continued to see Perry’s work on-screen. He was a star, the world just got a bit darker.
I’ve been looking forward to hearing Christmas songs. And I haven’t heard anything yet. Please do something.
I read this thread on the lack of internal pressure on African leaders. I just wanted to add that we all need to put some pressure on ourselves to deliver and add our quota to our country. That’s the only way we can grow.
For some good news, Nigeria won its case against the P&ID, dodging a major ‘billing’ of $11bn. Former Pres. Buhari even made a post about it that I read and immediately thought “Who wrote this one?”
I dedicate today’s post to my dear Pinny baby, whose birthday is today. Since the first day I met you, I knew you were born to do great things (The funny thing is that all you did was cry back then). Cheers to watching you become the greatest on earth.
This is truly a masterclass in raising the dead.
As an accountant friend once told me, borrowed funds are the best, but first, build trust. I still don’t trust him till date, lol.
Fingers crossed we get our non-oil revenues up and get out of this economic turmoil soon
Thanks for bringing the best juice. Mocktails next, Cheers!
Thanks again, Juice.