Wednesday, May 25, 2016

USA Africa Dialogue Series - MONDAY QUARTER-BACKING: On the Matter of Naira Devaluation and Flexible Forexing {Re: At Last, Central Bank to Introduce Flexible Exchange Rate Regime | THISDAYLIVE


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MONDAY QUARTER-BACKING:  On the Matter of Naira Devaluation and Flexible Forexing  

by

Mobolaji Aluko, PhD

May 25, 2016

_____________________________________________________________


John Ebohon and my People:

If the PMB administration chooses to PANIC by devaluing the Naira at this time - and to what level, I might ask? - then that will be its problem, but it will not solve our problems in the least:

Please come with me......

  (1)  devaluation will make our imports (for example, which may have a constant dollar value) more expensive (in terms of Naira, if you are importing from earned Naira); and we import so much (See Tables 1 and 2 below; data for 2014)

  (2)  devaluation will make our exports cheaper (for those who are paying us in Naira, they will have to put out a smaller amount of (say) dollars) - but what is there even to export except our oil, which is ALREADY cheapened (relative to recent times), and there is less of it in demand. 

Again, see Tables 1 and 2 below...

  (3)  the ONLY advantage of devaluation in Nigeria's present circumstances is that the REDUCED revenue we get from dollar revenue can be EXCHANGED for MORE NAIRA within Nigeria - for personnel, overhead and capital naira payments - which amounts to printing of money.  (See Table 3)  

For example, to make up for the reduction of oil production at 2.5 million barrels per day at $100 dollars per barrel at an exchange rate of N200/$, with reduced production to about 2 million barrels per day at $40 dollars per barrel will require a devaluation to N625/dollar - is that what we want?

Consequently, the ONLY steps UNDER our circumstances to solve the problem is to BE PATIENT, offer POLICIES of LOCAL INDUSTRIALIZATION, IMPORT SUBSTITUTION (imported item by item, and country/region by country/region to correct trade imbalances), ECONOMIC DIVERSIFICATION and REDUCED GOVERNMENT RECURRENT SPENDING.

And there you have it.



Bolaji Aluko




APPENDIX:

EXPORT AND IMPORT INFORMATION ON NIGERA (YEAR 2014 ONLY)

 

Sourced from http://atlas.media.mit.edu/en/profile/country/nga/

Displayed in form below by Bolaji Aluko

 


TABLE 1: EXPORTS AND IMPORTS – BY PRODUCTS


EXPORTS

 

EXPORTS & IMPORTS

S/N

Narrow Item

Amount

$Bn

 

Broad

Category

Export

Amount

$Bn

Import

Amount

$Bn

1

Crude Petroleum

74

1

Mineral Products

91.6

8.47

2

Petroleum Gas

13.2

2

Wood Products

0.344

0.194

3

Refined Petroleum

4.23

3

Metals

0.727

5.05

4

Pyrophoric Alloys

1.9

4

Stone & Glass

0.018

0.769

5

Special Purpose Ships

1.25

5

Animal and Vegetable Bi-Products

0.00828

0.746

 

Sub-Total

94.58

6

Paper Goods

0.529

0.977

6

Others

5.12

7

Vegetable

Products

0.549

2.6

TOTAL

 

99.7

8

Animal Products

0.0787

1.69

 

 

 

9

Foodstuffs

1.07

2.7

IMPORTS

10

Weapons

1.43259

0.0613

S/N

Item

Amount

$Bn

11

Footwear and Headwear

0.0674

0.666

1

Refined Petroleum

7.83

12

Animal Hides

0.422

0.138

2

Cars

1.75

13

Textiles

0.728

2.64

3

Wheat

1.46

14

Transportation

1.37

5.45

4

Motorcycles

0.877

15

Machines

0.173

11.1

5

Iron Structures

0.780

16

Hides & Antiques

0.0023

0.0175

 

Sub-Total

12.697

17

Precious Metals

0.252

0.151

6

Others

39.603

18

Chemical Products

0.102

4.32

TOTAL

 

52.3

19

Instruments

0.0135

0.638

 

 

 

20

Plastics & Rubbers

0.209

3.15

 

 

 

21

Miscellaneous

0.00423

0.830

 

 

 

 

TOTAL

99.7

 52.3578

 

 

 

 

 

 

 

 


TABLE 2: EXPORTS AND IMPORTS – BY COUNTRY AND REGION

 

