DAILY INDEPENDENT:Naira Devaluation, Recipe For Disaster, Warns Boyo


Standard & Poor’s, an international ratings agency on Wednesday said Nigeria would have to devalue the Naira at some stage, possibly by more than 15 per cent, although it saw the adjustments as likely to be gradual.

Investors have seen a devaluation of the Naira as long overdue, especially at a time  the nation’s economy has been battered by the recent tumble in crude prices.

But in a telephone interview on Wednesday, Mr. Henry Boyo, an economist, told Daily Independent that the S&P may have reasons for taking the position, but it would be a disaster if the proposition is accepted by government.

His words: “If the government accepts the proposition, then the value of the Naira will go down to around N240 to a dollar. Then, you would have created a ripple that cannot be immediately stopped. That will have an inflation impact and the value of the Naira will continue to drop further and the price of petrol will go up to about N170 or N190 per litre.

“These two drivers of inflation would create their own ripple that you will have to devalue the Naira the more like between N260 and N280 to a dollar. By the time a dollar is N280, the price of petrol will go up to N200 per litre and that will take us to the precipice”.

He added that the devaluation is being orchestrated by the western world to favour their insatiable urge to buy into companies in the country.

Continuing, Boyo said: “The West are asking for the Naira to be devalued and then they come and buy off our equities and when there is any problem with companies they invest in, they quickly bow out and sell off their interests in those companies. One thing that is germane here is that if you devalue the Naira, you cannot remove subsidy”.

Following devaluations in November and February, authorities have focused recently on curbing access to hard currency on the official interbank market for importers of some goods, introducing stringent restrictions three weeks ago.

But those measures just delay the inevitable, said Ravi Bhatia, director of sovereign ratings at Standard & Poor’s.

The Central Bank of Nigeria (CBN) says it is in no mood to devalue the Naira, given the risks to inflation from a weaker currency, and that it will not be focusing on the thinly traded parallel market when determining the exchange rate.

“Another devaluation is inevitable… they will have no option but to devalue,” Reuters quoted Bhatia as saying at a media briefing.

According to Bhatia, many investors are positioning for a devaluation of around 15 per cent, and that it sounded “reasonable”, though even more might be needed.

Non-deliverable forwards – derivatives used to hedge against future exchange rate moves – reflect expectations of currency weakening: six-month NDFs price the Naira at 233 per dollar, some 18 per cent weaker than the CBN pegged rate of N196.95/$ on Tuesday.

On Wednesday, the Naira hit another record low of N242 against the dollar on the parallel market operated by dealers in bureaux de change, down 0.42 percent from Tuesday. The Naira has been hitting record lows on the parallel market since the latest CBN measures introduced three weeks ago.

Bhatia did not expect the adjustment to be done in one go.

“I think at this stage the plan is to move in increments, not to do a ‘one big step’ devaluation like they would in the old days.

“At some point they have to decide: do they want to go with their policies or do they want to stay in, and at the moment they are trying to do both, and it has worked,” said Bhatia.

“But there are issues there, and it is a concern.”

JP Morgan warned in June it could eject Nigeria from its benchmark index by year-end unless it restored liquidity to currency markets in a way that allowed foreign investors to transact with minimal hurdles.

In March, Standard & Poor’s cut its rating on Nigeria to B+, changing its outlook to “stable”.

Agreeing with Boyo, Anor Anyanwu, former Deputy Managing Director of Mainstreet Bank Limited, believes that the proposal is absurd, because Nigerians have the solution to the problem at hand but only need the strong will of government to pull it through. He called for a complete removal of petroleum subsidy.

“This devaluation is going to drive up prices of things in the country and it is not going to help the people as it will continue to fund industries abroad. I would implore the CBN to stick to its decision on the recent ban on forex for certain categories of importation. They should monitor this very seriously to prevent round tripping,” he stated.

He added that the subsidy removal would strengthen local refineries, just as he called for discipline from government, because “with a little discipline from government, we don’t need to devalue the Naira.”

Matthew Ogagavworia, a Chartered Accountant, agrees also, that the call for Naira devaluation does not make sense.

For him: “As at today, the industry base of this country is weak. One thing that we need to look at is if the country is country is producing enough for its consumption. It is not going to be of any benefit to Nigeria and Nigerians and the government should not give it a consideration at all”.

On the contrary however, Tola Odukoya, Managing Director of Dunn Loren Merrifield Asset Management & Research Limited, believes the call for devaluation of the Naira is long overdue and that it is the only way out of the problem the country has found itself.

“Some of us have said several years ago and even recently that we need to devalue our Naira. What S&P said is not a surprise to me because an economy that is import dependent as ours needs a devaluation of its currency at a time like this.

“Some of us had seen way back under (former CBN Governor- Lamido) Sanusi that we needed to take the bold step. The point is that the economy is sick and there has to be certain bitter panacea to get out of it. Doctors do give bitter drugs to get out of serious sickness and that is what we need as a country”, Odukoya said.

He urged the CBN, Ministries of Finance as well as Trade and Commerce to prepare to play key roles in this situation the country has found itself.

Agreeing that prices of goods would soar all around, he stressed that “the real sector will feel the brunt. In 2008, when Soludo devalued the Naira to N130 to a dollar, we saw what happened to the sector.”

Odukoya however, said that all these would not last forever as he called for bold steps to be taken by government in this regard.

“Beyond devaluation, certain policies will be put in place by government and Nigerians will have to bite the bullet and suffer some brunt but things will stabilise later”.

It is not known yet whether the ban on use of forex sourced from the CBN to import some items, is responsible for the recent recovery noted in the nation’s external reserves, which rose by $955.85 million or 3.29 per cent in the first 13 days of July, according to data obtained from the CBN website on Wednesday. The reserves level stood at $29.0 billion, a level it last touched on March 23.