
Dr. Chizea : Invited response on FX crisis I have read Mohgalu's treatise on salvaging the Naira before but had to read it again since you recommended his prescriptions before making this well considered response. I have issues with some of the points he raised but for the sake of time let me concentrate on his key recommendations; to let the Naira float! Where is the market for dollars in the economy? What market is that with only one dominant supplier? You and I have been around for a while. How many times did the Central Bank declare to us that it was going to leave the market only to intervene to moderate swings in rates? The dollar market in Nigeria simply became non existent. If you have one supplier who as should be expected is challenged to meet insatiable demands and you float the Naira, there will be only one expectation; the rate will fall and continue to fall! It is then a piece of cake to take a bet on the rates and speculators will have a field day! Hope we can begin to have a taste of falling rate of FX from our current experience! The authorities are still battling to check the rate of fall and already we cannot cope with price increases across board! Which political authority would permit that level of chaos under its watch? Overseas investors are smart enough to know that you don't have any weapons for the fight. They see your reserves deplete and therefore will not bring their money because they don't see the possibility of a rebound. So, all the talk about the rates falling for a while before it will be halted as investors bring their money is balderdash! Even portfolio investors know better. Being able to remit earned dividends has been a perennial problem. And with inflation rate at 17%; investors expect real returns on their investments. Which means that coupon rates must be well above the rate of inflation. We must all wake up to smell the coffee! We are in this mess for a long haul. The problem with the Nigerian economy is known to us and it is a chronic lack of productivity. We don't produce anything we consume or for that matter we don't have any export base. Even oil exports which account for 90% of our dollar inflow is challenged in the market. We are not today able to sell our OPEC quota of 1.8 mbd and this has nothing to do with challenges arising from being able to produce. How does one also expect rate convergence when we have several windows for sourcing FX? The one major consideration that distinguishes the windows is rate variation. So, once your currency is not tradable, inevitably you must live with different rates. Now AbokiFX; most believe that the ban is uncalled for. But the question to ask is whether the establishment is a speculator? Has anyone bothered to ask if not how does AbokiFX earn its income? How does it fund its overheads? Where does the firm have any presence in Nigeria? Is it a fact that the firm has 25 accounts with eight banks in Nigeria? What is it using it for? Why is the rate determination not extended to many other countries in the sub region to establish its credentials? If AbokiFX is a speculator can't we see that it is in a clear situation of conflict of interest and would profit from rate manipulation? And if the firm represents a clear danger should we just fold our arms with the crisis on our hands? [ Godwin] Emefiele cannot dictate the rates. He can only try to manage it and for crying out loud we have in place a system of managed float. And that is what he is exactly trying to do. Emefiele is not the problem. The problem is an economy without a diversified productive base. And let no one talk of dollarization of the Nigerian economy. We will not be able to swing that. We would be thoroughly challenged to meet the conditionalities and I don't see which country is going to give us the needed guarantees. The reality is that we have a bad case on our hands which is not amenable to any quick fix. My advice is for us all to brace up for the ride is going to be long, rough and bumpy! Dr. Boniface Chizea is a former banker and economic consultant
Dr. Chizea : Invited response on FX crisis


I have read Mohgalu’s treatise on salvaging the Naira before but had to read it again since you recommended his prescriptions before making this well considered response.
I have issues with some of the points he raised but for the sake of time let me concentrate on his key recommendations; to let the Naira float! Where is the market for dollars in the economy? What market is that with only one dominant supplier? You and I have been around for a while. How many times did the Central Bank declare to us that it was going to leave the market only to intervene to moderate swings in rates? The dollar market in Nigeria simply became non existent.

If you have one supplier who as should be expected is challenged to meet insatiable demands and you float the Naira, there will be only one expectation; the rate will fall and continue to fall! It is then a piece of cake to take a bet on the rates and speculators will have a field day!
Hope we can begin to have a taste of falling rate of FX from our current experience! The authorities are still battling to check the rate of fall and already we cannot cope with price increases across board! Which political authority would permit that level of chaos under its watch?
Overseas investors are smart enough to know that you don’t have any weapons for the fight. They see your reserves deplete and therefore will not bring their money because they don’t see the possibility of a rebound.
So, all the talk about the rates falling for a while before it will be halted as investors bring their money is balderdash! Even portfolio investors know better. Being able to remit earned dividends has been a perennial problem. And with inflation rate at 17%; investors expect real returns on their investments. Which means that coupon rates must be well above the rate of inflation.
We must all wake up to smell the coffee! We are in this mess for a long haul. The problem with the Nigerian economy is known to us and it is a chronic lack of productivity. We don’t produce anything we consume or for that matter we don’t have any export base. Even oil exports which account for 90% of our dollar inflow is challenged in the market. We are not today able to sell our OPEC quota of 1.8 mbd and this has nothing to do with challenges arising from being able to produce.
How does one also expect rate convergence when we have several windows for sourcing FX? The one major consideration that distinguishes the windows is rate variation. So, once your currency is not tradable, inevitably you must live with different rates.
Now AbokiFX; most believe that the ban is uncalled for. But the question to ask is whether the establishment is a speculator? Has anyone bothered to ask if not how does AbokiFX earn its income? How does it fund its overheads? Where does the firm have any presence in Nigeria? Is it a fact that the firm has 25 accounts with eight banks in Nigeria? What is it using it for? Why is the rate determination not extended to many other countries in the sub region to establish its credentials? If AbokiFX is a speculator can’t we see that it is in a clear situation of conflict of interest and would profit from rate manipulation? And if the firm represents a clear danger should we just fold our arms with the crisis on our hands?
[ Godwin] Emefiele cannot dictate the rates. He can only try to manage it and for crying out loud we have in place a system of managed float. And that is what he is exactly trying to do. Emefiele is not the problem. The problem is an economy without a diversified productive base.
And let no one talk of dollarization of the Nigerian economy. We will not be able to swing that. We would be thoroughly challenged to meet the conditionalities and I don’t see which country is going to give us the needed guarantees. The reality is that we have a bad case on our hands which is not amenable to any quick fix. My advice is for us all to brace up for the ride is going to be long, rough and bumpy!
Dr. Boniface Chizea is a former banker and economic consultant