EXPORT DESTINATIONS (BY COUNTRY)

 

EXPORT & IMPORT (BY REGION)

S/N

Item

 

Amount

$Bn

 

 Continent

 Export

Amount

$Bn

Import

Amount

$Bn

1

India

15.2

 

Asia

32.9

23.8

2

Spain

9.7

 

Oceania

1.48

0.501

3

Brazil

8.77

 

Africa

10.9

2.59

4

Netherlands

5.59

 

South America

10.5

1.3

5

France

5.48

 

North America

5.23

6.11

 

Sub-Total

44.74

 

Europe

38.6

18

6

Other

54.96

 

TOTAL

 99.61

52.301

TOTAL

 

 99.70

 

 

  

 

 

 

 

 

 

 

 

IMPORT ORIGINS (BY COUNTRY)

 

 

 

 

S/N

Item

Amount

$Bn

 

 

 

 

1

China

13.6

 

 

 

 

2

US

5.54

 

 

 

 

3

Netherlands

3.4

 

 

 

 

4

India

2.98

 

 

 

 

5

Belgium-Luxembourg

2.59

 

 

 

 

 

Sub-Total

28.11

 

 

 

 

6

Other

23.19

 

 

 

 

TOTAL

 

 52.30

 

 

 

 

 



Table 3:  Impact of Exchange Rate, Price of Crude Oil and Oil Production on Government Revenue (Trillions of Naira)

 

 

 

 

 

 

 

 

Crude

Production,

Million

barrels/day=>

1.5

2

2.2

2.5

Crude

Price,

US$/barrel

 Forex,

N/U$

 

 

 

35

150

2.874

3.833

4.216

4.791

 

 

 

 

 

 

35

165

3.162

4.216

4.637

5.270

 

 

 

 

 

 

35

200

3.833

5.110

5.621

6.388

 

 

 

 

 

 

35

250

4.791

6.388

7.026

7.984

 

 

 

 

 

 

35

300

5.749

7.665

8.432

9.581

 

 

 

 

 

 

35

320

6.132

8.176

8.994

10.220

 

 

 

 

 

 

35

350

6.707

8.943

9.837

11.178

 

 

 

 

 

 

40

150

3.285

4.380

4.818

5.475

 

 

 

 

 

 

40

165

3.614

4.818

5.300

6.023

 

 

 

 

 

 

40

200

4.380

5.840

6.424

7.300

 

 

 

 

 

 

40

250

5.475

7.300

8.030

9.125

 

 

 

 

 

 

40

300

6.570

8.760

9.636

10.950

 

 

 

 

 

 

40

320

7.008

9.344

10.278

11.680

 

 

 

 

 

 

40

350

7.665

10.220

11.242

12.775

 

 

 

 

 

 

50

150

4.106

5.475

6.023

6.844

 

 

 

 

 

 

50

165

4.517

6.023

6.625

7.528

 

 

 

 

 

 

50

200

5.475

7.300

8.030

9.125

 

 

 

 

 

 

50

250

6.844

9.125

10.038

11.406

 

 

 

 

 

 

50

300

8.213

10.950

12.045

13.688

 

 

 

 

 

 

50

320

8.760

11.680

12.848

14.600

 

 

 

 

 

 

50

350

9.581

12.775

14.053

15.969

 

 

 

 

 

 

100

150

8.213

10.950

12.045

13.688

 

 

 

 

 

 

100

165

9.034

12.045

13.250

15.056

 

 

 

 

 

 

100

200

10.950

14.600

16.060

18.250

 

 

 

 

 

 

100

250

13.688

18.250

20.075

22.813

 

 

 

 

 

 

100

300

16.425

21.900

24.090

27.375

 

 

 

 

 

 

100

320

17.520

23.360

25.696

29.200

 

 

 

 

 

 

100

350

19.163

25.550

28.105

31.938

 

 

 

 

 

 



On Wed, May 25, 2016 at 6:41 PM, John Ebohon <ebohon@dmu.ac.uk> wrote:

The analysis below by SteveK (Compound fool), simplistic as it may be, captures the essence of the arguments against devaluation. As said, it only benefits if the country has a diversified export base, otherwise, the country will be transferring real resources it could use itself to other countries.

