As a stockbroker, you aim for the equilibrium price when making your deals. The equilibrium price is the point where demand and supply meet, and at that point, you finalise the transaction.
Now, the equilibrium price proposition suggests that all other factors remain constant. No distortions and no artificial manipulations, but even so, manipulations only postpone the convergence of demand and supply.
I have critically examined this forex crisis and have observed that the continuous fall of the naira, although leveraged on a supply issue worsened by dislocations and corruption, has led to panic and a loss of confidence in the markets regarding the system and its leadership.
This has been evident over the last eight months, particularly when Mr President, Bola Tinubu, made a proclamation on subsidy removal at his inauguration without thorough consideration.
Undoubtedly, the naira needed some level of devaluation, at least about 20 per cent of its then value, with a prolonged period of stability before further devaluation if the supply issues are not addressed and if the government persists with lethargic policies before finding its true value tied to the free market forces of demand and supply.
However, what we have witnessed so far looks like what I would term a ‘yepa’ devaluation. A ‘yepa’ devaluation is akin to a free fall, resembling an elevator dropping or a plane crashing from the sky. This is evident with almost an hourly fall of the naira, with a respite only on Sundays when everybody is resting.
Come Monday morning, it resumes, and everyone, from the President to the CBN Governor to the prostitute, is shouting ‘yepa’ as the naira experiences erratic fluctuations, causing embarrassment.
As it spirals down, it exacerbates inflation, leading to diminished purchasing power and a subsequent decline in profitability – did you see that NBL loss position? A real ‘yepa’ loss.
This then impacts food prices, with inflation in that sector soaring to 40 per cent in some states, contributing to social challenges and a restive populace.
But let’s maintain composure. The tipping point is imminent, and there is nothing that can halt it. It will reach a stage where purchasing the dollar at such a rate simply won’t make sense, prompting a search for alternatives and initiating a reversal.
While the rate of the naira’s fall slowed down a few days ago and subsequently picked up somewhat, I can sense that we are gradually approaching the tipping point.
So, when engaging in transactions such as exchanging currency for a pair of shoes, for instance, and seeing the figure in naira, there should be a sense of calm. Regardless of the level of corruption and dislocation, purchasing the dollar at a particular price will simply not be viable again.
Let’s not forget that I attributed the fall of the naira primarily to artificial dislocations – hoarding, store of value, with corruption accounting for at least 60 per cent of its causative factors. This implies that there’s truly no fundamental reason for the fall, at least not at this rate.
Essentially, when we reach the tipping point, the fall of the dollar will also trigger concerns among certain individuals.
Presently, individuals are hesitant to invest in dollar-denominated properties in highbrow areas like Ikoyi because it no longer seems feasible. They would instead opt to purchase property in Manhattan, where LASTMA won’t impose car-related fines equivalent to the cost of a condo on 5th Avenue in New York.
My recommendation is for sectors such as health, education, and agriculture to prepare for the influx resulting from the reversal. They should secure fresh capital and expand their infrastructure to accommodate the anticipated surge in demand.
For instance, in the education sector, the declining rate of admission of Nigerian students in the UK by 46 per cent year-on-year is attributed to the increased cost, soaring from N10m per semester last December to N44m per semester today, less than six months later, and if they’re not striving to produce another Einstein, practical decisions must be made.
This implies that institutions like Wigwe University are well-positioned to accommodate the anticipated influx of returning scholars.
Likewise, in the healthcare sector, facilities such as Evercare, Lagoon Hospitals, and Duchess are well-positioned to capitalise on the reversal.
Furthermore, nationalism will accelerate the tipping point’s arrival, reaching a stage where all stakeholders – government, business, speculators, and international multilateral organisations – collectively agree that the current situation is untenable.
The rationale being that we possess the population, along with a 60 per cent informal sector acting as a safeguard against elitist-driven hyperinflation. Once security and agriculture are addressed, the economy’s foundations, though shaken, will enable a rebound despite governmental challenges.
Therefore, let’s not despair; this turbulence shall soon pass. Let’s maintain our composure and confront it head-on.
Saving money at this juncture is ill-advised. A savings account is the least desirable option as it lacks viability in the current circumstances. Instead, consider investing in Treasury Bills, and real estate on the mainland – which still presents opportunities, allocating funds towards local education, maintaining liquidity, and engaging in transactions. However, irrespective of the approach, refrain from saving.
Everything will eventually be fine; this phase shall soon pass. Nigeria’s resilience transcends individual challenges.
Joseph Edgar writes from Lagos
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