 

As rightly pointed out, oil is the main thing we export that fetches the bulk of the foreign exchange we rely for development. Oil prices and quantity are fixed by OPEC and for what purpose do we devalue the Naira – to allow foreign firms, in the guise of Foreign Direct Investment (FDI) come and asset strip Nigeria? Referring to cassava that has been raised – this is another adverse effects of devaluation that I mentioned earlier on in one of my responses to this issue that has been largely ignored. The price of cassava is now beyond the reach of the average Nigerian, as it is mainly produced and sold abroad for 'hard currencies' that exporters hardly repatriate back to the country, resulting in a lose-lose, as opposed to a win-win situation; locals are denied their staple food, and the foreign currencies obtained from the export of such commodities do not return back to Nigeria.

 

If industrialisation is the strategy, it makes sense not to devalue and source the industrial equipment for industrialisation. However, added point raised by SteveK regarding the quality of industrial products is a double edge sword. Critics would argue that pursuing industrialisation is a futile exercise if industrial outputs would be considered inferior to locally produced goods, and given local tastes for imported goods and services, these industries, no matter how protected under the 'infant industry' protection strategy, may never be able to compete with imports.

 

A counter argument would be that many products from Nigeria – tomato puree, toothpastes, soaps, etc etc sell very well at home and consume by more than 80% of Nigerians who can afford it. In other words, the imports that get sucked in that cost us huge foreign exchange allocation are to satisfy the taste and preferences of about 20% of Nigerians. One can also point to the fact that Nigerians in the Diaspora massively consume these products – Guinness, Gulder,  Star, Fanta, Maltex etc etc; body lotion and cream of all sorts. The difference is that these items are imported in wholesale sizes and packaged in the Europe and America – something that is rapidly gaining ground now in Nigeria. If we devalue, the packaging machines, papers, and other complimentary inputs would become unaffordable.

 

To cut the story short, here is a man that has been elected into office on the promise that he would do things differently. Four years is like yesterday, indeed, a year is almost gone – so, he should be allowed to pursue his policies as he deem fit. If at the end of the day, he fails, he will be the one that carries the consequences. No doubt some or many would suffer along the way, so long as this pain and suffering are equally shared, it should easily be internalised or accommodated.

OJ      

 

From: NIgerianWorldForum@yahoogroups.com [mailto:NIgerianWorldForum@yahoogroups.com]
Sent: 25 May 2016 17:44
To: NaijaObserver@yahoogroups.com
Cc: IgboEvents@yahoogroups.com; naijapolitics@yahoogroups.com; NIgerianWorldForum@yahoogroups.com; African GM; Okonkwonetworks; Yahoo! Inc.; Yahoo! Inc.; Ra'ayi Riga; nigerianid@yahoogroups.com; Yahoo! Inc.; Abba; wharfsnake@yahoo.com; olakassimmd@aol.com; Agbor Ike; nebukadineze@aol.com; NaijaEvent@googlegroups.com; Oyo State Intellectual Forum; NAIJA Dream Team Intellectuals; Naija Observer; Yahoo! Inc.
Subject: [NIgerianWorldForum] Re: ||NaijaObserver|| At Last, Central Bank to Introduce Flexible Exchange Rate Regime | THISDAYLIVE

 




Imperial,

 

Let me start out by making clear that I don't know any high-faluting economic or monetary theories; just commonsensical observation from history.

 

Devaluation does not benefit the importer. It benefits the exporter. This is because it is profitable to you if, for the same cost you produce an item, the importer has devalued its currency to pay more your product at constant cost.

 

The importer, it just spends more to get less. And if devaluation goes far enough - like in Zimbabwe - the importer cannot afford much anymore and it begins to hurt the exporter. It is at this point that the exporter, itself, begins to fight against devaluation to keep the importer from zero consumption.

 

It is a simple game.

 

That is why the only remedy against a declining currency - as the Naira is - is not devaluation but increase in exportation for Nigeria.

 

But exportation of what?

 

Currently, the only export Nigeria can bank on is oil. Even so, hardly any importer is waiting in line to import Nigerian oil.

 

Going by a recent report, and the only things Nigerians have to export is cassava (just read that from a Calabar farm), probably, only to West African countries and, possibly, to Latin America where they use in loco manioc or yucca (a related species to West African cassava).

 

Nigerian manufactured products, generally, are mere inferior local substitutes. The local substitutes - that others are extolling - are substitutes because of their inferior quality and have value only in Nigeria. So, how do you propose that they are exported? Exported to those who already make the superior quality of the same product that will sell cheaper in their societies than the inferior Nigeria equivalent?

 

That's why Nigerians prefer imported products. Therefore, Nigerian substitutes, which Nigerians will be stuck with if importation is banned or severely limited with be mere punishment without long term value.

 

Some of those who favor devaluation (not littleboy and his ilk) mean well, but I think that they have unintentionally or deliberately avoided considering this important link in the chain.

 

No one will buy Nigerian products until they are improved. And if Nigeria is not exporting in a meaningful way, the Naira will continue to go the Zimbabwean way, i.e., interminable devaluations.

 

So, the solution is not to devalue but to improve the quality of existing products for export and increase exportation significantly, even if the only thing we are exporting is the likes of Jonathan to the Ivory Coast!

 

That's how the Chinese did it under Mao Zedong when they cut themselves from the world for 30 years.

 

No, what Pres. Buhari is doing is not even a partial answer; just caving in out of desperation to be hated less. China would be in Nigeria's position if Mao Zedong acted to be hated less because he, too, was really hated early in his time.

 

 

Stevek

Mitchellville, Maryland

The most dangerous trend in the world today is the growing awareness of the common man - Zbigniew Brzezinsky 1978

A wise man proportions his beliefs with evidence - David Hume

 


From: "Imperial imperial_ltd@yahoo.com [NaijaObserver]" <NaijaObserver@yahoogroups.com>
To: NaijaObserver@yahoogroups.com
Cc: IgboEvents@yahoogroups.com; naijapolitics@yahoogroups.com; NIgerianWorldForum@yahoogroups.com; African GM <africanworldforum@googlegroups.com>; Okonkwonetworks <okonkwonetworks@googlegroups.com>; Yahoo! Inc. <omoodua@yahoogroups.com>; Yahoo! Inc. <yanarewa@yahoogroups.com>; Ra'ayi Riga <raayiriga@yahoogroups.com>; "nigerianid@yahoogroups.com" <nigerianID@yahoogroups.com>; Yahoo! Inc. <TalkNigeria@yahoogroups.com>; Abba <abba2007@gmail.com>; wharfsnake@yahoo.com; olakassimmd@aol.com; Agbor Ike <ikeagbor@yahoo.com>; nebukadineze@aol.com; NaijaEvent@googlegroups.com; Oyo State Intellectual Forum <Oyo-forum@yahoogroups.com>; NAIJA Dream Team Intellectuals <naijadreamteamintellectuals@yahoogroups.com>; Naija Observer <naijaobserver@googlegroups.com>; Yahoo! Inc. <AfricanWorldForum@yahoogroups.com>
Sent: Wednesday, May 25, 2016 11:51 AM
Subject: Re: ||NaijaObserver|| At Last, Central Bank to Introduce Flexible Exchange Rate Regime | THISDAYLIVE

 

 

Partial ok answer . 

Sent from my iPhone


On 25 May 2016, at 3:45 PM, C15201947 c15201947@aol.com [NaijaObserver] <NaijaObserver@yahoogroups.com> wrote:

 

The solution is not the draconian devaluation of naira.

What will change the perpetual exercise in futility is investments in Nigerian economy

and citizens.  Quality education, good roads, steady electricity, clean drinking water, 

quality hospitals, tight security...are what will spur citizens to produce and boost GDP.  

 

But first thing first, political stability;  for naira to have value, Nigerians must have control of their government and be able to elect who leads them in a free and fair elections.  Until then any intervention in the downward draft of naira and economy is a waste of time.


Sent from my iPad


On May 25, 2016, at 12:14 AM, Little Boy thinklillies@gmail.com [NaijaObserver] <NaijaObserver@yahoogroups.com> wrote:

 

WE PREDICTED IT THAT THE GOVERNMENT WOULD EVENTUALLY SMELL THE COFFEE AND DO THE RIGHT THING THOUGH OUR 'ECONOMIST' FRIENDS ABUSED US AND SAID MR PRESIDENT WAS RIGHT TO RULE OUT DEVALUATION IN AN ATMOSPHERE OF LOW FOREIGN RESERVES, LOW SUPPLY AND HEIGHTENED DEMAND FOR FX. 

WE'VE BEEN VINDICATED.

 

 

NOW, ‎IFTHE GOVERNMENT/CBN COULD DO THIS ALL THIS WHILE, WHY WAIT UNTIL THE VISIBLY AND EXTREMELY  WRONG CURRENCY POLICY BROUGHT THE ECONOMY TO ITS KNEES AND TOOK US INTO RECESSION? WE'RE NOW DEVALUING THE NAIRA BEYOND WHERE IT WOULD HAVE SETTLED HAD WE TAKEN THE RIGHT STEPS OF CONTROLLED DEVALUATION AT THE RIGHT TIME. 

 

THE CBN IS BLAMING THE DELAYED 2016 BUDGET ‎FOR THE DISMAL SITUATION WHERE OUR ECONOMY CONTRACTED FOR THE FIRST TIME IN 25 YEARS. IF THAT TRULY IS THE REASON, THE GOVERNMENT, THE OWNER OF THE BUDGET PROCESS, CAN NOT ESCAPE BLAME FOR THE DELAYED BUDGET. BUT AS IMPERIAL AND SOME OF OUR FRIENDS ARGUED, THIS WAS NOT THE FIRST TIME A BUDGET WAS SO DELAYED IN OUR HISTORY. WHY IS THIS CASE DIFFERENT TO HAVE CAUSED US THE FIRST GDP CONTRACTION IN 25 YEARS? IT WAS LARGELY THE WRONG CURRENCY POLICY THAT BROUGHT THE INDUSTRIES AND PRODUCTIVE SECTORS TO THEIR KNEES EXCEPT FOR SOME PRIVILEGED FEW IN THOSE SECTORS. 

 

IT WAS INEVITABLE AND ONLY A MATTER OF TIME FOR SOMETHING TO GIVE, AND NOW‎ THE GOVERNMENT HAS BOWED TO PRESSURE AND OFFICIALLY DEVALUED THE NAIRA BUT STILL LEAVING A WINDOW FOR SUBSIDISED FX FOR "CRITICAL IMPORTS" IN A SECTION OF THE FX MARKET. MOST INFORMED NIGERIANS WOULD BE INTERESTED TO KNOW WHAT CONSTITUTES THE "CRITICAL IMPORTS" AND WHO GETS WHAT UNDER THAT DEFINITION.  

WHAT WE KNOW IS THAT A MARKET SITUATION WHICH ALLOWS FOR ARBITRAGE IN THE SAME MARKET IS ALWAYS AN AVENUE FOR RENT AND CORRUPTION AND ALWAYS SUBJECT TO ABUSE. WE ALL REMEMVER THE RECENT CONTROVERSIAL ADVERTISEMENTS BY BUA GROUP THAT DANGOTE WAS BEING FAVOURED OVER THEM IN SUBSIDISED FX ALLOCATION. SOON AFTERWARDS, THE NOISE DIED DOWN AND MANY PEOPLE SAID BUA WAS APPEASED WITH PRIOTISED FX ALLOCATION  TOO. WE DON'T KNOW THE EXACT DETAILS OF WHAT TRANSPIRED BUT ARBITRAGE WOULD ALWAYS BRING SUCH ISSUES AND SUSPICIONS. 

WE HOPE WE DO THE RIGHT THING BY MERGING THE TWO WINDOWS EVENTUALLY.

 

Sent from my BlackBerry 10 smartphone.

From: Joe Attueyi topcrestt@yahoo.com [NaijaObserver]

Sent: Wednesday, 25 May 2016 06:40

To: Yahoo! Inc.; Politics Naija; African GM; Okonkwonetworks; Yahoo! Inc.; Yahoo! Inc.; Ra'ayi Riga; Yahoo! Inc.; nigerianid@yahoogroups.com; Yahoo! Inc.; Abba; wharfsnake@yahoo.com; olakassimmd@aol.com; Agbor Ike; nebukadineze@aol.com; NaijaEvent@googlegroups.com; imperial_ltd@yahoo.com

Subject: ||NaijaObserver|| At Last, Central Bank to Introduce Flexible Exchange Rate Regime | THISDAYLIVE

 

 

I wonder what the 'economic patriots' now think? We have burnt through our reserves 'defending the Naira' and gained a contracting economy heading to recession in return

Totally foreseeable and totally avoidable

Issoraight o!

Joe
http://www.thisdaylive.com/index.php/2016/05/25/at-last-central-bank-to-introduce-flexible-exchange-rate-regime/

Sent from my iPhone

 

 

 




__._,_.___


Posted by: Stevek <stevek940@yahoo.com>







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